Government Looking at Other Ways to Gauge GDP

The Commerce Department is considering replacing its most comprehensive yardstick for measuring the economy’s health with something it hopes will give better indications of growth and inflation.

Two alternative measures of gross domestic product--the nation’s output and prices--are being studied, officials said. They are designed to capture how changes in the relative prices of goods and services affect growth.

The alternative methods, for example, show the economy growing more slowly in recent years than does the present measure, the “fixed-weight” GDP.

The department could make the switch as soon as December. “In all likelihood, we’ll have some variant of the two, or one of the two,” said Robert Parker, Bureau of Economic Analysis chief statistician.

The government plans to advise economists and other data users as to any upcoming changes.

Economists support a change, but some fear that Uncle Sam may be moving too quickly and that those who use the statistics may be unable to keep up with the changes.

“I have to say, very frankly, it makes me very nervous,” said Maurine Haver of Haver Analytics in New York. “I seriously wonder whether (the government’s) system can get this all accomplished by December.”

The GDP is the output of goods and services inside the United States. The government last changed the way it measures the economy in 1991, when it switched to the GDP index from one involving the gross national product, or GNP, which includes income from abroad.

The two alternatives to the fixed-weight GDP are the “chain-type annual-weighted quantity index” and the “benchmark-years-weighted quantity index.” They are now issued three days after the fixed-weight data.

Officials suggest that the chain-type annual-weights measure has the best chance to become the main GDP index that analysts, Wall Street and policy makers will follow. It reflects relative price changes in goods and services from one year to the next.

Both alternatives take account of consumers’ and others’ buying lower-priced items instead of higher-priced ones, as when shoppers buy chicken when steak prices shoot up. The alternatives also show what happens if a good’s price tumbles, something the fixed-weight GDP does not do.

It tracks the output of a collection of goods and services--including clothing, medical care and business equipment such as computers--in which each item has a fixed price.

The current GDP measure is based on 1987 prices.

Department officials say that as a result, the fixed-weight GDP has overstated the economy’s recent growth rate. For example, it put 1994 fourth-quarter growth at a 5.1%, whereas the chain-type annual-weights index put it at 4.0%. The fixed-weight index put growth for all of 1994 at 4.1%, whereas the chain-type gauge said it was 3.6%.

Another criticism of the fixed-weight index is that it has not accounted for the sharp drop in computer prices in recent years. Computer output’s share of GDP has, therefore, been inflated as computer output jumps, creating an upward bias in the GDP.