U.S. changes the methodology for calculating the GDP

GDP calculation changesU.S. Bureau of Economic Analysis will change the methodology for calculating the GDP this week to include components such as copyright, research and development expenses, which would be classified as investments. As a result of these changes the GDP will increase by about 3%. The U.S. will be the first country that will adopt the new international standard of calculating the GDP.

“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,” said in April Brent Moulton from the Bureau of Economic Analysis.

U.S. gross domestic product stood at $15,685 billion last year.

Changes will be announced Wednesday by the Bureau of Economic Analysis. Some of the most important changes include taking into consideration as investment for the first time in the calculation of GDP the expenditures for research and development, copyright and counting the pensions as they are accrued as opposed to being paid out. Altogether, the changes should lead to a revision up of the GDP by 3%.

Currently, research and development expenditures in GDP are treated as costs of business. The final product is included in GDP, but research conducted to create the product is not considered.

How GDP is calculated is reviewed every five years in the U.S., to more accurately reflect the economic situation.

“If you measure something in pounds or in kilos, you haven’t changed the weight. It’s the same economy, we’re just applying a different accounting convention to measure it,” said Neal Soss, chief economist at Credit Suisse AG in New York.

The changes will reduce by half a percentage point the share of government spending in GDP and also the borrowing of federal government by 2 percentage points, to 73% of GDP.

“This is the knowledge economy. It’s catching up to modern business reality and recognizing that firms make investments in a wide variety of things. Sometimes they’re things you can’t see or touch but nonetheless they’re really important,” said Carol Corrado, senior adviser at the New York-based Conference Board.

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