15 September 2009

What the U.S. Economy Produces

Large U.S. multinational firms altered their production strategies, roles

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

Standing by itself, U.S. manufacturing would be the eighth largest economy in the world.
U.S. Manufacturing Institute
2006

The U.S. economy is in the midst of its second radical conversion. The first represented a shift from agriculture to manufacturing. The past quarter-century has witnessed a further evolution toward finance, business services, retailing, specialized manufacturing, technology products, and health care. The first revolution mated European capital to America’s burgeoning 19th-century expansion, while the current transition reflects Americans’ response to unprecedented global competition in trade and finance.

Like other economies, the U.S. economy comprises a circular flow of goods and services between individuals and businesses. Individuals buy goods and services produced by businesses, which employ individuals and pay them wages and benefits, providing the income that individuals use to make new purchases of goods and services and investments, or to save.

The most common measure of the U.S. economy is the federal government’s report on the gross domestic product (GDP). GDP records the value in dollars of all goods and services purchased in the United States by individuals and businesses, plus investments, government spending, and exports and imports from abroad. (It does not include sales by foreign companies located in the United States or by American companies operating in foreign countries.)

GDP is made up both of goods and services for final sale in the private-sector market and nonmarket services, such as education and military defense, provided by governments. In principle, the value of goods and services in the market reflects an exchange between willing buyers and sellers and is not fixed by government, with some notable exceptions such as government farm and energy subsidies.

In 2006, the $13.1 trillion U.S. gross domestic product comprised approximately $9.2 trillion in personal spending by American consumers; $2.2 trillion in private investments for homes, business equipment, and other purposes; and $2.5 trillion spent by governments at all levels, minus an international deficit of $700 billion—the difference between what the United States imported and exported and its net financial transactions with the rest of the world.

Looked at another way, governments collected $2.7 trillion in taxes, roughly half of that on personal income and the rest on production and business profits. Governments paid out $1.6 trillion in benefits, primarily to individuals, and $370 billion in interest to holders of government debt. (The United States places near the bottom of major economies in its overall tax burden, ranking 22nd out of 26 nations surveyed in 2006 by the Organization for Economic Cooperation and Development.)

GDP sources are broken down into major economic sectors such as manufacturing and retail sales. Comparing the 2006 output of these sectors with 1980 shows the magnitude of the shift from goods to services over the past quarter-century. In 2006, manufacturing provided 12 percent of total U.S. domestic output of goods and services. In 1980, its share was 20 percent. Finance and real estate services overtook manufacturing, contributing 21 percent of the U.S. economic output in 2006 versus 16 percent in 1980. Suppliers of professional business services, including lawyers and consultants, contributed as much value as manufacturing—12 percent of the domestic economy. This figure was only 7 percent in 1980. Retail and wholesale trade, at 12 percent, was slightly lower than in 1980. The category of health care and private educational services was 7 percent in 2006, compared to 4 percent in 1980. Government at all levels accounted for 13 percent of the country’s economic output in 2006, essentially unchanged from 1980. Oil and gas production dropped to just over 1 percent of the nation’s output in 2006, from 2 percent in 1980.

Excluding government’s share of the economy, goods-producing companies made up 20 percent of total private-sector output in 2006, down from 34 percent in 1980. The services sector climbed from 67 percent to 80 percent during that period.

(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)