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New R&D numbers


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September 28, 2006

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.

05:10 PM

Macro

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I only flipped through the report very quickly, but I wonder: what about writeoffs for R&D projects that turn out to be useless? During the dot-com boom/bubble, for example, there was an awful lot of money & effort spent on R&D that generated absolutely nothing worthwhile. Is it really progress to consider this wasted money as an "asset"?

Posted by: david foster at October 5, 2006 12:38 PM

What do you think recent year GDP numbers would be with the new metrics (2003, 2004, 2005, and 2006)?

Is 0.2% higher the standard assumption?

Posted by: Kartik at October 5, 2006 01:16 PM

Wouldn't applying international accounting standards of expensing R and capitalizing D make more sense?

Posted by: Lord at October 5, 2006 01:40 PM

Like much of the employment, much of our R&D went off shore, it is an economic gift what returns. The numbers will not reflect the full depth of progress and investment if only seen and counted as local U.S. GDP.

Posted by: Mike Reardon at October 5, 2006 02:16 PM


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