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  • New GDP Revisions to Boost US Economy by 3%

    Tomorrow morning at 8:30 EST, we get the government’s first look at 2Q GDP. The pre-report consensus is for a rise of 1.1% (annual rate) in the 2Q following 1.8% in the 1Q. Most forecasters agree that the economy slowed somewhat in the 2Q, so a reading of 1.1% shouldn’t come as a big surprise.

    At the end of April, the Commerce Department’s Bureau of Economic Analysis (BEA) announced it would be making some significant revisions to the way it calculates Gross Domestic Product on July 31. It will revise economic growth for all years going back to 1929. This change is somewhat controversial in that it is expected to add up to 3% to total GDP in one fell swoop tomorrow morning.

    The reason for the changes is the fact that our economy increasingly depends on the production of intangible goods, and the BEA believes that the production of ideas is an important form of investment. So in the future, the BEA is going to count a company’s research and development as a form of investment, just like the purchase of a new office building or a new printer. And the creation of a lasting work of art – a painting, a movie, a television series, etc. – that can be sold or viewed year after year will likewise be treated as a capital investment.

    Since the US GDP is increasingly made up of intangible assets, some of these revisions probably make sense. Yet the caveat is that intangible things such as R&D and art are far more difficult to value precisely. So today we’ll discuss the GDP revisions coming out tomorrow and whether or not such changes are a good thing.

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  • US Economy to Get a Hollywood Makeover

    You may have heard that the government is going to make some major changes in how our Gross Domestic Product is calculated later this year. Your first thought might be that this is no big deal. However, I will argue today that it is a very big deal, the biggest in a decade, and you need to know why. So I hope you read what follows with more than a passing interest.

    Last week, the Commerce Department’s Bureau of Economic Analysis (BEA) announced it will be making some significant revisions to the way it calculates Gross Domestic Product in late July. This change is somewhat controversial in that it is expected to add a whopping 3% to GDP in one fell swoop in the last week of July. That’s about $1,500 worth of extra goods and services for every person in the US!

    The reason for the changes is the fact that our economy increasingly depends on the production of intangible goods, and we need to recognize that the production of ideas is an important form of investment. So in the future, the BEA is going to count a company’s research and development as a form ofinvestment just like the purchase of a new office building. And the creation of a lasting work of art – a painting, a movie, a television series, etc. – that can be sold year after year will, likewise, be treated as a capital investment.

    Today, I will talk about these sweeping changes and what they will mean for all of us.

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