GDP Components' Contributions to U.S. Economic Growth

Article excerpt

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. …