With all of the talk about quantitative easing and interest rates and even a coming replacement for Ben Bernanke at the Federal Reserve, very little discussion has been given to a methodology change in Gross Domestic Product (GDP). The Bureau of Economic Analysis (BEA) release for the second quarter GDP this week will mark the 14th revision of the national income and product accounts, or “NIPAs,” and will be the first change since July 2009.
While the changes brought about should not have any significant changes that would alter whether or not the economy is in growth or recession, we would warn investors that any time changes are made it can create a short-term projection errors or miscalculations among the economists and their individual estimates making up the consensus report at issue.
The BEA issued a notice of changes back in March showing the full details of the changes. The changes in definitions and classifications are listed as follows:
- Recognize expenditures by business, government, and nonprofit institutions serving households (NPISH) on research and development as fixed investment.
- Recognize expenditures by business and NPISH on entertainment, literary, and other artistic originals as fixed investment.
- Expand the ownership transfer costs of residential fixed assets that are recognized as fixed investment and improve the accuracy of the associated asset values and services lives.
- Measure the transactions of defined benefit pension plans on an accrual accounting basis by recognizing the costs of unfunded liabilities and showing the pension plans as a subsector of the financial corporate sector.
- Harmonize the treatment of wages and salaries by using accrual-based estimates consistently throughout the accounts.
How any of these changes will tally up for Wednesday’s report is something that may feel like guess. Our guess is that overall it changes very little. The preliminary GDP report for the second quarter will be released at 8:30 AM EST on Wednesday, July 31, 2013. Bloomberg is currently projecting gains of 1.1% in both the headline GDP report and in the chain weighted price index. Estimates may change ahead of the report.
The full explanation of the detailed changes is here.
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