Durable Goods

Durable Goods - Defining

Durable Goods or Durable Products or Hard Goods are products which are either consumed and used or disposed and destroyed after serving usefulness for a long period of time in future.Durables consumption change according to the market.

Sunday, 6 February 2011

Impact Of the Capitalization of Consumer Durable Goods

The idea of capitalizing consumer durable goods in the current SNA93 has been discussed for many years.This treatment has also been suggested to be considered to be changed during the currently ongoing SNA update. The proposal was rejected because it was argued that the issue entails a fundamental change of the production and asset boundaries. However, the Inter-Secretariat Working Group on National Accounts (hereafter: ISWGNA) proposed to record capitalized consumer durable goods in the satellite accounts.

Moreover the group recommended showing consumer durable goods as a memorandum item in the balance sheet but not in the totals of non-financial assets.The US Bureau of Economic Analysis already treats consumer durables as fixed assets in their capital stock calculations but does not include the services of these durables in GDP. Recently Jorgenson and Landefeld (2006) have recommended that consumer durables be both treated as assets and their services included in GDP. Also Hulten (2006) relates capital to such expenditure that is made in order to increase or maintain future consumption in contrast with current consumption.

Secondly, the method of measuring of household saving ratios in the EA does not take into account the actual behaviour of households. This can be contrasted with the practice in the US where three alternative measures of personal saving are presented: the National Income and Production Accounts (NIPA) measure and two versions of flow of funds measures. The broader flow of funds measure includes net flows of government insurance and pension fund reserves, net investment in consumer durables and net saving by farm corporations as the narrower, which is conceptually line with the NIPA concept, does not include these items. The fact that the US uses different official saving ratios highlights the importance and usefulness of this kind of analysis; this seeks to extend this approach for the first time to the EA.

The result of this is that treating expenditure on consumer durables as investment increases the saving ratio in the EA between 1.0 and 1.8 per cent. This is lower than in the US, where the effect has been estimated to vary from 1.0 to 3.0 per cent.In the US as well as in the EA this figure is relatively constant over time. In the EA there is considerably more variation between individual EA countries, depending on the capital stock and the price development of the individual goods. While the effect on the household disposable income growth rate is unremarkable, disposable income nevertheless increases by around 2.3 percent.

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