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Posts tagged with: "GDPA"

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A 30-year growth spurt?

The proportion of total output contributed by nonprofits has risen consistently, even during recessions

The nonprofit sector in the U.S. has grown substantially in recent years. A survey from the National Center for Science and Engineering Statistics found that, from 1997 to 2007, nonprofit revenue grew 33% faster than overall U.S. GDP. The Bureau of Economic Analysis defines nonprofits as tax-exempt institutions, specifically those serving households in 5 major categories: religious and welfare organizations, medical care, education and research, recreation, and personal business associations. The graph above shows that the share of the nonprofit sector in GDP has indeed increased. The interesting part is that it has increased every year, especially in recession years.

The scatter plot above confirms this: By putting the share of GDP on the vertical axis and the index of recession probability on the horizontal axis, we obtain a point for every year in the sample. The points tend to follow a positive slope, which indicates that this grows more when there’s a higher likelihood of recession. In fact, the sector has proven to be quite resilient: According to the Bureau of Labor Statistics, nonprofit employment increased 8.5% from 2007 to 2012, growing every year during the Great Recession. Nonprofits also employ 1 in 10 U.S. workers, and the proportion is likely to grow, given current trends. So, why does nonprofits’ share of GDP increase more significantly in recessions? The answer likely has to do with disproportionate growth of nonprofits and disproportionate lack of growth in other sectors.

Nonprofits promote the public good. So, during economic downturns, they may have greater opportunity to increase their output. In fact, nonprofits can play a central role in economic recovery, for example, by directly remediating problems associated with recessions (such as unemployment) through welfare spending and expanding economic opportunities through education. On the other hand, other sectors of the economy experience disproportionate decreases in growth compared with nonprofits. Durable goods manufacturing and construction industries accounted for more than 28% of GDP in the second quarter of 2007; two years later, they accounted for less than 22%. As other components of GDP shrink, the nonprofit output tends to rise.

How these graphs were created: Search for “gross output nonprofits” and select the relevant series. In the “Edit Graph” tab, search for “nominal GDP” and select the not seasonally adjusted series. Click “Add.” In the formula tab, type (a/b)*100 to yield the percentage. To transform the first graph into the second, change the units to “percent change.” Select “Add Line” and search for “recession indicator” and add it to the graph. Change its frequency to “Annual” with the default averaging. In the format tab, change the graph type to “Scatter.”

Suggested by Maria Hyrc and Christian Zimmermann.

View on FRED, series used in this post: DNPERC1A027NBEA, GDPA, JHGDPBRINDX

Exorbitant privilege and the income puzzle in the U.S.

How to gain investment income despite being in debt

For most of us, the returns we gain on our assets are typically lower than the interest payments we make on debt and liabilities. This applies to most countries, too. The U.S., however, is an exception: For the U.S., liabilities with foreigners greatly surpass U.S. assets and claims on foreigners. In other words, the U.S. net international investment position is currently negative and has been for a long time. However, net income received by the U.S. is positive, which is not what we’d expect. This rather puzzling feature of the data is referred to as the U.S. income puzzle.

FRED can illustrate this puzzle for us: In the graph, the blue line tracks the U.S. net international investment position, and the red line tracks the U.S. balance on primary income (or U.S. asset earnings less liability payments). Both are shown as a percentage of annual GDP. The red line shows that, despite having a negative investment position, the U.S. still has a positive income balance. In fact, as the investment position has worsened, the income balance has actually improved.

Research on this topic has identified that the U.S. income balance remains positive primarily because returns on U.S. foreign direct investment (FDI) in other countries and on foreign financial assets that the U.S. government and residents hold far exceed returns from foreigners’ FDI in the U.S. or their holdings of U.S. assets. Why? The U.S. dollar is the world’s reserve currency, which benefits the U.S., for example, in terms of low interest payments. And foreigners hold financial reserves in the form of high-quality assets to use as a buffer in case of financial distress. By and large, these high-quality, safe assets are denominated in U.S. dollars (for example, U.S. bonds), which are in high demand and pay relatively low returns. Economists have coined a term for this benefit the U.S. enjoys: exorbitant privilege.

How this graph was created: Search for U.S. net international investment position in FRED and plot the annual series. Click on the “Edit Graph” button and add to the line annual nominal GDP and then apply the formula a/b/10. The 10 allows you to express the result as a percentage (after adjusting the units). Select the middle menu to add a line and search for the U.S. primary income balance. Add the annual data series to the graph as a new line. Repeat the exercise of dividing the series by nominal GDP.

Suggested by Maximiliano Dvorkin and Hannah Shell.

View on FRED, series used in this post: GDPA, IEABCPIA, IIPUSNETIA

How big is the federal government?

One way to determine the size of the U.S. federal government is to look at its expenditures. Of course, population and the economy have grown, so it’s a good idea to use a ratio to measure expenditures. For example, you can divide expenditures by GDP, and this is exactly what is shown here. (One detail to pay attention to: This graph uses nominal values—at current prices—for both series.) The graph shows the huge government buildup during WWII, almost doubling in 1942, and its equally impressive contraction thereafter. Since then, the size of the government has fluctuated between 17 percent and 23 percent of GDP, with another recent buildup that looks ready to melt away if the trend continues.

How this graph was created: Select the series “Federal Government Current Expenditures,” then add the series “Gross Domestic Product” to series 1. Apply data transformation “a/b” and then select graph type “bar” in the graph settings.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: AFEXPND, GDPA

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