There are many headwinds keeping U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest gross domestic product (GDP) revisions testified to this.
However, while the corridor for U.S. growth is likely to remain lower than in the past, I believe the persistent hand-wringing and skepticism regarding the U.S. economy is grossly overstated, especially when you consider the technology renaissance occurring around us today.
The press has paid a lot of attention lately to how the measurement methods behind many U.S. economic statistics haven’t kept up with the times.
For instance, in a recent New York Times Magazine piece, “The Economy’s Missing Metrics,” Adam Davidson writes about how U.S. economic statistics “are all but useless at measuring the change in general welfare created by new technologies.” Similarly, a July front-page story in The Wall Street Journal covered how official metrics don’t capture the productivity gains coming out of new, free technologies.
I couldn’t agree more, and I don’t just see problems with productivity and consumer price index numbers. As I’ve written before, I believe the U.S. economy is actually much stronger than it gets credit for, and some of this strength is obscured by consumption metrics that haven’t kept pace with the technological revolution we’re witnessing. Here are just two factors missing from the measurements.
Technological disinflation
Consumption numbers don’t capture new technologies’ downward influence on price, and U.S. consumption is likely even stronger than headline figures suggest when you take this into account. For instance, when you strip out the influence of collapsing prices from aggregate nominal personal consumption expenditures (PCE) and just look at volumes, the volume of goods consumed remains solid, meaning U.S. consumption is actually in much better shape than many believe. This was evident in the upward revision of June’s disappointing retail sales and rebounding July retail sales, and implies it’s quite sensible to look past a weak retail sales print (or even a few).