What's in GDP?

A breakdown of all the stuff

So, if Gross Domestic Product (“GDP”) is a bunch of stuff like goods or services that are made in a place like the United States (“US”), what exactly is it all? Given that we are talking about a number that’s around $19 Trillion dollars for the previous year in the US, it’s obvious that it’s not just 19 trillion items from the dollar menu at the local fast food joint.

Fortunately for us, economists are fairly inquisitive people and like to annoy their economist buddies at the US Bureau of Economic Analysis (“BEA”) with these kinds of questions. The BEA, therefore, doesn’t just ring a bell and shout out US GDP on a quarterly basis. They provide a ridiculous amount of underlying support data that can be explored and analyzed. Oh, and it’s public information so even us plebes can look at all the shiny numbers!

In general, GDP can be broken into four main things:

1. Personal consumption expenditures

2. Gross private domestic investment

3. Net exports of goods and services

4. Government consumption expenditures and gross investment

And here is a eye-pleasing chart of that:

So, the first thing you might notice is that one of these four things is much bigger than the other three: Personal consumption expenditures (“PCE”)

If you have ever heard someone say “we are a consumption based economy” this is the data analysis that supports that claim. 68% of all the “stuff” in the US in 2018 was driven by consumers - hence the other similar phrase “we are a consumer-driven economy.” So, if you are thinking that the US is basically one giant shopping mall and the entire economy is just a bunch of people buying stuff and that is how the world really works then…well I don't know it seems kind of accurate doesn’t it? The consumer is king.

In the next few posts, I’ll take an even deeper dive into consumption. (Spoiler: It’s not just items on the dollar menu.) And, I didn’t forget about the other three GDP components but those will come in later posts. Let’s keep our eyes on the prize and figure out what all this stuff is that people are consuming.