A Walkthough Of Today's Comprehensive GDP Revision

Tyler Durden's picture




 

In a few minutes, the BEA will revise US GDP figures going back nearly one century, for one simple reason: the economists in charge will do all they can to reconcile the observed drift between GDP and unemployment in stark refutation of Okun's Law, which we have previously disclosed, and which if left unattended will continue crushing the credibility of said economists. Since all it will take are some number additions to "generate" growth, the result is predictable. But what specifically are the upcoming changes to the various accounts and components? Bloomberg's Joseph Brusuelas explains.

Changes to the national income and product accounts data will be released at the same time as the second quarter estimate of gross domestic product. The revisions go back to 1929 and include the current business cycle. They will probably show a deeper recession and modest increases in the level of growth in the current cycle that may add as much as 3 percent to the level of GDP.

 

While growth may look more impressive, the growth path and rate of overall economic activity in recent years isn’t likely to change.

 

Policy Implications

 

Higher GDP may support those on the Fed pushing to start tapering. While the numbers are likely to shift noticeably, the change won’t merit a surprise announcement of tapering later today.

 

With increased data on receipts, expenditures and cash flow with respect to pensions, regulators and investors should have a better sense of what public entities have severely underfunded pensions programs. Investors should expect the potential crisis in the U.S.

public pension system to play a greater role in the national economic narrative given the recent municipal bankruptcy in Detroit that includes $11.9 billion in unsecured obligations to lenders and retirees.

 

The biggest methodological change will be the reclassification of Research and Development Expenditures as well as Intellectual Property – entertainment, literary, and artistic originals. Where previously treated as an expense, these areas will now be categorized as investments and  included in the measure of GDP.

 

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