LETTERS TO THE EDITOR: Less than fair to US statisticians
Financial Times; Sep 15, 2003
By Nigel Gault
From Mr Nigel Gault.
Sir, Kurt Richebacher is less than fair to US statisticians and the US economy in his comments on the second-quarter national income accounts ("America's recovery is not what it seems", September 5).
First, he errs when he argues that without hedonic pricing of computer investment, gross domestic product growth would have been only 1.68 per cent (rather than 3.1 per cent as published). In fact, GDP growth would have been very little different without hedonic pricing. The chain-weighting procedure for calculating GDP growth is designed to avoid the distortions that arise from combining hedonic pricing with fixed weights. It means that chained (1996) dollar estimates of spending cannot be used to measure contributions to growth. The total contribution of computer investment to real growth, as calculated by the Bureau of Economic Analysis, was just 0.34 percentage points. Falling computer prices contributed only about 0.1 percentage point to that total.
Second, Mr Richebacher argues that profits are down again. It is true that domestic pre-tax profits fell to $591.5bn in the second quarter from $621.6bn in the first. But this decline was more than accounted for by the greatly increased tax depreciation write-offs contained in the Jobs and Growth Tax Relief Reconciliation Act. In contrast, domestic profits from current production, a measure that is not affected by changes in the depreciation tax code, rose to $788.8bn from $710.0bn. This provides a better indication of the direction of economic profits.
Nigel Gault, Research Director, US Macroeconomic Service, Global Insight, Lexington, MA 02421, US
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