Value Added: Finance, Insurance and Real Estate

Think of it this way

It is the part of the economy that moves money instead of things, plus the roof everyone lives under.

What is Value Added: Finance, Insurance and Real Estate?

Banks, insurers, funds and the entire real estate sector. It includes a large and counterintuitive item: the imputed rent of owner-occupied homes, which national accounts count as if owners rented their homes to themselves.

How to read Value Added: Finance, Insurance and Real Estate

It is larger than intuition suggests, and that imputed item explains much of the difference. Without it, the share of banking and insurance would be considerably smaller.

What Value Added: Finance, Insurance and Real Estate means for the market

It is the sector that connects with everything else in this section: interest rates are its raw material, so a hiking cycle shows up here before anywhere else.

Where the money flows

GDP can be measured in three ways that give the SAME figure: by spending (who buys), by production (who makes it) and by income (who earns it). This version uses the second: the value added of each industry, which is what it produces minus what it bought from others to produce it. Subtracting those purchases is what avoids counting twice the steel that goes into a car. The “By spending” version of the same chart splits the total the other way, which is why none of its lines match these: they do not measure different things, they divide the same thing differently.

What to watch in Value Added: Finance, Insurance and Real Estate

Do not read it as “the weight of Wall Street”: well over half of it is housing. Compare it with Manufacturing with that in mind.

It does not measure liquidity: it is the part of GDP produced by this sector.