GDP Components' Contributions to U.S. Economic Growth
Boustead, Thomas, Monthly Labor Review
Rebasing GDP and its components on chained 2001 dollars enhances the role of services as a contributor to economic growth, while diminishing the significance of private investment; only minor effects are seen on the contributions of net foreign trade and government expenditures
Recently, the Bureau of Labor Statistics projected that U.S. real gross domestic product (GDP) will exceed $8.5 trillion by 2006, an increase of more than $1.6 trillion during the 1996-2006 period.(1) In the BLS economic projection, real GDP and its components were stated in chained 1992 dollars, as is typically done for real output measures.(2) However, the BLS projection employs a terminal year 14 years from the 1992 base year used for the chained dollars, and because relative prices in the economy can change substantially over 14 years, the question arises as to whether some other base year would be more appropriate. This article explores the issue by rebasing from chained 1992 dollars to chained 2001 dollars. While this rebasing does not change calculated growth rates, it does affect calculations of how the various GDP components contribute to overall GDP growth.
Economic growth can be analyzed from several vantage points, such as the growth rates of the various GDP components or their contributions to growth. Each measure has advantages, and certain weaknesses as well. Growth rates, for example, highlight the dynamic sectors of the economy. But often the fastest growing components of GDP are the smaller ones. These components will contribute proportionately less to the overall increase in GDP because their growth rates apply to small initial values.
Conversely, the contributions to growth of the GDP components--defined for each component as the ratio of the change in that component over the projection period to the total change in GDP over the period, expressed as a percentage--pinpoint those components most responsible for additions to GDP. However, with this approach, some imprecision results: upon aggregation of the component percentages, a residual amount remains.
Analysis in chained 1992 dollars
Table 1 compares the 1996-2006 projected growth rate, the expected percent distributions of GDP, and the projected contributions of various components of GDP to its growth. According to the table, those components of GDP with the fastest projected growth rates involve foreign trade. Exports of goods are expected to advance 8.0 percent annually over the projection period, while overall exports are anticipated to grow 7.4 percent annually. Countering the growth of exports, the Bureau projects imports of goods to expand at a 6.9-percent annual rate from 1996 to 2006. Total imports would register a 6.4-percent annual advance for the period.
Table 1. Major components of real GDP, 1996 and projected to 2006, in chained 1992 dollars Billions of chained dollars Component 1986 1996 2006 GDP 5,489.9 6,911.0 8,539.1 Personal consumption 3,708.7 4,690.6 5,772.9 Durables 448.4 611.5 867.3 Nondurables 4.0 1,441.9 1,683.8 Services 2,041.4 2,638.2 3,239.8 Private investment 813.7 1,060.2 1,469.7 Nonresidential 548.5 766.2 1,132.0 Structures 203.3 189.6 210.8 Producers' durables 345.9 578.3 935.6 Residential 257.0 276.8 302.7 Exports 362.2 826.1 1,686.0 Goods 243.6 609.3 1,313.2 Services 120.3 218.0 389.7 Imports 526.1 940.3 1,749.8 Goods 425.5 796.8 1,550. …