Every five years, the fine people at the Bureau of Economic Analysis update the way that they measure the U.S. economy. Yesterday, the BEA released a helpful document that outlines some of the upcoming improvements. Among the things that caught my eye:
- BEA will employ plain English, rather than bureaucratese, to describe the three vintages of GDP estimates, which are reported one, two, and three months after the end of each quarter. Those vintages are currently known as the Advance estimate, the Preliminary Estimate, and Final estimate. The latter two names always struck me as nonsensical: “Preliminary” sounds like it should come before “Advance,” and “Final” estimates aren’t really final. Hence the new names: the Advance Estimate, the Second Estimate, and the Third Estimate. A definite improvement.
- BEA will introduce better ways of tracking consumer spending. Personal consumption expenditures (PCE) include spending by households and spending by non-profits that provide services to households. In the current system, those two types of spending are combined. In the new system, spending by households will be reported separately. In addition, BEA will report household spending using a more meaningful set of categories (including, e.g.,a category for financial services and insurance).
- BEA will break the food category into two pieces: food services (e.g., restaurants) and food and beverages purchased from off-premise consumption (e.g., food from grocery stores – which I will call food-food). Among other things, this should improve the measurement of core inflation using the PCE data. The core PCE will now strip out volatile energy and food-food prices, but not strip out food services. A small change, to be sure, but a step in the right direction.
- Measures of real GDP — i.e., adjusting for inflation — will now be benchmarked to 2005. The current benchmark is 2000.
A host of other changes are also afoot, including accounting for disasters, transactions with territories, and improvements to the data that underlie the estimates.
Look for these changes in the GDP release on July 29, 2009 — which will also include the advance estimate of GDP in the second quarter.