Posted on 03/01/2014 5:32:23 AM PST by SeekAndFind
In March 2013, the U.S. government invented a new way of calculating GDP. The Financial Times reported that starting from July 2013, U.S. GDP would become 3% bigger due to a change in statistics. As this adjustment in GDP calculation is pretty significant, I will discuss the new items in the U.S. GDP, what the consequences are and how investors should act on this revision in statistics.
GDP = private consumption + gross investment + government spending + (exports − imports), or
The government made a significant change in the gross investment number (I), which now includes R&D spending, art, music, film royalties, books, theatre. This change in GDP statistics has not been implemented elsewhere in the world. So the U.S. is the first to accomplish this rewriting of the GDP number.
Research and development (R&D) spending, which shouldn't even be accounted for as investment, adds a significant amount to the U.S. GDP number. It accounts for around 2% of U.S. GDP. Art, music, film royalties, books and theatre add another 0.5% to U.S. GDP. Another adjustment has been made to pension accounting. Previously, pension spending was included in GDP. After this adjustment however, we also look at the "promise" to pay out pensions. So we are talking about imaginary numbers that are now included in GDP. A last example is found in real estate. Commissions, legal bills and expenditures on real estate transactions are included in GDP as "investment." Obviously these expenditures aren't associated with real production.
(Excerpt) Read more at seekingalpha.com ...
So, they’re adding things to the GDP whose addition to the economy are DUBIOUS at best ( e.g. writing a book ).
Of course this is going to have the effect of INFLATING GDP upwards (e.g. debt to GDP ration will now look better than it would be ).
And let’s not forget.... the total stock market index valuation depends on the GDP number. Anyone surprised to see our S$P 500 reaching all time highs?
And of course, the lamesteam media will probably tout that the economy is improving and react positively....
This goes hand-in-hand with 5-year plans. CCCP and China, we officially join your ranks.
Hogwart’s Math, it appears. Don’t like the number? Change the calculation until you get the outcome you want. 0bamanomics in action.
Got my first accounting job when the interviewer asked, “What’s one plus one?” My answer?
“What do you want it to be?”
We all believe that if is best to not tamper with I, as the negative component of it, used wholly to make G, has waste built into the process.
GOP is a useless growth indicator.
Freudian slip? :-) Anyway, I agree.
Bookmark.
Sounds like the new “hedonism adjustment” they`re now using for inflation.
GDP = private consumption + gross investment + government spending + (exports − imports)
But this is how it will be reported by the media:
GDP = private consumption + gross investment + government spending + (exports − imports) + wishful thinking
What is really handy about this measure is that the media can add a positive wishful thinking premium when the Democrats are in the presidency and use a negative wishful thinking discount when Republicans are in office. This saves having to constantly retool the GDP calculation.
Sometimes the cellphone knows best... I seriously dislike the last Android “update”.
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