Government Will Institute New Way of Measuring GDP

The federal government said Thursday that it will scrap the way it measures the pulse of the economy in favor of a radically new yardstick.

It is the first step in the largest overhaul of U.S. economic data in nearly four decades.

The new measure of gross domestic product--the output of goods and services inside U.S. borders--will show the economy growing more slowly in recent years.

The gauge, known as the “chain-type annual weights” GDP measure, captures the impact of price changes on growth. It is to be in place by year-end.

As part of a wide-ranging effort to improve economic statistics, the Commerce Department also said it is farming out its chief forecasting measure to a private organization so it can funnel more money into other statistics.

The index of leading indicators, one of the government’s monthly “cyclical indicators,” is designed to forecast economic trends.

Commerce Undersecretary Everett Ehrlich also said his department plans to introduce technical changes into some of its statistics so they provide better snapshots of the economy’s health.

The package of changes are part of an effort to revamp U.S. economic statistics to keep up with new trends sweeping the economy that have made it tougher to measure economic activity.

The most radical change is the government’s decision to drop its “fixed-weight” measure of GDP in favor of the chain-type annual weights measure of output.

This new method is designed to capture how changes in the relative prices of goods and services from one year to the next affect economic growth.

It takes account of when consumers and others buy a lower-priced item instead of a pricier one, such as when shoppers buy chicken when steak prices shoot up. The fixed-weight GDP doesn’t do that.