Are We Overstating U.S. Growth?

Are recent U.S. productivity gains a statistical mirage? In a must-read column on Saturday, Washington Post reporter Steven Pearlstein explores the significance of what appear to be serious flaws in the government’s traditional measures of U.S. economic and competitive performance.

Pearlstein credits PPI’s chief economic strategist, Michael Mandel for uncovering this pervasive mismeasurement. Mandel notes that official government statistics do not account for the increased efficiency of global supply chains, and may in effect, give the United States credit for manufacturing productivity gains that occur abroad.

As Pearlstein notes, this would go a long way toward explaining a phenomenon that has baffled economists – the failure of U.S. wage growth to keep pace with what seem to be robust productivity gains:

“Economists also are discovering how the globalized supply chains of U.S. based-companies have led government statistical agencies to overstate the size and growth of the U.S. economy — and, along with it, the growth in labor productivity, particularly in manufacturing. The implication of this mismeasurement is that the decline in GDP during the recession was greater than originally thought and the growth since has been weaker, which perhaps helps to explain the disappointing jobs picture.

The source of this mismeasurement is rather technical, having to do with the price estimates for imported parts and material. If the prices of these “intermediate goods” were actually lower than assumed, and the volume higher, as economists now suspect, then the economic value that was added to them by American workers would have been overstated by the official GDP statistics.”

For more on the possible mismeasurement, check out this recent piece entitled “How much of the productivity surge of 2007-2009 was real?” from Mandel’s blog, Mandel on Innovation and Growth.

Continue to expect more from PPI and Michael Mandel on these topics in the coming weeks.

Photo Credit: Office of the Democratic Leader