Harvard Economist Martin Feldstein warns that the government’s measure of economic growth is always wrong, regardless of the official number.
The U.S. economy grew less than previously reported last quarter on lower government outlays and a bigger depletion of inventories, capping a sluggish first-half performance propped up mainly by consumer spending, Bloomberg reported.
Gross domestic product, the value of all goods and services produced, rose at a 1.1 percent annualized rate, down from an initial estimate of 1.2 percent, Commerce Department figures showed Friday in Washington. Household spending, the biggest part of the economy, was revised higher on used-car sales.
“We are relying on a number that is not accurate,” said Feldstein told 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, Fox explained.
“Most of the problems are in services, they don’t have any way to calculate new products or services,” Feldstein said.
As an example for Fox, he cited 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, Fox reported.
The quarterly number is probably better than the most recent 1.1% read on second-quarter growth, Fox said. While Feldstein couldn’t be specific on how much better, he says: “It is higher by enough that it would really matter.”
The economy’s failure to develop a sustained pickup has helped keep Federal Reserve policy makers from pulling the trigger on an interest-rate increase so far this year.
Economists project a third-quarter rebound driven by household purchases and more stockpiling, and the report showed wages and salaries were revised sharply higher, indicating consumers have the wherewithal to continue spending.
“The only real area of strength was consumer spending,” David Sloan, senior economist at 4cast Inc. in New York, told Bloomberg before the report. At the same time, “the general view is that things are going to pick up in the third quarter.”
Republican presidential nominee Donald Trump has been trying to hammer home to voters the message that the economy can do better. Earlier this month, he blamed President Barack Obama and Democratic nominee Hillary Clinton for policies that produced “the weakest so-called recovery since the Great Depression.”
(Newsmax wire services contributed to this report).
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