How Consumers Drive The Nation’s GDP

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Gross domestic product (GDP) is a measurement of the total value of all goods and services produced in the United States over a given time period. It is used by economists, government officials, market forecasters and others to gauge the overall health of the U.S. economy. Although there are several ways of calculating GDP, the expenditures approach is the most common. It focuses on final goods and services purchases by four groups: consumers, businesses, governments (federal, state and local) and foreign users.

We often hear in the media that consumer spending is crucial to the overall health of the U.S. economy, but exactly how important is it? Representing approximately two-thirds of overall GDP, consumption — the almighty consumer — is the largest driver of economic growth in the United States. Of the nearly $18 trillion in U.S. GDP (2015), American shoppers are responsible for a piece of the pie worth about $12 trillion.

Consumption is tracked by the Bureau of Economic Analysis, and is reported as Personal Consumption Expenditures (PCE) in its monthly “Personal Income and Outlays” news release. Since the late 1960s, PCE as a percentage of overall GDP has crept up from a low of approximately 58% to nearly 70% today.

PCE is divided into goods and services. The services category typically represents the largest part of PCE, accounting for more than 65% over the past two years. Examples of services include health care, utilities, recreation and financial services.

Goods are broken down further into durable and nondurable goods. Durable goods are those that have an average life of at least three years. Examples include cars, appliances and furniture. Nondurable goods are those with an average life span of less than three years and include such items as clothing, food and gasoline.

Durable goods represent approximately 10% of total PCE, while nondurable goods make up to 20%.

So the next time you’re out shopping, for anything from a bottle of ketchup to a new car, consider that you’re doing your part to fuel our nation’s growth.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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