Monday, January 4, 2010

Strength in U.S. Consumption... of U.S. Made Goods

The following chart in my post On the Change in Q3 GDP shows that consumption of goods contributed about 1.7% of the third quarter's 2.2% GDP growth, BUT that the importation of goods removed more than 2% (GDP is a function of output WITHIN the United States only; if a good that was consumed here was made elsewhere, the negative value removes it from the overall GDP figure). That got me thinking... everyone is so focused on the U.S. consumer "bouncing back", but that ignores where those goods were made.

Prior to the recent "Great Recession", the marginal good consumed within the U.S. wasn't produced here. This can be seen (below) by the strong relationship between the change in goods consumed and goods imported. More interesting (to me) was the change in the relationship over the previous 12 months. Consumption of goods has indeed declined, but not nearly the level at which imported goods have declined.



Taken together, the chart below shows the difference between the two (the change in the consumption of goods subtracted by the change in the level of imported goods). This can be thought of as a quick and dirty way to estimate the marginal increase / decrease in consumption of goods made within the U.S. (i.e. consumption of goods ex. importation of those goods).



And surprisingly (to me) that level increased by more than $250 billion over the last 12 months.

Not really sure what caused this jump (trading away from expensive imports / trade barriers???), but it looks like the U.S. consumer has already been a much larger source of stability for the U.S. economy than many may have given them credit for.

The question of course remains... what happens now?

Source: BEA

11 comments:

mab said...

Jake,

Not really sure what caused this jump

I have a hunch the price of oil had something to do with it.

Jake said...

Oil explains the decline in imports, but not the lesser decline in consumption UNLESS consumers are spending more because they are spending less on oil.

dblwyo said...

Jake - have you ever looked at what they call Purchased GDP? It's essentially GDP - Net Exports. For 4-5 decades they tracked closely, especially on a YoY basis but started diverging in the last five years. I find that GDPx is much more useful right now for linking to PCE, Employment, et.al.

Then if you want to fiddle with it sometime try taking the YoY change in GDP or GDPx, the same for each major component and run the ratio. Over time you can watch the turns ripple thru each sector. Fascinating.

Jake said...

GDPx...

So this would quantify everything made within the U.S. plus imported into the country? Trying to think about what exactly this would tell us about the economy.

dblwyo said...

Sorry if that's confusing. GDP is everything made in this country plus net exports so it equals total economic activity. GDPx is ONLY domestic production and steps aside from Im/Ex numbers.

Jake said...

Still confused dblwyo...

GDP is only those goods / services / investments / spending made in this country.

The Net Export adjustment is only used to remove the spending on goods / services that were produced elsewhere (imports subtracted) or made here, but not consumed here (exports added).

sam said...

stength (sic)

dblwyo said...

That may be my fault for lack of clarity. There's something called Net National Product, otherwise known as Purchased GDP. You can see the calculation in Table 1.4.6 where they net exports and imports. It's essentially equal to final sales.
As you know I love YoY and they tracked very closely for decades until the last couple of years when NNP dropped farther, faster and is still lower. I proxy it rather than maintain multiple spreadsheets by subtracting Net Exports from GDP.
Sorry for any confusions.

Jake said...

dblwyo - no... i am just VERY slow following the holidays. will be posting something on this. thanks for the heads up

Anonymous said...

nice post. thanks.

Anonymous said...

What a great resource!

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