US GDP rises by a spectacular 14 percent following revisions to national accounts
James Waterson - August 2013
On the 31st July 2013, the US Bureau of Economic Analysis (BEA) released a comprehensive revision of US national accounts backdated to 1929. The data suggest the US economy is actually almost 14% bigger than previously thought (in real terms). The addition to GDP is very large – equivalent to the addition of a 51st State, or the GDP of Italy.
The most significant changes made in the new GDP calculations include:
- Reference year updated from 2005 to 2009
- System of National Accounts (SNA) updated from 1993 to 2008
- Capitalisation of private sector research & development
- Capitalisation of ‘entertainment, literary and artistic originals’ or intellectual property
- Weapons systems recognised as fixed assets
- Accrual treatment of defined benefit pension plans
- Substantial improvement in financial services measurement
System of National Accounts
The System of National Accounts is an internationally agreed standard of concepts, definitions, classifications and accounting for measuring items such as gross domestic product (GDP). The 2008 SNA recently adopted by the US is an update to the previous SNA from 1993.
The 2008 update was a joint project by the United Nations, European Commission, International Monetary Fund, World Bank and Organization for Economic Co-operation and Development. The Full 2008 SNA can be accessed here
The 2008 SNA was adopted by Australia in 2009, Canada in 2012 and the US in 2013. The EU (incl. Switzerland, Iceland and Norway) have plans to make the change in 2014 but no concrete timetable has been agreed upon. Other nations such as Korea and Japan have agreed to make the changes but have no published timetable.
The impact of the revisions to US data is substantial. In current dollar amounts, the review shows an increase from previous estimates of $650bn.
In real terms, the increase is even bigger. A difference between the revision and initial calculation in real terms adds $1882bn to the GDP of the United States, an increase of almost 14%.
As the debate surrounding GDP measurement continues, data released on the 31st July presented a substantial update in understanding of the United States post Great Recession economy. It shows that peak growth was higher, the trough smaller and the recovery more rapid in the worlds’ largest economy.
Relative changes in economic size between nations may not be as large as the increase in US GDP might suggest. It is likely that other nations will see an increase in their own valuations in the future of a comparable size, leaving relative size comparisons less changed than an examination of the new US data in isolation might suggest.