Using BEA`s Gross State Product (GSP) Estimates

1. Using BEA`s Gross State Product (GSP) Estimates George K. Downey Understanding Regional Economic Data for Policy and Planning—Dallas, Texas September 8, 2006

2. Understanding the Texas Economy • How big is the Texas economy? • How much does Texas contribute to real U.S. Production? • How productive is the Texas economy, and how does it compare to other states? • What industries or products drives growth in Texas? • How much do these (basic) industries contribute to overall real growth in the state? • Which states are Texas’ competition for the production of these goods and services? • Are Texas’ industries labor or capital intensive, and how has this relationship changed over time?

3. What Is GSP? • GSP is the state counterpart of gross domestic product (GDP) for the nation • GSP measures the value added to U.S. production by the labor and capital in each state • Value added is defined as gross output (sales or receipts) less intermediate inputs (goods and services purchased in the production process) • Value added can also be measured as the incomes earned by capital and labor plus taxes on production and imports

4. Why is GSP Important? • Since GSP measures the value of all of the goods and services produced in the state it provides the most comprehensive measure of state production • Consistent with the concepts and methods used to produce GDP, the national income and product accounts (NIPAs), and the GDP-by-industry accounts • One series in the Regional Income and Product Accounts which are used to distribute $215 billion in federal funds • Used for tax analysis and projections, state budget forecasting, and regional policy planning

5. The GSP Series • Current-dollar GSP • Compensation of employees • Wages and salaries and their supplements • Taxes on production and imports less subsidies • Sales taxes, property taxes, and federal excise taxes • Gross operating surplus • Proprietors’ income • Corporate income: Corporate profits, net business interest, business transfer payments, consumption of fixed capital, and nontax payments

6. The GSP Series • Real GSP is an inflation-adjusted measure of a state’s gross product • Derived by applying national chain-type price indexes by industry to the current-dollar GSP estimates • Caveat: If regional prices differ significantly from national prices, changes in real GSP may not accurately represent real state growth • Research is underway to produce regional price indices • Accelerated GSP • Total GSP, available 6-months after the calendar year (current dollars and real) • Industry sectors, available 10-months after the calendar year (current dollars and real) • Extrapolated using BEA’s earnings by industry

7. Relation of GSP to Personal Income (PI)

8. What GSP Estimates Are Available? • Advance total GSP for 2005 • Current and real dollars • 1997-2004, 81 NAICS industries • Current dollars by component • Real dollars and quantity indexes for GSP only, no components • 1963-97, 75 SIC industries • Current dollars by component • 1990-97 Real dollars and quantity indexes for GSP only, no components

9. Where Can GSP Be Found? On the Internet, at www.bea.gov

10. Where Can GSP Be Found?

11. Where Can GSP Be Found?

12. How Can GSP Be Used? • To analyze a state’s economy over time • Use Real (inflation-adjusted) GSP • Don’t use current-dollar GSP because change from year-to-year will include quantity change as well as price change • To analyze a state’s economy in a given year • Use Current-dollar GSP and/or components • Don’t use Real GSP because real GSP is not additive, except in the base year

13. Using Real GSP Real GSP (millions of chained 2000 dollars) • From 2004 to 2005, Texas’ economy grew 4.3% • From 2004 to 2005, Texas’ economic growth slightly lagged the growth in the Southwest region (4.9%) • From 2004 to 2005, Texas’ economy grew faster than the national rate (3.5%) • Since 2002, Texas’ economy averaged 3.6% annual growth compared to 3.4% for the U.S. and 3.9% for the Southwest region

14. Using Real GSP • In the Survey of Current Business (July, 2006), we publish a table in the GSP article (Table 2) titled “Contributions to Percent Change in Real GSP” • From 2003 to 2004, Texas Real GSP growth was 5.1% • The largest contributors to Texas’ growth were: • Manufacturing (durable- and nondurable-goods): 2.13 percentage points • Professional and business services: 0.91 percentage point • (2.13 + 0.91) / 5.1 = 0.596 • These two sectors accounted for nearly 60% of Texas’ economic growth

15. Using Real GSP Average Annual Percent Labor Productivity Growth by industry and State 2001-2004 Total ManufacturingManufacturing Durable Goods Non Durablegoods

16. 2004 Industry Specialization Index for Chemical Manufacturing

17. 2004 Industry Specialization Index for Computer Manufacturing

18. Using Current-Dollar GSP Current-Dollar GSP (millions of dollars) • In 2004, Texas’ economy totaled $903.2 billion • In 2004, manufacturing accounted for 12.2% of the Texas economy • Retail trade in Texas decreased from 7.2% of the state’s economy in 2001 to 6.8% in 2004 • In 2004, Texas accounted for 71.0% of the Southwest economy

19. Using Current-Dollar GSP Texas Components of GSP (millions of dollars) • The capital and labor shares of GSP can be analyzed using gross operating surplus and compensation of employees, respectively • In 2004, the labor share of Texas’ economy was about 52% • The capital share of Texas’ economy increased from 36.7% in 2002 to 40.0% in 2004, an increase larger than the national increase

20. Upcoming Release Schedule • October 26, 2006 • Revised advance 2005 Total GSP in current and real dollars • Advance 2005 GSP for NAICS sectors in current and real dollars • June 7, 2007 • Revised 2003-2005 GSP by industry, by income component for 81 NAICS industries • Advance 2006 GSP for NAICS sectors in current and real dollars

21. Contact George K. Downey Chief, Regional Product Branch Regional Economic Analysis Division Bureau of Economic Analysis george.downey@bea.gov 202-606-9214