There has been
a lot of talk recently on the
newest data revisions of some of the main US economic national accounts. The US Bureau of Economic Analysis (BEA) has revised the methodological definition of how they measure gross domestic product and has adjusted the previous US GDP data all the way back to 1929. As they usually do once every five years. The change this time is an expanded definition of investment to include intangible assets, thus adding 3.6 % to the size of GDP in 2012 (around $560bn). The revision seems reasonable enough; the BEA wanted to include all the benefits of innovation, R&D and things like intellectual property, software and even entertainment, literary and artistic originals. Certainly things the US is abundant of, and certainly things that contribute well to the US domestic output. R&D by itself added 2.5% to overall output (see graph below), as it is not anymore in the 'cost of producing other products' category. There were a number of other small revisions as well, even for some older years. You can read them all
on the BEA pages. In addition,
FT Alphaville has a very good guide on GDP revisions and what they really mean. The
Financial Times also reports some charts that signal this significant makeover.
The
biggest piece of news from the revisions is that the Great Recession of 2008-09 wasn't that "Great" after all. It appears to have been shallower than perceived, and followed by a more stronger recovery. The decline in 2009 was apparently only 2.8%, where the 0.3 percentage point upward revision was due to changes in unpriced banking services (the value of service for holding bank accounts).
In terms of real GDP growth, things have changed as well. In 2010 growth was revised upwards from 2.4 to 2.5%, stayed the same 1.8% for 2011, and revised upwards from 2.2% to 2.8% in 2012. The average growth rate from 2009 till 2012 (since the start of the recovery) is still a mere 2.4%. For a robust recovery it needs to be above the trend for a couple of years in order to get back on it. Unless of course the US is on a
completely new trend line, and on a completely new equilibrium path. Btw, the average annual growth rate of real GDP from 1929 to 2012 was 3.3% (the benchmark trend line).
An important change is also in the personal savings rate, now slightly higher than before. The upward revision was about 1 percentage point higher. The reason is the way they account for pensions. Before the BEA only counted direct pensions payments, but now they calculate the full value of all pensions promised, as well as the interest on the part that wasn't paid. The real question is will this induce consumers to spend more? Not likely. This is a purely methodological revision. It doesn't mean the people suddenly have more money. It just means it's accounted for differently. Consumers (and businesses btw) still have the
same expectations of future income and they still face the same constraints as before - huge
household debt and massive
deleveraging. So even though the savings rate is now calculated to be higher, this doesn't imply a reversal of the savings rate trend nor the reversal of the deleveraging process (more on that
here).
Finally, have in mind that the measure of gross domestic product in itself is hardly the perfect measure of economic well-being (growth rates are different, they suggest the overall trend of the economy). This is precisely why GDP is often subject to revisions. However even with all the revisions there hasn't been any dramatic effect on the overall patterns of economic activity, nor historically, nor during this business cycle. And frankly, any number of methodological revisions of national accounts are hardly going to persuade people that we in fact did have a robust recovery, and that the economy is doing pretty well at the moment. Maybe it is, maybe this is the new normal for the US, or maybe it's just a temporary restructuring and respecialization. In terms of consumer and investor confidence, revised data from the BEA won't make people or businesses spend again. Only policy changes in terms of cost-cutting incentives can do that.
