Gross Domestic Product (GDP) 101

Gross domestic product (GDP) is one of the best comprehensive and closely monitored economic statistics available. It measures the market value of the goods and services produced by the United States economy in a given time period.  Information about GDP can be found within the National Income and Product Accounts (NIPA), produced by the Bureau of Economic Analysis in the U.S. Department of Commerce. By looking at other measures found in NIPA (i.e. personal income, corporate profits, and government spending) this single summary measure of economic activity can be studied further to understand its complete meaning. 

Some key questions must be asked to have a complete understanding of an economy’s performance: 

  1. How much of the increase in GDP is the result of a general increase in price and fall in the purchasing value of money (inflation)?
  2. How much of the increase in GDP is inflation-adjusted GDP?
  3. Who is producing the goods and services of the economy?
  4. What goods and services are they producing?
  5. What income is generated as a result of that production?
  6. How is that income used (to consume more goods and services, to invest, or to save for future use or investment)?

Similarly, GDP can report economic activity at the state and county level too. For instance, Virginia had a 1.6% increase in inflation-adjusted GDP in the 2019 third quarter. It ranked 38th of the nation’s 50 states due to its main industry contributors: professional, scientific, and technical services, retail trade, non-durable manufacturing goods, and information.

In December 2019, the Bureau of Economic Analysis (BEA) published the first official county-level GDP statistics, which included the nation’s 3,113 counties and county-equivalents. Director Brian Moyer stated, “For the first time, data users will have a rich picture of how each county’s economy is faring and the industries that are contributing.” The advantage of measuring county GDP is that it provides an industry-specific breakdown that shows how various industries contribute to local economies. When combined with BEA’s data on personal income in each county, these statistics have the opportunity to help business owners, county officials, and policymakers make recommendations about resource allocation, spotting growth opportunities, investment planning, and discovering economic development strategies.

There are 105 counties, including 10 independent cities and 23 combination areas (consisting of one or two independent cities with populations of less than 100,000 combined with an adjacent county), located in Virginia. 

A combination area of Fairfax, Fairfax City, and Falls Church ranked 1st in the state for the greatest GDP contribution. They contributed $104,001,303 to the state, three times the amount of the 2nd ranked county, Arlington. Their professional, scientific and technical services, and government industries are the driving forces of the economy and are essential to the community’s successes. This area reported an estimated $82,441 in BEA’s per capita personal income report. These statistics stress the importance of ensuring a skilled talent workforce is maintained and available to match the demand that is required for such industries. Resources could be granted to workforce training programs and creating interest in these subject areas at a young age. 

Buckingham County was shown to have the largest change in GDP from the preceding year, increasing by 13%. Industries such as Cut Stone and Stone Product Manufacturing (115%), Private Households (37%), and Sawmills (30%) were the largest contributors. Pulaski County was a close second, increasing its GDP contributions by 8%. Unclassified industries (219%), Human Resources Consulting Services (140%), and Poured Concrete Foundation and Structure Contractors (80%) were the largest contributors. 

How is county-level GDP calculated?

The county statistics use an income approach, one of the three ways GDP can be measured. It is based on the fact that all expenditures in an economy should equal the total income generated by the production of all economic goods and services. The equation is equal to the sum of (pre-tax) wages paid to employees, taxes on production and imports subtracting government grants, and other value-added or property-type income. 

GDPcnty,i = Wages Paid to Employeescnty,i + Taxes on Production and Imports less Government Grantscnty,i + Other Value-Added or Property-Type Incomecnty,i (eq. 1)

Rearranging the terms of the equation produces an unresolved component of GDP that can be calculated, representing the sum of 1) other value-added or property-type income minus business owners’ income and 2) taxes on production and imports less government grants. It is this remaining piece of GDP that needs to be estimated to complete the measurement of GDP by county. 

