i Phone boost to US GDP ???
The Wall Street Journal is running an article where they suggest that sales of the new i Phone could boost US real GDP growth.
But the i Phone is built in China by a Taiwanese based firm. So the consumer and business spending on the new i Phone will be offset in the GDP accounts by imports of the i Phone, making it a wash in the GDP accounts.
You would think that the Wall Street Journal would know this. I guess this is just another example of how under the new ownership the low standards of the Wall Street Journal editorial page are spreading into its news coverage.
The calculation is after the correction for imports. I’ve got the original from JP Morgan here.
Sales value of say $600, import value of say $200. It’s the $400 they’re counting as an addition to GDP, not the $600.
notwithstanding whether the iphone adds to GDP or not, here’s another questionable WSJ article for you to peruse, spencer…
quoting: Of the 7.4 million people who left the labor force in August, well over half — 4.1 million — had been employed in July. Fewer than three million were previously unemployed people who stopped looking for work.
They’re going back to school, quitting work to raise children or, probably most often, retiring. Indeed, as the U.S. population has aged, there’s been a gradual, long-term rise in the number of employed workers retiring and leaving the labor force.
as i pointed out in comments, the august non-instiutional population was 243.5 million, the civilian labor force was 154.6 million…they are saying nearly 5% left the labor force in august, & the lions share of them retired…
that will deplete the social security trust fund much sooner than coberly, the SSA or CBO expects..
Tim, the profits from the sales will show up in the income data, not the
real GDP data. Yes, they are suppose to be equal, but they seldom do.
I was going to say essentially the same thing Tim did, Spencer.
Are you suggesting that margin for imported products doesn’t appear in GDP data, or that the iPhone is a special case therein? Or is this some variation on “they confused GDP with GNP”?
GDP or GNP measures what is produced.
National income measures where the income from producing that GDP goes.
Profits are income.
The iPhone is not a special case.
Spencer, won’t iPhone sales count as retail sales, thus figuring into GDP?
Sorry, part of my post was eaten. So Apple store sells the iPhone for $600, is the import value used in GDP $600 or $200? If GAP sells a shirt for $20, but they imported it for $1, then what is the import value used in the GDP formula?
The i Phone will have two entries in the GDP accounts.
1. It will be counted as consumption in the personal consumption expenditures or investment in the capital spending accounts. If it does not sell it will be counted as an increase in business inventories.
2. This will be offset by an equal negative sum in the trade account.
GDP measures production in the US.
The i Phone is built in China not the US, so it will not and should not be counted in GDP.
As I pointed out above, if it sells at a higher price than counted in imports the difference is profits.
But profits are counted in income, not production.
Yes, the retail clerk or firm may earn a commission or some salary from selling the iPhone, but that will also count in the income accounts, not the production accounts.
just curious…do you think a sold iphone would be listed as a durable good or a non-durable in the PCE accounting?
seeing how a lot of these gadgets are replaced every time a new one comes out, it’s seems a stretch to call them a durable good…
Durable goods are suppose to have a useful life of over two years.
On that basis the iPhone would be a durable good.
We had that problem with computers in the 1980s & 1890s as the rate of technological progress was so rapid that a two year old computer was obsolete.
something that slipped my mind:
earlier this week, Macroadvisers forecast the drought would take 0.6% off 2nd half GDP…
“While the farm sector directly accounts for only about 1% of the U.S. economy, the hit to farm output is likely to be large enough to have a noticeable impact on U.S. GDP. We estimate that a sharp drop in farm inventories as a direct result of the drought will shave just over ½ percentage point from GDP growth in the second half of this year. This effect will be quickly reversed early next year. Furthermore, a rise in the price of food late this year and into next year will lower real income and wealth enough to shave an additional one-tenth from GDP growth in the fourth quarter of this year and the first quarter of next year”
Spencer is essentially saying that a not insignificant amount of China’s GDP and the US-China trade deficit is an accounting fiction.
Because if Apple has a magic loom that spins $200 of raw components from China into $600 iphones than this is $400 US GDP and $200 China GDP but because they take $185 of raw components and pay Foxconn $15 to assemble the iphone this is booked as $600 China GDP.
Standard retail practice is to set the retail price at 200% of the wholesale price they pay.
On this basis the retail markup from $200 to $600 is large, but not all that unusual. Especially if the import price is paid by a wholesaler who also marks up the wholesale price to cover their overhead. If the wholesaler pays $200 and charges $300 — a 50% markup —
that would mean that the retail price of $600 would be the standard markup they normally establish.
The iPhone is abnormal because all these steps — importer to wholesaler to retailer — is all within one firm rather than between firms so these steps are not visible.