Goldman Says U.S. Growth May Be Undermeasured by a Full Point

(Bloomberg) -- Government officials, in their efforts to calculate U.S. gross domestic product, are falling further behind in measuring rapidly evolving technology, especially smartphones that provide essentially-free digital products such as Google Maps and Snapchat, according to a Goldman Sachs Group Inc. analysis.

Mismeasurement understates the annual pace of inflation-adjusted GDP growth by around 1 percentage point, compared with 0.5 point in 2005 and 0.3 point in 1995, according to a report this week by economist Spencer Hill. He based the assessment on GDP tallies across four categories: Unmeasured nominal output, free and crowdsourced digital products, consumer inflation, and business investment in information and communication technology.

“This is somewhat larger than our previous estimates and would imply that roughly half of the post-crisis productivity slowdown is explained by greater mismeasurement,” Hill wrote in a report. He also cautioned that the uncertainty around the estimates is large, particularly with respect to digital goods and health-care consumer inflation.

The latest Goldman report follows recent research on the challenge of measuring how well GDP, the broadest measure of the output of all goods and services, reflects fast-changing digital offerings. Hill cited a June working paper by David Byrne of the Federal Reserve Board and Carol Corrado of the Conference Board, who estimate that innovations in consumer content delivery contributed more than 0.5 percentage point to GDP growth during the last 10 years.

Goldman’s Hill estimated in the new report that smartphones alone represent between $100 billion to $225 billion of missing real consumption. In a June 2018 report, he estimated that missing real consumption from smartphones was upwards of $175 billion.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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