GDPcnty,i =  Wages Paid to Employeescnty,i + Business Owners’ Incomecnty,i+ (Value-Added or Property-Type Income less Business Owners’ Income + Taxes on Production and Imports less Government Grants)cnty,i (eq. 2)

To estimate the county portion of GDP for each industry, BEA first calculates the remaining state-level value for each industry from BEA’s GDP by state statistics. County-level industry source data are used as guidelines to distribute the calculated remaining state-level portion for each industry to produce county estimates. The resulting county statistics sum to published GDP by state by industry. 

What considerations need to be made when discussing GDP?

  • GDP is equal to the value of goods and services for “final” users and already considers the value of products that would be used to produce the final product. 
  • The measure of “output” from GDP refers to the goods and services produced in that period, regardless of when they are sold. 
  • GDP includes the goods and services of U.S. offices or establishments of international companies located in the United States and excludes the goods and services of international offices or establishments of U.S. companies outside the United States boundaries.
  • Most often, “GDP” will be referred to as a percentage, reflecting on the rate of change in inflation-adjusted GDP from the previous quarter or year. 
  • “Real” or “chained” GDP numbers have been adjusted to remove the effects of inflation over time, so different periods can be compared. 
  • “Current-dollar” or “nominal” GDP estimates are based on market prices during the period being measured.
  • GDP by county is published at the sector level, however, many industries are estimated at the three-digit North American Industry Classification System (NAICS) level. 

What does Gross Domestic Product NOT measure?

It is important to note that GDP is not a measure of well-being (i.e. rates of poverty, crime or literacy). For example, Henrico County, Virginia contributed $25,115,683, or 5%, to the state GDP in 2018. However, county-level GDP does not communicate that approximately 10 percent of its population is living in poverty. The county-level statistics can only provide a window into the impact that industries have on regional economies. There are opportunities to further study the effects of and relationships between industry growth and income inequality at such levels when combining this data with separate national income data.   

Examples

  1. County-level data can report trends on industry contributions. For example, the manufacturing industry and the contributions of manufacturing  to GDP pre- and post-Great Recession are now more trackable. Since 2001, manufacturing goods and services increased overall, but clusters of counties on the East Coast and the Midwest shrank. Additionally, data shows that overall manufacturing goods and services in North Carolina increased but many counties experienced heavy declines over the past 17 years.
  2. County-level GDP offers a greater understanding of the geographic distribution of our nation’s economic activity. In particular, it underlines the unequal distribution of GDP. Inflation-adjusted GDP at the county-level shows that 20 percent of the nation’s economic growth is concentrated in 11 counties, including the cities of Los Angeles, New York, and Harris County, Texas. Conversely, 20 percent of GDP is contributed by approximately 2,700 counties with the lowest economic activity. For the first time in history, GDP has been able to communicate that 2,700 counties contribute as much to the nation’s economy as 11 of the largest counties in America. 

Conclusion

In conclusion, GDP at the county-level provides a much richer picture of the geographic distribution of the nation’s economic activity to assist analysts in the assessment of local economic performance and policymakers in the development of strategies to promote economic growth. This data is publicly available data to help with strategy, planning, and a deeper understanding of the local economy. Although it cannot help localities dive into well-being issues associated with their citizens it is a great resource for them to use in combination with other reports and data sets. They can examine local-level socioeconomic conditions and responses to economic shocks and recovery and gain a better understanding of the community they live in. 

1. Pritzker, P., Arnold, K., & Moyer, B. Bureau of Economic Analysis , Bureau of Economic Analysis (2015). Retrieved from https://www.bea.gov/

2. Ibid.

3. Zmuda, T. (2019, December 9). Retrieved from https://www.bea.gov/news/blog/2019-12-09/guest-blog-new- county-gdp-data-will-help-county-leaders-strategize-and-plan

4. Ibid.

5. Ibid.

6. Pritzker, P., Arnold, K., & Moyer, B. Bureau of Economic Analysis , Bureau of Economic Analysis (2015). Retrieved from https://www.bea.gov/

7. Ibid.

8. Ibid.

9. Ibid.

10. Ibid.

 

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