GDP

Why the U.S. GDP Data is Always Wrong; Harvard Economist Feldstein

U.S. economic growth - or lack of it - can move financial markets, and it has become a key election issue for both Donald Trump and Hillary Clinton.

Continue Reading Below

However there’s one problem, gross domestic product data-GDP for short-is a bit of a mess, warns Harvard Economist Martin Feldstein.

“We are relying on a number that is not accurate,” said Feldstein during an interview with FOXBusiness.com.

Feldstein, who served as President Ronald Regan’s chief economic advisor, explains that economists haven’t yet figured out a way to fine tune tracking new goods and services. 

“Most of the problems are in services, they don’t have any way to calculate new products or services,” Feldstein said. 

To simplify his point, he cites widely used cholesterol drugs. If total drug sales rise and there is no change in the unit price, the government checks it off as an increase in real GDP. They do not include all the value these drugs provide in extending lives.

Continue Reading Below

The silver lining in all this is that the quarterly number is probably better than the most recent 1.2% read on second-quarter growth. While Feldstein couldn’t be specific on how much better, he says, “it is higher by enough that it would really matter.”

Feldstein was quick to not blame his cohorts at the Bureau of Economic Analysis, a division of the Commerce Department which releases the GDP figures, and notes tracking these stats are “very difficult.” Plus, government economists are constantly tweaking data gauges in an effort to stay as accurate as possible.

More From FOXBusiness.com...

However, those who want an accurate GDP reading will need to wait. For now, at a minimum, Feldstein is hoping to raise awareness about the so-called faux numbers ahead of his in-depth research paper set to be published in the Journal of Economic Perspective later this year.  The goal is to highlight that the growth rates of GDP, productivity and real incomes are all underestimated

The U.S. economy grew at a 1.1% rate as reported by the Commerce Department on Friday in the second check of the data point. That figure was revised lower than the initial 1.2% read.  

While GDP remains stubbornly low, Feldstein isn’t worried. 

“Employment is very, very good” he said pointing to the most recent jobs report that showed U.S. employers created 255,000 new jobs last month. That will lead to rising wages and a stronger economy in his opinion. That sentiment is shared by New York Fed President William Dudley who told FOX Business earlier this month that the U.S. economy is accelerating. 

Potentially a sign that Feldstein is onto something. 

*8/26/16 GDP Figures added. 

What do you think?

Click the button below to comment on this article.