Seinfeld Bests Kardashians as U.S. Recalculates GDP: Economy
To better gauge the U.S. economy, government statisticians are turning to a British film buff who once watched the movie “Aliens” 14 times in as many days.
Col Needham’s IMDb.com, an Internet movie database now owned by Amazon.com Inc. (AMZN) that tracks all things Hollywood --from box office receipts to celebrity hijinks -- will be a notch in a new yardstick for measuring gross domestic product.
In its most significant reclassification since 1999, GDP will now include spending on research and development and some forms of entertainment, transfer fees related to home sales and a new treatment of pensions. While the July 31 update will boost the world’s largest economy by around $400 billion, equivalent to adding another Virginia or New Jersey, it probably won’t alter the recent trend in growth.
“If you measure something in pounds or in kilos, you haven’t changed the weight,” said Neal Soss, chief economist at Credit Suisse AG in New York. “It’s the same economy, we’re just applying a different accounting convention to measure it.”
Spending on films and long-running television shows such as the situation comedy “Seinfeld” will be classified as investment, rather than an expense. That would have added about $70 billion to GDP as of 2007, according to estimates from the Commerce Department’s Bureau of Economic Analysis.
The biggest impact will be from including research and development costs, which would have boosted the economy by about $314 billion in 2007, according to BEA estimates. In the 1999 rejiggering, the government first counted spending on computer software as an investment.
In addition, the change raised the tally of real estate spending in 2007 by about $60 billion with the incorporation of purchase costs such as title insurance and engineering plans. The new treatment of pensions, which will be counted as they are accrued rather than as they are paid out, added about $30 billion to government consumption and boosted the saving rate as the benefit increased personal income.
“This is the knowledge economy,” said Carol Corrado, senior adviser at the Conference Board, a New York-based research group that tracks consumer confidence. “It’s catching up to modern business reality and recognizing that firms make investments in a wide variety of things. Sometimes they’re things you can’t see or touch but nonetheless they’re really important.”
GDP is the sum of all goods and services produced as tracked by consumer spending, government outlays and business investment on such things as plants, equipment and inventories. It also includes the value of exports minus imports.
In addition to the reclassification, the Commerce Department’s report will include the first reading of second-quarter GDP and updates to growth figures based on more complete data that is available only with a lag. The economy grew at a 1 percent annualized rate from April through June, after expanding at a 1.8 percent pace in the previous three months, according to the median forecast of economists surveyed by Bloomberg. The revisions potentially could affect the numbers back to 1929.
The updates may help narrow the disconnect between the pickup in hiring over the past year and the lackluster rate of growth. Payrolls climbed by 202,000 a month on average from January through June, up from 180,000 in the second half of 2012, according to the Labor Department. Such gains are typically linked with GDP growing close to 3 percent, about double what government data may show next week, say economists at UniCredit Group and Deutsche Bank Securities Inc.
Data elsewhere today showed mortgage approvals in the U.K. unexpectedly declined in June and business lending fell, highlighting continued strains in credit markets that may act as a drag on the recovery.
In the U.S., the rebound in housing may be taking a pause. The index of pending home sales dropped 0.4 percent in June after climbing a month earlier to the highest level since December 2006, figures from the National Association of Realtors showed in Washington.
For the Commerce Department’s analysts, one way to gauge entertainment’s contribution to GDP was to go where film fans go. Needham used a credit card and an army of cinephiles to start a movie trivia site in 1990, incorporating it six years later. More than 160 million people access IMDb.com every month to read up on movies, buy tickets or DVDs and keep up with celebrities such as Lindsey Lohan. The BEA will be using the website and other sources to determine a film’s production budget and receipts, from which the agency can estimate future cash flow.
“I’m confident in them,” said Bob Kornfeld, a BEA economist. “GDP specifics are better with them than without them.”
Economists always have relied on trade group and business surveys to build data sets. More and more, they also are turning to newer, web-based sources of information. This time, reworking GDP “took several years of research with a lot of private and public data sources,” Kornfeld said. “It was a major research challenge.”
For movies, the revisions will reflect Hollywood’s output starting in 1929, when “Gold Diggers of Broadway” appeared in color and was a top box-office draw.
Government statistics are often slow to keep pace with changing technology, Shaoul said. One reason the early 1990s looked weaker than they were, he said, was because economic data didn’t reflect what was happening with the Internet.
“Government statistics don’t pick up innovation, and this revision is a reminder of that,” Shaoul said.
Existing data sources also are adapting to changing reality. For example, music sales these days are driven by products such as ringtones and Internet services like Spotify and YouTube, which the Recording Industry Association of America didn’t include in annual revenue statistics until last year.
“These new data sources will become more common, will allow for better, almost real-time readings of the economy than we’ve ever had before,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. “Ten years ago, 20 years ago, they didn’t have the Internet tools to find these things.”
In television, economists are buzzing about the Seinfeld effect on GDP. The cost of making sitcoms and dramas will be considered investments under the new system because those shows retain value long after they’ve originally aired through reruns and syndication. Reality shows, soap operas, news and sporting events won’t get the same treatment.
That means that the “Seinfeld” series, the final episode of which was in 1998, is considered an investment for GDP accounting purposes. Reality-show star Kim Kardashian and the rest of her family, even at their peak, are still considered an expense.
Reality shows, news, and sporting events are less like investments and more like non-durable goods, which are consumed quickly, said Peter D’Antonio, an economist at Citigroup Global Markets Inc. in New York.
“Nobody’s going to be clamoring to get reruns of ‘Jersey Shore,’” D’Antonio said, citing another reality TV show following the lives of friends spending the summer in New Jersey. “It’s produced, there are commercials that go on it, and it’s over. It’s like office supplies, it’s completely consumed.”
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