New R&D numbers

Michael Mandel

Back in February, I wrote about the need for moving the country's economic statistics into the 21st century. That means putting more attention on the intangibles that drive the knowledge economy.

I applaud the folks at the Bureau of Economic Analysis, who just took a big step in this direction by publishing their first "GDP-type" numbers on research and development spending. These new stats, in the works well before my cover, treat R&D spending as a long-lived investment, just like trucks, buildings, and computers (currently R&D spending by the government is counted as consumption, while R&D spending by businesses was simply not included in GDP).

The new numbers are part of what the BEA calls a "satellite account." That means that the new R&D estimates are not part of the official quarterly GDP stats, but are part of an "alternative" set of statistics for the economy.

The most interesting result from my perspective: Putting R&D into the stats makes the boom of the 1990s look even stronger. With the old numbers, economic growth from 1995 to 2000 averaged 4.1%. Adding in R&D boosts the growth rate to as much as 4.3% in this five year stretch. Not a lot, but not bad.

And of course, a bigger boom means a bigger bust. The growth rate in 2002--the latest year that the BEA released--is a bit lower in the new numbers than in the old numbers, since businesses cut back sharply on their R&D spending in 2002, much like they did other kinds of investment.

These new numbers will be updated in September, 2007. The BEA plans to actually incorporate R&D into its official GDP numbers around 2013, "if resources are available." Let's hope that they are.

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