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The components of GDP growth

What's driving the second quarter's 4.1% gain?

On July 27, the Bureau of Economic Analysis released its “advance” estimate of GDP growth, which was 4.1%, the strongest since 2014. So, what contributes to GDP growth? We answer this question with a FRED pie chart, which shows the components of GDP that contributed to that 4.1% growth rate and how much they each contributed. (By the way, this 4.1% number is valid at the time of this writing, but is subject to revision; see this blog post on GDP revisions.) As a simple exercise, consider this scenario: If the investment component made up 41% of GDP and it had grown 10%, then investment’s contribution would account for all of the second quarter’s 4.1% GDP growth. But this is imaginary, and economic data are rarely that simple anyway. In fact, for this quarter, investment didn’t grow at all; it was actually slightly less than zero. As was imports. (Both values were –0.06%.) Luckily, no component had a significant negative impact, which a pie chart can’t represent.

So what did drive GDP growth last quarter? Consumption of services (34.8%), consumption of goods (29.6%), and exports (26.7%) each contributed about a third to the increase. Government expenditures (8.8%)  complete the circle. More details can be found in this release. As it turns out, the only significant drag came from the reduction in non-farm inventories, while the biggest drivers were housing and utilities, health care, food services and accommodation, investment in structures and intellectual property, and (the biggest of all) exports of goods, which exactly matches the reduction in inventories.

How this graph was created: Search for “GDP contributions” and click on a relevant series. Scroll to the bottom of the page to find the release, then check the relevant series and click “Add to Graph.” From the “Edit Graph” panel, open the “Format” tab and choose graph type “Pie.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: A020RY2Q224SBEA, A822RY2Q224SBEA, DGDSRY2Q224SBEA, DSERRY2Q224SBEA

Is the little house on the prairie getting even smaller?

The downward trend of U.S. farm income

Living on the farm is always subject to the vagaries of nature. If you’re farming to earn income, life is also subject to changes in the marketplace and in the policy realm. This graph follows the fortunes of farmers who own their farms. The proprietors’ income series shown here, for farms, is adjusted for inflation and tracks revenue that farm owners receive from their investment in land, machinery, and structures as well as the fruits of their own labor. (NOTE: When you want to divide national income into labor income and capital income, you’re left with a chunk you can’t attribute: proprietors’ income. That’s because they earn both kinds of income but don’t pay themselves a salary.)

The graph shows that proprietors’ income in the agricultural sector is quite volatile. Moreover, recessions have been particularly tough on farmers—their income almost reaches zero in 1983:Q3! But clearly other shocks also affect their income. In fact, one senses there’s a long-term downward trend here. It’s possible that the conditions of a relatively small number of (smaller?) farms may be driving this trend. Even if average farm size has grown over time, it seems that average farm income has not.

How this graph was created: Search FRED for “farmer income” and choose the relevant series. From the “Edit Graph” menu and then the “Customize data” feature, search for and add “CPI” and apply the formula a/b*100.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: B042RC1Q027SBEA, CPIAUCSL

Clocking the sales of cars and homes

Stalled in the Great Recession, sales are speedy today

If you’re in the market for a big ticket item, like a new car or a new home, FRED has some data for you.

The line in red shows the median number of months it takes to sell a new home. At the height of the previous recession, it took 14 months or more for half of the home sales and 14 months or less for the other half. It’s no secret that the previous recession was special in this respect, and we see that this statistic has recovered very nicely since then.

In blue, we see a similar but not identical concept for cars: Dividing the inventory by the monthly sales gives the average number of months it takes to sell cars in current inventory. Strictly speaking, the two measures are not directly comparable, but they are relatable. Indeed, it’s no surprise that cars tend to sell faster than homes: Cars are generally a smaller investment, are less heterogeneous, and depend less on location. Yet in recent years it looks like the two measures have become much closer, largely because homes are now selling unusually fast.

How this graph was created: Search for and select “car sales ratio” and click on “Add to Graph.” From the “Edit Graph” panel, open the “Add Line” tab; search for and select “median months house on market.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: AISRSA, MNMFS


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