4 takeaways from a long-term GDP revision

The global launch of LG's latest premium smartphone, the LG G7 ThinQ, offering AI integration, Wednesday, May 2, 2018 in New York. 

The federal government acknowledged on Friday that your last few cellphones were more valuable than it thought.

That disclosure came tucked in a package of revisions the government made to the economic growth statistics it published from 2012 to 2017.

From time to time, data wizards at the Commerce Department take a new look at their past estimates of how large the economy was in a given quarter, and how fast it was growing, and re-evaluate those estimates using new information that has come to light

This year, that new information includes a better way to measure the quality of cellphones, which, you may have noticed, usually improve with each new iteration.

The statisticians concluded America’s imported cellphones were improving more rapidly than previously calculated — that consumers had actually gotten more for their money than we thought. That change had a ripple effect, all the way up to annual economic growth figures, which emerged from the revisions ever so slightly changed from previous estimates.

Here are four takeaways from the total package of revisions:

The economy under President Obama was better than advertised

Revisions added $82.7 billion to the size of the United States economy at the end of 2016, which means it grew a tenth of a percentage point faster in President Barack Obama’s second term than previously thought. Growth in President Trump’s first year in office, 2017, was actually smaller by the same amount.

That’s not an economic earthquake, but the headline change does mask some bigger swings in individual components of gross domestic product. For example, companies appear to have invested $110 billion more in 2012 than previously thought, largely because the statisticians more or less missed some huge corporate spending on cloud computing technology. The revisions employed improved measures of I.T. investments, and voilà.

Winter’s not as cold as it seemed

For a while now, experts at the Bureau of Economic Analysis have struggled with something called seasonal adjustment, which is their way to rebalance raw economic data to allow for an apples-to-apples comparison of growth at different times of the year. Even after two rounds of fixes, growth in the first quarter, which includes most of the winter, has consistently run lower than subsequent quarters. This revision brought what the bureau said were the final batch of fixes, and it has changed past winter numbers to look much better — and made some quarters from later in the year look worse.

Growth in the first quarter of 2016 has been revised up to 1.5 percent, from 0.6 percent. Growth in the fourth quarter of 2017 was revised down to 2.3 percent, from 2.9 percent. (That revision complicates Republican claims that growth was surging with companies’ expectation that President Trump would sign a big tax cut package into law, by the way, but the revision for the first quarter of 2018 that is announced Friday could help their case that the enactment of the law sped up growth.)

Over all, growth averaged 2.1 percent in the first quarter from 2012 to 2017, up from 1.6 percent. For the third quarter, it averaged 2.4 percent, down from 2.7 percent. That may not perfectly smooth out the seasonal bumps,but it’s close.

Americans are saving more than we knew

Possibly the most dramatic shift in the revisions came in the bureau’s measure of the personal savings rate, which is how much Americans set aside as a share of their income each year. Last year, that rate looked really low: 3.4 percent, a level that economists warned could mean consumer spending could fall off, dampening growth.

Well, surprise! It was a mistake, apparently. The bureau made use of a new Internal Revenue Service analysis and concluded that the government had been overestimating the amount of national income held by corporations and underestimating how much of it was held by proprietors of businesses. That meant people — as opposed to corporations — had been sitting on more money than the government previously thought. And that meant the savings rate was higher.

The revised rate for 2017 nearly doubled, to 6.7 percent. So Americans aren’t spending as unwisely as previously thought, although other statistics provide a sobering reminder of how unprepared many people are for an economic shock: In 2016, 44 percent of American households said they would not be able to easily handle a hypothetical emergency expense of $400, according to the Federal Reserve.

Your cellphone made the trade deficit worse than we thought

Americans buy a lot of phones that are made in other countries. And those phones keep getting better — a phone you can buy for $100 today is capable of much more (for good or ill) than the phone you bought for the same price in 2013. That means it’s more valuable.

Using a new tool from the Fed, the government is now better able to estimate the value of that improvement — and see how much it underestimated it in the past.

And it turns out they underestimated by a lot. The revisions make clear that the phones Americans were importing were more valuable phones, in inflation-adjusted terms, that previously thought. Because that pushes up the real value of imports, it adds to the trade deficit, which has been in the news a bit lately.

Increasing the trade deficit detracts from the gross domestic product, so we’re left with an interesting math exercise from all these revisions. For 2015, for example, a positive revision to the G.D.P. from larger-than-previously-measured levels of investment and personal spending was partially canceled out by the increase in the trade deficit from the phone you bought.

In other words, you got a better deal than you knew on that phone. Which kind of hurt the economy. At least, so far as we can tell right now.

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