GDP components' contributions to U.S. economic growth (EXCERPT), Monthly Labor Review Online, June 1998

GDP components' contributions to U.S. economic growth

Thomas Boustead

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.

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Footnotes

1 See Thomas Boustead, "The U.S. Economy to 2006," Monthly Labor Review, November 1997, pp. 6–22.

2 See, for example, "BEA Current and Historical Data" (Table 1.2), Survey of Current Business, April 1998, p. D2.

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