NCPA - National Center for Policy Analysis

Measuring The Fast Changing Economy

September 8, 1999

The old tools for calculating economic growth are no longer up to their task, following two decades of rapid technological changes. So concludes the Commerce Department, which will announce today new measures to capture and describe how the economy is forging ahead. Analysts at Commerce believe output has been even greater in the 1990s than previously estimated.

  • Government economists are also expected to announce they are increasing sharply their estimate of productivity in the banking industry.
  • New means of calculating household savings will show that the official personal savings rate is positive -- not negative, as the department has been reporting in recent months.
  • Until now, corporate and government purchases of software programs have been treated as a "purchased input" -- the official equivalent of raw material -- which doesn't add to the size of gross domestic product.
  • Henceforth, software will be treated as a business "investment" -- an official recognition that software does have a useful life of more than one year -- and thus can be added directly to the total computed value of GDP.

Making that change would raise the official estimate of GDP in 1996 by about $115 billion -- or 1.5 percent. An announcement of the impact of the change on figures for more recent years is expected next month.

Also, the Commerce Department's Bureau of Economic Analysis will abandon its practice of assuming that output in the banking sector has risen at the exact same rate as the number of hours banking employees worked. In future, it will take into account things like ATM transactions, electronic funds transfers and other practices that increase the sector's efficiency.

As for the savings rate, BEA will eliminate an inconsistency in the way it measures pension plans for workers in the private and public sectors. Pensions for private sector employees are counted as household savings, while pensions for government workers have been measured as government savings. Now, government pensions will be considered household savings -- which would drive up the savings calculation.

Source: Jacob M. Schlesinger, "U.S. to Alter Calculations, Increasing Economic Growth, Productivity Levels," Wall Street Journal, September 8, 1999.


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