BEA Introduces New Measures of the Metropolitan Economy

Today, the U.S. Bureau of Economic Analysis released experimental measures of economic output produced in the Nation's metropolitan areas. GDP by metropolitan area is the measure of the market value of final goods and services produced within a metropolitan area in a particular period of time. GDP is BEA's preferred and most comprehensive measure of economic activity. Metropolitan (statistical) areas, defined by the U.S. Office of Management and Budget, are standardized county-based areas having at least one urbanized area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core, as measured by commuting ties.

These are prototype statistics and are being released for evaluation and comment by data users. These estimates have many potential important uses, including determining the overall size and growth of metropolitan economies, assessing the impacts of natural or man-made disasters on cities, and analyzing comparative industrial growth across metropolitan America. For a list of other potential uses, see "Potential Uses of BEA's Prototype Estimates of GDP by Metropolitan Area."

According to these prototype estimates, in 2005, real GDP by metropolitan area grew in 327 of the 363 metropolitan areas. Growth in real GDP by metropolitan area in 2005 was strong along the western and southern coasts (Chart 1). Growth was particularly robust and widespread in the metropolitan areas located in Florida. In contrast, the metropolitan areas near the Great Lakes did not perform as well.

• Current-dollar GDP for the Nation was $12.4 trillion; it was $1.6 trillion for California, the largest state
• In comparison, in the New York metropolitan area it was $1.1 trillion
• Metropolitan areas produced 90 percent of U.S. current-dollar GDP; the five largest metropolitan areas accounted for 23 percent of the U.S. total
• The smallest 75 metropolitan areas accounted for less than two percent of U.S. GDP
• When ranked by current-dollar GDP, the New York metropolitan area would rank second among states and 10th among countries in 2005.¹

In 2005, real GDP accelerated in only 133 of the 363 metropolitan areas. In contrast, real GDP accelerated in 238 metropolitan areas in 2004. Growth in the metropolitan portion of the U.S. slowed slightly from 3.8 percent in 2004 to 3.0 percent in 2005. Growth in the metropolitan areas ranged from 19.4 percent to -5.4 percent in 2005.

The private services-producing sector accounted for most of the annual growth in real GDP by metropolitan area in 2005². Both the national and state estimates show the same trend. Within the private services-producing sector, the financial activities and professional and business services industry groups contributed the most to growth. In fact, the financial activities industry group spurred growth in six of the fastest-growing metropolitan areas in 2005. Within financial activities, real estate contributed significantly to growth in many metropolitan areas especially in Florida. Palm Coast, FL had the fastest growth of all metropolitan areas in 2005 (19.4 percent), with the financial activities industry group accounting for almost 75 percent of the growth.

Real GDP declined in 36 metropolitan areas in 2005 and the declines ranged from very small to 5.4 percent. The goods-producing industries, particularly the manufacture of motor vehicles, petroleum and coal products, and chemicals, contributed the most to declines in these metropolitan areas³. New Orleans-Metairie-Kenner, LA declined 5.4 percent (the largest decline) due to the effects of Hurricane Katrina. The largest decline occurred in natural resources and mining.

These GDP-by-metropolitan-area estimates provide a new dimension to BEA's efforts to provide comprehensive and statistically consistent measurements of economic activity in the Nation's metropolitan areas. The methodology developed for these prototype estimates is relatively simple but allows for the production of timely statistics that provide insight into the range of variation in level and growth in the production of goods and services among metropolitan areas. In addition, these statistics can be used to prepare comparative analytics among metropolitan areas with different industrial compositions.

The methodology relies heavily on state- and county-level industry earnings data to distribute GDP by state to metropolitan areas. Earnings represent 64 percent of GDP and therefore are a reasonable indicator of economic output for most regions. County-level earnings data are available on a timely basis and therefore allow for the production of timely GDP-by-metropolitan-area estimates (when counties are summed to their metropolitan areas and controlled to state-level GDP). While relatively simple, the methodology appears to produce very useful and reliable information on the level and growth of economic activity in metropolitan areas. More information on the methodology used to produce these prototype estimates will appear in an article in the November 2007 issue of the Survey of Current Business, BEA's monthly journal.

BEA plans outreach with data users to assess these prototype estimates. Subject to data users' evaluations and comments, we plan to monitor revisions to these estimates, to review the methodology, and to look at methods for accelerating the release of these estimates. Provided user evaluations are positive, our plan for the fall of 2008 is to release estimates for 2006 as well as to accelerate the release of estimates for 2007. We constantly seek to improve the timeliness of our estimates as well as their accuracy, consistency, and relevance.

These data are prototype statistics in that they are being released for evaluation and comment by data users. There has been substantial interest in these statistics, and BEA hopes to produce an annual series in the future. If you have comments or suggestions, please send these to GDPbyMetro@bea.gov.

Explanatory Notes

GDP by metropolitan area is the sub-state counterpart of the Nation's GDP, the Bureau's featured and most comprehensive measure of U.S. economic activity. GDP by metropolitan area is derived as the sum of the GDP originating in all the industries in the metropolitan area. Real GDP by metropolitan area is an inflation-adjusted measure based on national prices for the goods and services produced within that metropolitan area. The estimates of real GDP by metropolitan area and of quantity indexes with a base year of 2001 were derived by applying national implicit price deflators to the current-dollar GDP-by-metropolitan-area estimates for the 61 detailed NAICS-based industries⁴. Then, the chain-type index formula that is used in the national accounts is used to calculate the estimates of total real GDP by metropolitan area and of real GDP by metropolitan area at more aggregated industry levels.

The prototype estimates of GDP by metropolitan area in current and real (chained) dollars are available from the Regional Economic Accounts page of the BEA Web site at /regional/.

Next release of GDP by metropolitan area - Fall 2008.

BEA's national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available without charge on BEA's Web site at www.bea.gov. By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.

Footnotes

1. World Development Indicators database, World Bank, April 23, 2007.

2. The private services-producing sector consists of utilities; wholesale trade; retail trade; transportation and warehousing, excluding Postal Service; information; finance and insurance; real estate, rental, and leasing; professional and technical services; management of companies; administrative and waste services; educational services; health care and social assistance; arts, entertainment, and recreation; accommodation and food services; and other services, except government.

3. The private goods-producing sector consists of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.

4. County earnings are not available in 2000 on a NAICS basis. Therefore, the implicit price deflators and quantity indexes were re-based to 2001 in order to compute real GDP by metropolitan area.