The US economy will officially become 3 per cent bigger in July as part of a shake-up that will see government statistics take into account 21st century components such as film royalties and spending on research and development.
Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.
Brent Moulton, who manages the national accounts at the Bureau of Economic Analysis, told the Financial Times that the update was the biggest since computer software was added to the accounts in 1999.
“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,” said Mr Moulton.
The changes will affect everything from the measured GDP of different US states to the stability of the inflation measure targeted by the Federal Reserve. They will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.
The revision, equivalent to adding a country as big as Belgium to the estimated size of the world economy, will make the US one of the first adopters of a new international standard for GDP accounting.
“We’re capitalising research and development and also this category referred to as entertainment, literary and artistic originals, which would be things like motion picture originals, long-lasting television programmes, books and sound recordings,” said Mr Moulton.
At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. R&D will now count as an investment, adding a bit more than 2 per cent to the measured size of the economy.
GDP will soar in small states that host a lot of military R&D, but barely change in others, widening measured income gaps across the US. R&D is expected to boost the GDP of New Mexico by 10 per cent and Maryland by 6 per cent while Louisiana will see an increase of just 0.6 per cent.
Creative works are expected to add a further 0.5 per cent to the overall size of the US economy. Around one-third of that will come from movies, one-third from TV programmes, and one-third from books, music and theatre.
Deficits in defined benefit pension schemes will also be included because what companies have promised to pay out will be measured, rather than the cash they pay into plans.
“We will now show a liability for underfunded plans, which particularly has large ramifications for the government sector, where both at the state level and the federal level we have large underfunded plans,” said Mr Moulton.
The changes are in addition to a comprehensive revision of the national accounts that takes place every five years based on an economic census of nearly 4m US businesses.
Steve Landefeld, BEA director, said it was hard to predict the overall outcome given the mixture of new methodology and data updates. “What’s going to happen when you mix it with the new source data from the economic census . . . I don’t know,” he said.
But he said the revisions were unlikely to alter the picture of what has happened to the economy in recent years. “I wouldn’t be looking for large changes in trends or cycles.”
