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2nd Qtr GDP Revised Up (Due To New Standard?)

From an unquestioning Associated Press:

US economy grew at 2.5 percent rate in spring

US economy grew at revised 2.5 percent annual rate in April-June quarter, double first quarter

By Martin Crutsinger | August 29, 2013

WASHINGTON (AP) — The U.S. economy grew at a 2.5 percent annual rate from April through June, much faster than previously estimated. The steep revision was largely because U.S. companies exported more goods and imports declined.

The Commerce Department said second-quarter growth was sharply higher than the initial 1.7 percent rate it reported last month. And the growth this spring was more than double the 1.1 percent rate from January through March…

Economists expect growth will stay at an annual rate of around 2.5 percent in the second half of the year, helped by steady job gains and less drag from federal spending cuts…

So much mendacity is packed into that one sentence.

And speaking of mendacity, lest we forget, we mentioned back in July that the Obama administration had changed the way it was going to measure GDP in order to include intellectual property and ‘information’ as part of our Gross Domestic Product. (And they just happened to use these new standards to revise the past five years, which made the GDP go up by several points during Obama’s Presidency.)

And, as we and others said at the time, those changes would make the future GDP numbers look much better than they actually are. And now here we are seeing it happen.

From the July edition of Inc.Magazine:

Look Out for a Big Change in GDP Calculations

New standards require adding R&D and intellectual property spending to GDP calculations.

By Erik Sherman | July 31, 2013

By early August, I can confidently predict that U.S. GDP will take a jump. A big one. It’s going to shoot up on the order of 3 percent, because the U.S. Commerce Bureau of Economic Analysis will change a key part of the GDP definition

What a coincidence. By the way, notice that if this change has inflated the GDP by 3%, that means it would have been a -0.5% without it.

A large part of the growth will be due to R&D expenses that, in the past, were treated as pure business costs. According to the BEA:

Currently, we count spending on R&D and on the creation of entertainment, literary, and artistic originals as intermediate inputs used up during the production of other goods and services. As a result, the contribution of these important innovative activities to economic growth and productivity is difficult to measure. Right now, these investments don’t show up directly in GDP, although sales of drugs and copies of DVDs, CDs, Blu-ray discs and digital downloads are counted.

The big change is that now R&D in all fields will become treated as capital expenses and part of the wealth of nations…

Why should you care? Because this change is going to shake up perception of the economic status of the U.S. and individual states…

We should be glad to be lied to, if it will make us feel better.

[R]elatively few countries have implemented this new international GDP standard and definition…

Europe hasn’t, for instance. But Cuba and China and the old Soviet Union and the Eastern Bloc countries used to do this sort of thing all the time. But, for some odd reason, the AP doesn’t mention this change in measuring the GDP. Why is that?

This article was posted by Steve on Friday, August 30th, 2013. Comments are currently closed.

One Response to “2nd Qtr GDP Revised Up (Due To New Standard?)”

  1. dasher says:

    This reminds me of an old Penn & Teller joke about measuring their pen!s length – in order to get the best results, they were going to measure from the tip to their a$$h@les and boast about the size of their members…

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