New Estimates of Gross Domestic Product by Metropolitan Areas Released

By Lora Mwaniki-Lyman, Research Economist and Database Manager
     Valorie Rice, State Data Center & Librarian

December 2007

Introduction

On September 26, 2007, the U.S. Bureau of Economic Analysis released prototype estimates for economic output produced by the nation’s metropolitan areas. These BEA experimental estimates of Gross Domestic Product (GDP) by Metropolitan Statistical Area (MSA) are a measure of the market value of final goods and services produced within a metropolitan area in a particular period of time. It is available as annual data from 2001 to 2006 and covers all 363 metropolitan areas in the United States.

Prior to these estimates, sub-state economic activity measures were limited to measures of earnings and personal income. These newly developed GDP by MSA measures are fully integrated with other estimates prepared by the U.S. Bureau of Economic Analysis. They provide both current-dollar and real (chained-dollar) GDP estimates by 61 detailed NAICS-based industries.

Metropolitan areas are defined by the U.S. Office of Management and Budget and 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.  Overall, 26 of the 363 metropolitan areas have populations of more than 2 million while 266 metropolitan areas have populations less than 500,000.

GDP by MSA in Perspective

National

In 2005, current-dollar GDP for the nation was $12.4 trillion; of this 90% was produced by metropolitan areas. California, the largest state, had a GDP of $1.6 trillion while the largest metropolitan area, New York-Northern New Jersey-Long Island MSA, had a GDP of $1.1 trillion, which is big enough to rank 2nd among states and 10th among countries. Los Angeles-Long Beach-Santa Ana, CA (MSA), Chicago-Naperville-Joliet, IL-IN-WI (MSA), Washington-Arlington-Alexandria, DC-VA-MD-WV (MSA) and Houston-Sugar Land-Baytown, TX (MSA) complete the list of top five metropolitan areas ranked by 2005 GDP.

Arizona

The state of Arizona has six metropolitan areas with Lake Havasu City-Kingman, MSA as the most recent addition. In total, 95.2% of Arizona’s products are generated in its 6 metropolitan areas resulting in an output of $202.1billion in 2005. See table 1 below.

 Table 1: Arizona – MSA ranked by 2005 GDP ($million)

Source: U.S. Bureau of Economic Analysis and EBR

Phoenix-Mesa-Scottsdale MSA was ranked 15th in the nation by 2005 GDP while Prescott MSA was ranked 9th in the nation in growth between 2004 and 2005. See table 2.

Table 2: Arizona – GDP by MSA, 2004 to 2005 growth

Source: U.S. Bureau of Economic Analysis and EBR

 Top 5 Industry Sectors in Arizona’s Metropolitan areas’ 2005

The top 5 industries ranked by industry share of GDP for Arizona’s 6 metropolitan areas combined are real estate, rental and leasing (14.6% share), government (11.5% share), retail trade (8.6% share), finance and insurance (8.6 % share) and manufacturing (8.4% share).

Assessing each metropolitan area individually, four of Arizona’s six metropolitan areas reported government as the largest industry sector. Yuma’s government industry has the largest share among all Arizona’s metropolitan areas with more than a quarter of Yuma’s production activity in 2005 being by government. Share of government economic activities for Flagstaff MSA was 25.7%, Tucson MSA was 19% and Prescott MSA 15.3%. Lake Havasu City MSA reported retail trade as its top industry in 2005 while Phoenix reported real estate, rental and leasing (15.6% share), finance and insurance (9.6% share) and government (9.3% share) as its top 3 industries ranked by share of GDP for 2005. See table 3 below.

Tucson MSA is the only metropolitan area with manufacturing listed as one of the top 5 major industry sectors. Yuma’s strong agricultural industry is ranked second in percent share of GDP for the metropolitan area after its government sector.

Table 3: Arizona’s MSAs – Industry Share of GDP ($Millions)
 Top 5 Industries (2 digit NAICS) Ranked by 2005 GDP

Source: U.S. Bureau of Economic Analysis and EBR

Benefits and Challenges of the Estimates

The GDP by MSA estimates add a new dimension to assessing economic activities of regions. An estimate of the overall size and growth of metropolitan economies can now be determined. Growth can be broken down into components, regional specialization and industries. Measures such as productivity by industry, location quotients and shift share can also be developed to give a better understanding of economic activities in metropolitan areas.  In addition, comparative analysis of industrial activities and growth can now be assessed using the new estimates.

While these are all new ways of assessing metropolitan areas, there are significant challenges to using the data. Historical data is not available prior to 2001 limiting any trend-related analysis. For some industries, data has been suppressed below NAICS 2-digit sector due to disclosure issues. There is also evidence of weak correlations between earnings and output for some capital-intensive industries. Since the GDP by MSA measures are top-down estimates, calculated as the sum of gross county product controlled to the state GDP estimates, some state relationships of GDP to earnings may not apply to all metropolitan areas within that state. Since state deflators are not available, national deflators are used to develop the chained-dollar GDP by MSA estimates.

The GDP by MSA data are prototype statistics and are therefore being released for evaluation and comment by data users. BEA is undertaking outreach programs with data users to gather their comments and feedbacks. These will be used to revise the methodology and improve their timeliness, accuracy and relevance. If feedback is positive, BEA plans to release 2006 data in fall of 2008 and accelerate the release of estimates for 2007.

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