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Wednesday, December 17, 2003

Running On Empty

In this case I'm not talking about the US economy, I'm talking about me. At least that's how I feel. Hopefully xmas is coming and we're all going to have a ball. Meantime this article deals with something which is more-or-less important. Real and Nominal GDP, and chain indexes: as I have said before, it depends what you want the numbers for. Chain-based indexes provide a measure of what is happening to living standards, they do not tell us much about what happens inside the black box. You can have rising 'real' GDP, and falling nominal GDP Japan-style, what good it does you is another matter. As we know you run out of monetary policy points. So important as hedonic prices are in some contexts, we need to think a lot more about how we use them. More will have to wait for January (at least).

Sometimes, you can have too much information. That is what the government statisticians have decided in their latest revamp of U.S. economic figures.
Stung by criticism from economists over how they adjust the value of computers and software for changes in inflation and quality, the number crunchers have simply decided not to publish the figures anymore.

The Bureau of Economic Analysis on Wednesday issued large-scale revisions to the quarterly gross domestic product (GDP (news - web sites)) report, the broadest snapshot of how the economy is faring.

But, buried among the changes, the new report leaves out altogether the usual figure of how much was spent on computers in the most recently revised quarter, the April-June period, in inflation-adjusted terms.

That's because, after adjusting for inflation and quality changes, computers contributed over half of the economy's growth in the second quarter. But, by another measure, computers accounted for less than a tenth of it.

The problem was that for various parts of the economy, the BEA publishes current, or actual dollar, spending as well as a "real" or inflation-adjusted measure. And because computer prices have been falling for years at the same time as their computer power has grown, the discrepancy between the two measures is larger for computers than for any other category.

"The basic thinking is that (inflation-adjusted measure) creates a dollar value that is quite misleading because of the very rapid price declines for computers," said Brent Moulton, who is in charge of compiling the GDP report for the BEA.

"And it's particularly misleading if people are trying to determine the impact of changes in computer investment on total GDP," he said.

In actual dollars, investment in computers edged up by a meager $6.7 billion to an annualized $93.5 billion in the second quarter.

The original report for the second quarter, by contrast, showed in inflation-adjusted terms that same category of investment surged by $35.8 billion to $354.9 billion, or close to half of the growth in GDP.

But now, in the revised report released on Wednesday and in all future GDP reports, that line is just left blank.

The decision to remove the conflicting information was reported by Reuters in September.

The way the figures are adjusted for inflation involves a "chain-price" measure, which refers back to 1996 dollars.

As the BEA noted in a recent article, the use of 1996 dollars significantly overstates the impact of computers on the economy "during the last half of the 1990s when computers experienced explosive growth and during the second and third quarters of 2003, when computer sales accelerated." "We're trying to give our users a gentle reminder not to add and subtract chain dollars," Moulton said. And as for the discrepancy of some $261.4 billion between the two measures of computer spending? In the world of statistics, it will be as though it never existed in the first place.
Source: Yahoo News

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