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Services and Goods Sectors Contribute to Strong Growth
in Gross Domestic Product (GDP) by State in 2005
Advance Estimates of GDP by State for 2005 by NAICS Sector

Newly available data on the 2005 state distribution of GDP, released today by the U.S. Bureau of Economic Analysis, showed that private services-providing industries accounted for more than 80 percent of real growth in the Great Lakes, Mideast, Plains, and New England regions (chart 1).¹ In 2005, real U.S. growth in the services and goods sectors remained strong. Private services-providing industries grew 4.1 percent, and private goods-producing industries grew 2.6 percent.

Overall, real U.S. GDP by state grew 3.6 percent in 2005, compared with the 1997-2004 average annual growth rate of 3.1 percent (chart 2).

States and Regions

The Southwest and Rocky Mountain regions grew the fastest in 2005 (5.2 percent). Growth in private services-providing industries slightly outpaced growth in private goods-producing industries (5.7 percent to 5.0 percent in the Southwest region, 5.7 percent to 5.3 percent in the Rocky Mountain region). Within the Southwest, Arizona posted the strongest growth (9.1 percent)—the fastest in the Nation (chart 3). The only state in the Rocky Mountain and Southwest regions with slower growth than the Nation was Oklahoma (3.3 percent).

The Great Lakes region experienced the slowest growth in 2005 (1.3 percent). Private services-providing industries (2.2 percent growth) performed much better than the private goods-producing industries (0.8 percent decline).

NAICS Industry Sectors²

The two NAICS sectors with the largest contributions to growth were finance and insurance, and professional and technical services, which together contributed more than 28 percent to real U.S. growth. Finance and insurance grew 6.7 percent in 2005 and professional and technical services grew 7.0 percent. In the 8 BEA regions, the contributions to real GDP-by-state growth from these two sectors ranged from a high of 47 percent in the Great Lakes to a low of 21 percent in the Southwest. One of these two sectors was the largest contributor to growth in 19 states.

In addition to the strong growth in private services-providing industries, the manufacturing sector continued its strong U.S. growth, increasing 4.0 percent. In the Southwest and Far West regions, durable goods manufacturing contributed the most to real GDP-by-state growth of the industry sectors in Table 2. Durable goods manufacturing was the largest contributor to growth in 10 states.

Revisions

The revisions to the advance GDP-by-state estimates for 2005, released in June 2006, are due to the incorporation of farm income and expense data from the U.S. Department of Agriculture (USDA) and the incorporation of revised BEA earnings-by-industry data.

The growth rate in real GDP by state for the New England region was revised down 0.7 percentage point. The growth rates of real GDP by state for the Southeast and Southwest regions were each revised up 0.3 percentage point. In New England, the two states with the largest downward revisions were New Hampshire (1.2 percentage points) and Massachusetts (0.9 percentage point). In the Southeast, the growth rates for Alabama, Mississippi, and Tennessee were revised up by more than 1.0 percentage point.

Tables 1-3 show these results in more detail; complete detail is available on BEA's web site at www.bea.gov.

Advance Estimates of GDP by state for 2005 by NAICS Sector

For the second year, BEA is releasing advance GDP-by-state estimates. In June 2006, BEA released advance 2005 GDP-by-state totals. This release provides revised 2005 GDP-by-state totals, plus both current-dollar and real 2005 GDP-by-state estimates by NAICS sectors.

These accelerated industry estimates for 2005 are based on an abbreviated estimation methodology using limited state source data. The accelerated 2005 estimates are based on BEA earnings by industry estimates released September 26, 2006 and on the accelerated U.S. GDP by industry estimates released April 27, 2006. In addition, farm income and expense data from the USDA are incorporated into the agriculture, forestry, fishing, and hunting industry.

More information on the methodology used to produce the advance 2005 estimates, on the regular (revised) GDP-by-state estimates for 1998–2004, and on revisions to the GDP-by-state estimates can be found in the July 2006 issue of the Survey of Current Business, BEA's monthly journal.

Explanatory Notes

Definitions

GDP by state is the state counterpart of the Nation's gross domestic product (GDP), the Bureau's featured and most comprehensive measure of U.S. economic activity. GDP by state is derived as the sum of the GDP originating in all the industries in the state.

Real GDP by state is an inflation-adjusted measure based on national prices for the goods and services produced within that state. The estimates of real GDP by state and of quantity indexes with a base year of 2000 are derived by applying national implicit price deflators to the current-dollar GDP-by-state estimates for the 81 NAICS industries for years 1997 forward and for the 63 SIC industries for years 1977–1997. Then, the chain-type index formula that is used in the national accounts is used to calculate the estimates of total real GDP by state and of real GDP by state at more aggregated industry levels.

The relation of GDP by state to U.S. Gross Domestic Product (GDP)

An industry's GDP by state, or its value added, in practice, is calculated as the sum of incomes earned by labor and capital and the costs incurred in the production of goods and services. That is, it includes the wages and salaries that workers earn, the income earned by individual or joint entrepreneurs as well as by corporations, and business taxes such as sales, property, and Federal excise taxes—that count as a business expense.

GDP is calculated as the sum of what consumers, businesses, and government spend on final goods and services, plus investment and net foreign trade. In theory, incomes earned should equal what is spent, but due to different data sources, income earned, usually referred to as gross domestic income (GDI) does not always equal what is spent (GDP). The difference is referred to as the "statistical discrepancy."

Starting with the 2004 comprehensive revision, BEA's industry accounts and its GDP-by-state accounts allocate the statistical discrepancy across all private-sector industries. Therefore, GDP-by-state estimates are now conceptually more similar to GDP estimates in the national accounts than they had been in the past.

Except for small differences resulting from the GDP-by-state accounts excluding overseas Federal military and civilian activity (because it cannot be attributed to a particular state), growth rates of real GDP by state and real U.S. GDP are now virtually identical.

* Goods-producing industries excluding durable goods.
** Services-providing industries excluding FIRE.
FIRE Finance, insurance, real estate, rental, and leasing.
¹ The 2005 estimates draw heavily on the 2005 revised state earnings-by-industry estimates released on September 26, 2006.
² NAICS North American Industry Classification System