Trends in US GDP 1929 to 2020

 This is a descriptive article on the US Economy based on data provided largely by the Bureau of Economic Analysis.

Gross Domestic Product:

The GDP of US has grown from $104.6 billions in 1929 to $20,936.6 billions in 2020. 

Please note that this is US GDP measured in nominal prices as against constant prices. Data sourced from bea.gov.

To get a better perspective, US GDP in the chart below is shown at 2011 prices since 1929. The Consumer Price Index (CPI) has been used to convert GDP for other years into 2011 prices.

The chart below shows GDP growth by year at 2011 prices since 1930. 

We can relate the growth rates of the US Economy to major economic events of the period such as the Great Depression of the 1930s, the second world war from 1940 to 1945, the inflationary 70s, the steady expansionary phase of the 90s, the dot com boom and bust at the turn of the century, the Great Recession of 2008 and '2% real growth' of the last decade etc.

 We can observe that US Real GDP growth has been hovering around the 2% mark in the last decade.

Let us break down US GDP into components and look at their performance over the decades.

Gross Domestic Product = Personal Consumption Expenditure + Gross Private Domestic Investment + Net Exports of Goods and Services + Government Consumption Expenditure and Gross Investment

In short, GDP is given by Private Consumption and Investment plus Government Spending and Investment plus Net Exports (Exports - Imports).

The chart below shows the breakdown of US GDP into components described above from 1929 to 2020.

Personal Consumption Expenditures:

As the chart above shows clearly the US Economy is driven by personal consumption expenditures which contributed to 68% of GDP in  2020. 

We can observe why wars are not good for the economy by examining the GDP breakdown between 1941 to 1945. From 1941 to 1945 the government consumption and expenditure increased from 22% to 42% whereas personal consumption expenditure and gross private domestic investment got crowded out. So during war times productive resources are diverted from private consumption and investment to defence expenditure which is not very good from a economic perspective.

The chart below shows the % trends in personal consumption expenditure of the US economy from 1959 to 2020.

In 2020, Americans spent 20% of their expenditure on Housing and Utilities, 16% on Healthcare Services, 9% on Financial services and insurance as shown in the chart below.

When we compare expenditures across time there are some interesting results as shown below.

 When compared to 1959 an average American allocated a whopping 220% more out of the total personal consumption expenditure in 2020 to healthcare services. The expenditure on financial and insurance services went up by 125% during the same period. During the same period allocation towards items such as gasoline, clothing, food and beverages, furnishings and household equipment and motor vehicles has come down as shown in the chart above.

Gross Private Domestic Investment: 

By postponing some part of the current consumption and using those factors/resources for investment we are enhancing our ability to produce better quantity and quality of goods and services in the future, as illustrated in the figure below. (Source: Samuelson and Nordhaus, Economics)

Gross Private Domestic Investment = Fixed Investments Non Residential + Fixed Investments Residential + Changes in Private Inventories

Non Residential Fixed Investments include investments by businesses in structures, equipment and intellectual property products.

Fixed Investments for residential purposes fall under residential fixed investments.

This is the description on Change in Private Inventories from bea:

The component of gross private domestic investment that measures the change in the physical volume of inventories—additions less withdrawals—owned by private business, valued in average prices of the period. Inventories may be in the form of goods ready for sale (finished goods), of goods undergoing production (work in process), or of goods acquired for use in the production process (materials and supplies). CIPI differs from the change in the book value of inventories reported by most businesses, which are valued using a variety of accounting methods and thus may include holding gains or losses resulting from price changes.

This component can be negative if the current year sales is drawing from previous year's production - which in turn implies that the current year investment was lower than previous year assuming price levels have not fluctuated too much. 

GPDI does not include foreign investment or consumption expenditure. GPDI includes depreciation or consumption of fixed capital.

The figure below shows the Gross Private Domestic Investment of the United States from 1929 to 2019 in nominal terms. In the past five years the GPDI of the United States is hovering around 16 % to 18% of the total GDP. 

You would want this number to be higher when compared to other countries or across the cross section which is a big positive for the economy as a whole.

The following chart shows the breakdown of GDPI for the period between 1929 to 2019.

The first component that attracts your attention is the investment in Intellectual Property Products which has grown from a mere 3% in 1929 to 27% in 2019. 

Intellectual property rights include patents, copyright, industrial design rights, trademarks, plant variety rights, trade dress, geographical indications, and in some jurisdictions trade secrets. (google search)

Non-residential structures and equipment accounted for 50 to 55% in the last five years while residential structures accounted for around 20 to 22% in the last five years.

Government Consumption Expenditure and Gross Investment:

The bea explains Government Consumption Expenditures as:

Expenditures consisting of compensation of general government employees, consumption of fixed capital (CFC), and intermediate purchases of goods and services less sales to other sectors and own-account production of structures and software. It excludes current transactions of government enterprises, interest paid or received by government, and subsidies.

Gross Investment  is explained by bea as:

Expenditures consisting of government purchases of structures, equipment, and own-account production of structures and software. It includes investment expenditures by both general government agencies and government enterprises.

Given below is the chart showing the US government expenditures from 1959 to 2019 in the nominal terms.They have gone up from $ 118.5 billions in 1959 to $ 3747.9 billions in 2019.

The chart below shows the functional classification of US Government Consumption and Investment since 1959 to 2019 sourced from bea.gov.

 General public service expenditures include executive and legislative, tax collection and financial management and other expenses.

National defense is expenditure on defense as the name suggests.

Public order and safety expenditures include expenses on police, fire, law courts and prisons.

Economic affairs expenditures include expenses on transportation, highways, air, water, rail road, space, labor affairs, agriculture, energy, natural resources, postal services and other expenditures.

Governments also spend on Housing and community services, Health, Recreation and Culture.

Education expenses are further classified into elementary and secondary, higher, libraries and other expenses.

Income security expenditure includes expenses to support disability, retirement, welfare and social services, unemployment and other expenses.

In the year 2019, 9 % of the government expenditures went to general public services, 23% to national defense, 12% to public order and safety, 15% to economic affairs, 2% to housing and community services, 8 % to health, 1 % to recreation and culture, 28% to education and 3% to income security.

Net Exports of Goods and Services: 

The chart below presents the exports of goods and services for US from 1967 to 2020.

In the year 2020, the total worth of exports of goods and services  was $ 2127.1 billions and imports of goods and services  was $2772. 

Net exports - the difference between exports and imports from 1967 to 2020 are shown in the chart below.

In the year 2020, excess of imports over exports the trade deficit of US totaled to $ 644.9 billions.

The major components of US Goods Exports in the year 2020 are shown in the chart below.

The chart below shows the major components of US Services exports in 2020.

The chart below shows components of US Goods Imports in 2020.

The chart below shows components of US Services Imports in 2020.

To arrive at Net Domestic Product we deduct Consumption of Fixed Capital from Gross Domestic Product. 

The bea defines Consumption of Fixed Capital as follows:

The charge for the using up of private and government fixed capital located in the United States. It is the decline in the value of the stock of fixed assets due to wear and tear, obsolescence, accidental damage, and aging. For general government and for nonprofit institutions that primarily serve individuals, CFC serves as a measure of the value of the current services of the fixed assets owned and used by these entities.

Watch out for more articles on the US and Global Economy