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  • The Composition of the Economy: It’s Not What You Think

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31 Jul 2009

The Composition of the Economy: It’s Not What You Think

  • By Bill Conerly
  • In Uncategorized
  • 2 comments

Yesterday I heard a doom and gloom outlook from a businessman whose attitude derived the weak commercial real estate market.  I regularly hear from residential real estate brokers and developers that the economy is terrible, terrible, terrible.  And if the stock market has had a bad day, everyone who follows his investments too closely thinks that the economy is lousy.

As an economist, my job is to have perspective on all of this.  That is fairly easy to do if you keep in mind the composition of the economy.  Here it is (excluding inventory changes and net exports, because it's hard to put negative numbers into a pie chart):

GDP Composition

Look at the two smallest wedges of the pie: residential and non-residential construction.  That's why I'm not terribly pessimistic about the overall economy, despite being pessimistic about the near-term outlook for these two sectors.  They are small.

What's big?  The consumer service sector.  Also consumer non-durables, which includes food eaten at home, clothing and gasoline.  These are not only big sectors, they are fairly stable sectors.

My greatest frustration as an economic forecaster is listening to the "factoid economists," people without a good grasp of the whole, who seize on anecdotes here and there, extrapolating from small sectors to the overall economy.  My advice: spend a little time with the numbers.  The whole GDP accounts (including the revisions released today) are available at the BEA website.

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    Comments

  1. Josh Purington
    August 14, 2009

    What do the pink and periwinkle (light blue) colors represent?

  2. Bill Conerly
    August 14, 2009

    Oops, federal government and state and local government. Gov’t counts production of goods and services, but not transfers such as social security. Sorry for not including them on the legend.

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