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sdmay be smoother because import shares of relatively
volatile commodities such as food, petroleum, and
industrial materials have fallen significantly in the last
fifteen years. At the same time, serviceswhich tend to
grow at a less variable rate than goodshave accounted
for an increasingly large share of total U.S. exports
since the early 180s.
In contrast to growth in housing investment and trade,
growth in consumer spending was only slightly less
volatile in the second period than in the first. The size of
quarterly fluctuations in consumer spending growth fell
from an average of . percent in 15-8 to .1 percent
in 184-8. As we note below, however, the large size of
this component relative to aggregate GDP makes even a
small decline noteworthy. Some analysts have attributed
the volatility decline in this component to a shift away
from the consumption of goods toward the consumption
of services. To be sure, spending on consumer services
tends to be less volatile than spending on household
goods (particularly consumer durables). Our results,
however, show that growth variability dropped in both
categories of spending and that the decrease for goods
was large relative to that for services (Table 1). Thus, a
shift toward spending on services is at best a partial
explanation for the more stable growth in overall consumer
spending.5 Moreover, of all the GDP components,
consumer spending has likely benefited the most
from the spillover effects of increased stability in other
parts of the economy. In particular, reduced volatility in
all categories of GDP tends to lead to steadier growth in
income and, consequently, in household spending.
Growth Contributions and the Decline in Volatility
So far we have explored the changes in the volatility of
growth rates for the individual components of GDP.
We now assess the extent to which these changes have
helped bring about the increased stability of aggregate
growth. To do so, we calculate the volatility of each
component's contribution to real GDP growth. This
"growth contribution" is, roughly speaking, the real
growth rate of the component multiplied by the component's
share of total GDP.6 Unlike growth rates, growth
contributions take into account the size of each component
relative to GDP and provide a convenient measure
for "adding up" the components of output growth. The
volatility of each component's growth contribution over
the two sample periods gives us our measure of that
component's contribution to the decline in aggregate
volatility.7 Significantly, we can obtain such measures
for two components of GDP for which growth rates
cannot be calculatedinventory investment (a subcomponent
of investment) and net exports.
Our calculations reveal that the most important
contributor to the overall reduction in the variability
of aggregate GDP growth is inventory investment
(Table ).8 As the table shows, the volatility of inventory
investment's growth contribution fell from an
average of . percent in the 15-8 period to 1.7 percent
in the 184-8 period. Inventory investment's
large contribution to the increase in the stability of
aggregate GDP growth is striking this component
accounts for just 1 percent of total output. Despite its
small role in overall economic activity, the component
has historically contributed the greatest degree of
volatility to growth in GDP.
The reduction in the volatility of inventory investment's
growth contribution was particularly important
during the most recent recession. In the recessions that
took place during the 15-8 period, declines in inventory
investment accounted for almost the entire drop in
real output. In the 10-1 recession, however, inventory
investment accounted for only about a third of the
peak-to-trough decline in real GDP.
Why has the variability in this segment of the
economy experienced such a steep decline in recent
years? One explanation may be that during the 180s,
companies in the manufacturingfsdfsdfs sdfsdfs
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