Courtesy of DECON First
Where’s the beef?
It might be in the gross product, the value added from production by labor and capital, is one of the important measures of how an economy is doing. The U.S. Bureau of Economic Analysis (BEA) has just released the 2013 estimates of Gross Domestic Product by state. What insights does this data give us into the performance of the Delaware economy?
First, the GDP estimates (in inflation-adjusted dollars) confirm how slow the recovery in Delaware has been since the recession in 2008 compared to the previous recession.
Five years after touching bottom in 2002, Delaware’s economic output (GDP) had rebounded 14.3%. Through the fifth year following the recession low point of 2008, the state’s output is up only 7.4%. The average annual GDP growth rate for Delaware following the 2002 recession over five years was 2.8% compared to 1.4% since 2008. Delaware’s slow rebound in output growth was mirrored throughout the region and most older industrial states. At the other end of the spectrum were states such as Texas (a cumulative 18.3% gain in GDP) and Oregon (16.5%).
Second, which Delaware industries have been the winners and the losers in output growth since 2008? The percent change in output by industry is shown in the table at right. The substantial differences among industries is startling. Over the five years output in construction and manufacturing, for example, dropped 21% and 16% respectively. Construction also dropped 12% nationally while manufacturing output rose 4%. The struggles of these two industries in Delaware reflect the uphill battle to create blue collar jobs.
At the other end of the spectrum, the top performers were finance and insurance (a 33% increase in output), professional and technical services (14%) and health care (13%). These three industries, together with the lower productivity leisure and hospitality industry, account for most of Delaware’s job gains since the recession.
Third, changes in an industry’s output do not always translate directly into changes in employment. The classic example in Delaware is finance and insurance…primarily the credit card banks. GDP, or output, is composed of three components: wages, taxes and gross operating surplus…otherwise labeled proprietors income.
In Delaware’s finance and insurance industry over 81% of the output is comprised of gross operating surplus, compared to 40% for the same industry across the nation. This means that 81 cents out of every dollar of industry output flows back to headquarters where it goes to overhead, capital debt, dividends, and profit. This explains why despite a 33% rise in output, employment in Delaware’s finance and insurance has shown only modest gains since 2008. (For more details see an upcoming DECON First Economic Brief on Delaware’s financial services industry.)
Together with data on employment and income, output is a major indicator used to gauge the strength of an economy. As with the first two indicators, the latest data on output for Delaware shows an economy that is rebounding only modestly and has a long way to go until full recovery. This slow rebound will be reflected in everything from slow retail sales to a slow housing market to slow government revenue.
Dr. John E. Stapleford, Principal
DECON First uses economics to strengthen Delaware business. This is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. The detailed analysis for the Indicators above is found in the DECON First Quarterly Delaware Economic Review at www.deconfirst.com). Direct questions to info@deconfirst.com
