Accounting changes will have significant effects on the way the economy is measured.
The US economy will look different from July.
That is not because of a shift in its underlying prospects, but because of a comprehensive update to the national accounts by the Bureau of Economic Analysis , producing the most dramatic change to the way gross domestic product is measured in more than a decade, with preliminary estimates adding about 3 per cent to US GDP.
Research and development
The single biggest revision to the national accounts will be the inclusion of R&D as capital investment, instead of just a cost of producing other goods.
Initial estimates show R&D will add a little more than 2 per cent, or $300bn in 2007 (the base
year of the new methodology), to GDP. About two-thirds will come from the private sector
and about one-third from government. Amounts spent on R&D will be the measure.
The changes will have a ripple effect. The new methodology will make corporate profits look
larger, as companies will no longer be counting net R&D after depreciation as a cost, and the
savings rate for individuals and government will rise to reflect the increase in capital investment.
Artistic originals
The Internet Movie Database may not seem like a natural source of data for the national
accounts but it was one of many combed by the BEA, which went through film studio records
as far back as the 1920s to build a series on investment in movies. The result is not only an
estimate of the capital value of all America's books, movies, records, television programmes,
plays and greetings card designs, but a fascinating picture of how their importance to the
economy has changed over time.
Preliminary research by the BEA puts investment in artistic originals at $70bn for 2007, so
that figure will go into GDP. The figures may ignite some controversy because they will
amount to the first official estimate of the value captured from the laws of copyright .
Pension accounting
The change with the most counterintuitive results is pension accounting. At the moment,
the BEA counts what companies pay into a defined benefit pension as wages, and ignores
whether the plan is in deficit or surplus. After the change, it will measure what companies
have actually promised to pay .
One odd effect will be an increase in GDP, estimated at about $30bn in 2007, because
employers promised bigger pensions than they funded. Measured federal government
spending will fall, because it has funded its plans better, while state and local government
spending will rise, because they have promised more than they paid .
"Where we will see large effects is in the area of deficit numbers, saving, corporate profits
and other measure that are related to those," said Mr Moulton. "The imputed interest costs
that are associated with the unfunded liabilities are really large."
Having a BEA estimate of the size of pension deficits and their cost could prompt an
important shift in the political debate over the future of defined benefit plans.
Other changes
Some other changes are technical but important. For example, the BEA plans to alter how
it measures the cost of running a bank account, which should make the price of banking
services less volatile. That will impact inflation. Another update will be to treat all of the
costs of buying a house - such as stamp duty and attorney fees - as investment rather than
spending. That is expected to add about $60bn to GDP for 2007. At present, only estate
agent commissions are capitalised.
