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Posts tagged with: "GPDIC1"

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How Y=C+I+G has evolved

70 years of quarterly national account data

FRED now has 70 years of quarterly national accounts data for the United States, which is an opportunity to look back at how the U.S. economy may have changed since 1947. In the graph above, we look at the three main expenditure components of real gross national product: real consumption, real investment, and real government expenses. They’re normalized to 100 for the first quarter of 1947, to make them more comparable.

The first thing to note is that these aggregates are now a multiple of what they were in 1947. Part of the growth comes from population growth and increases in labor force participation of women, but the majority is from productivity increases as a result of technological progress and new management and distribution techniques. Second, investment fluctuates wildly, which is no surprise to anyone who has studied economic fluctuations. Third, investment’s trend is steeper than consumption’s, while government expenses have increased markedly less since the 1990s. (Note: This does not include expenses related to redistribution.)

How this graph was created: Start at the real domestic product release. Check the three series, then click “Add to Graph.” From the “Edit Graph” tab, change units to “Index” with the date set at 1947-01-01, and click “Copy to all.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GCEC1, GPDIC1, PCECC96

Negative investment?

Investment. It’s a common-enough term, typically defined as an addition to existing capital. It can take the form of structures such as buildings, machinery, and residential housing. So, investment always contributes to the increase of physical capital and growth of the economy, right? Not quite. Investment has two components that complicate things a bit: change in inventories and depreciation.

Change in inventories can be positive or negative, and technically all investment could take the form of inventories and contribute nothing to our stock of buildings and machinery. More importantly, and what we focus on here, is that capital depreciates. Machinery breaks and buildings fall into disrepair, so capital requires upkeep or it becomes obsolete. Often, investment more than replaces this depreciated capital; occasionally, though, investment isn’t so robust.

The graph shows two series: real gross investment and real net investment. Gross investment is always in positive territory, despite strong fluctuations throughout the business cycle, which is what you’d generally expect from investment. Net investment removes the depreciated capital from the picture and isn’t always positive: In fact, in 2009, when the U.S. economy was in a deep recession, this measure dipped into negative territory.

How this graph was created: Search for “real net investment” and select the first series and add it to the graph. To add the second series, open the “Edit Graph” panel, search for “real investment,” and select the other series shown in the graph.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: A557RX1A020NBEA, GPDIC1

The volatility of GDP’s components

The four components of GDP—investment spending, net exports, government spending, and consumption—don’t move in lockstep with each other. In fact, their levels of volatility differ greatly. We can observe this in FRED by graphing the annual percent changes of each component. Investment (solid red) and net exports (solid yellow) are extremely volatile, varying greatly during economic contractions and expansions. In contrast, government spending (dashed blue) and consumption (dashed green) are highly stable; although they also vary with the business cycle, they do so to a much smaller extent. This pattern can be important for the effectiveness of monetary policy. According to economic textbooks, when the Fed lowers interest rates, investment spending and U.S. exports become cheaper, all else being equal. So, when the Fed lowers rates, it affects the two variables that disproportionately contribute to any given change in GDP.

How this graph was created: Add all of the series listed below to one graph with the “Add Data Series” function. Set their units to “Percent Change from Year Ago.” Use the “Line Style” option to give solid lines to the first two series and dashed lines to the last two and set “Line Width” to 1 for all four. Finally, take advantage of the “Color” option for each series to color the lines as you wish.

Series used in this post: GPDIC1, NETEXC, PCECC96, GCEC96.

Suggested by Ian Tarr.

View on FRED, series used in this post: GCEC96, GPDIC1, NETEXC, PCECC96

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