Chapter 5 - Economic Growth
Chapter 5 - Economic Growth
Containers loaded on ship at the Port of Miami, FL.
Transportation is a vital component of the U.S. economy. As a sizable element of the country's Gross Domestic Product, transportation employs millions of people and consumes a large amount of the economy's goods and services. About one-fifth of household spending is on transportation. Transportation is also an important element of federal, state, and local government revenues and expenditures. For instance, the federal government's motor fuel tax collected about $18 billion from households in 1998, an average of $176 per household. In addition to discussing the size of transportation in the economy, transportation employment, fuel taxes, and transportation spending by households, this chapter presents data on labor productivity, gasoline prices, highway capital stocks, and international trade.
Demand for transportation-related goods and services represents about one-tenth of the U.S. economy and supports one in eight jobs. These goods and services encompass a whole range of activities from vehicle production and automobile insurance to road building and public transportation. The amount of goods and services produced by each worker, measured in dollars per hour of work (labor productivity), has increased markedly in most sectors of transportation over the past 45 years. In the rail industry, productivity gains have been particularly strong since deregulation in 1980. On average, a worker in the rail industry now produces more than three times as much as in 1980. This increased labor productivity has made transportation less expensive for consumers.
Transportation services are provided both by transportation companies, known collectively as the for-hire transportation sector, and by nontransportation companies. Transportation services provided by nontransportation companies for their own use are known as in-house transportation. A trucking fleet owned by a grocery chain is an example of in-house transportation. While data on the for-hire transportation sector have been readily available for many years, it has been impossible to estimate the value of in-house transportation until very recently. The Bureau of Transportation Statistics (BTS), in cooperation with the Bureau of Economic Analysis (BEA) in the U.S. Department of Commerce, has developed a method to measure the value added to the economy by these services. Using this method, BTS and BEA estimate that in 1996, in-house transportation contributed $142 billion to the economy compared with $236 billion by the for-hire sector.
Households spent on average $7,000 on transportation in 1999, nearly 20 percent of that year's average household income. This amount is second only to the amount they spent on housing. The vast majority of household spending on transportation goes for vehicle purchase, operation, and maintenance. While people are traveling a lot more now than they did in the mid-1980s, transportation expenditures have declined by 2 percent. Household spending on transportation, of course, varies according to a number of factors, including age and location. For example, people in the West spent more than those in any other region.
International trade is a growing part of the U.S. economy. The lowering of trade tariffs via the Free Trade Agreement of 1989 and the North American Free Trade Agreement (NAFTA) of 1993 have contributed to the increasing importance of North American trade. Canada has been and remains the top trading partner of the United States. In 1999, Mexico surpassed Japan to become America's second largest trading partner. Still, trade with other countries remains very important. About 66 percent of foreign trade in 1999 was with countries other than Canada and Mexico. The vast majority of these goods are transported by ship. International waterborne trade has, therefore, grown along with international trade, while domestic waterborne transportation over the past 15 years has stayed relatively constant.
Transportation Demand in GDP Growth
Purchases of transportation-related goods and services accounted for 10.6 percent of Gross Domestic Product (GDP) in 1999, or $990 billion (table 1) . This broad measure, called transportation-related final demand, reflects all consumer and government purchases of goods and services and exports related to transportation. The list of purchases is diverse and extensive, including vehicles, parts, engines, fuel, maintenance, and auto insurance.
The share of transportation-related final .demand in GDP has fluctuated slightly between 10.5 percent and 11.0 percent from 1975 through 1999. Only housing, health care, and food accounted for greater shares of GDP in 1999 (figure 1).
1. U.S. Department of Transportation, Bureau of Transportation Statistics, 2000, based on data in U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business (Washington, DC: Various issues).
Transportation-Related Employment by Industry
Employment is an important indicator of economic growth and social well-being. In 2000, more than 10 million people were employed in for-hire transportation, vehicle manufacturing, and related industries, such as automobile sales and repair. These jobs accounted for about 7.5 percent of total civilian employment. The most recent data show that the automotive dealers and service station industry was the largest employer among transportation-related industries, followed by transportation equipment manufacturing, trucking and warehousing, air transportation, and auto repair and parking services (figure 1).
Transportation-related industry employment data, how.ever, do not include transportation occupations in nontransportation industries, such as truck drivers working for wholesale and retail stores. Based on data from the U.S. Department of Labor's Bureau of Labor Statistics, the Bureau of Transportation Statistics estimated that employment in transportation occupations in nontransportation industries was about 5.5 million in 1998. When this component is included, total transportation employment would have accounted for about 12 percent, or 1 out of every 8 U.S. civilian jobs .
The for-hire transportation industry contributed $303 billion to the U.S. economy in 1999 (table 1). Its share in Gross Domestic Product (GDP), however, has declined from 4.4 percent in 1960, to 3.6 percent in 1975, to 3.3 percent in 1999 (measured in current dollars) . Many factors, including productivity improvements and the growth of in-house trucking services by companies that are not in the transportation business (e.g., grocery store chains), may explain this change.
Of all for-hire transportation industries, trucking and warehousing and air transportation contributed the largest share to U.S. GDP. In 1999, trucking and warehousing and air transportation contributed $116.6 billion and $95.0 billion, respectively. Together, they accounted for more than two-thirds of transportation GDP. Not surprisingly, air transportation had the highest growth rate followed by transportation services over the 1960 to 1999 period (figure 1). Although the trucking and warehousing industry experienced considerable growth from 1975 to 1985, it has slowed down in recent years .
1. U.S. Department of Commerce, Bureau of Economic Analysis, "Gross Domestic Product by Industry and the Components of Gross Domestic Income," available at http://www.bea.doc.gov/bea/dn2.htm, as of May 2001.
Companies that are not in the transportation business often have their own internal transportation operations (primarily trucking). For example, many grocery chains use their own trucks and employees to transport goods from warehouses to retail stores. Until recently, the value-added to the economy by in-house transportation was not known. Through joint research, the Bureau of Transportation Statistics and the Bureau of Economic Analysis in the U.S. Commerce Department have developed a method to measure the value-added to the economy by these services. In 1996, the latest year for which data are available, in-house transportation contributed $142 billion to the economy. Together, in-house transportation and for-hire transportation services contributed about $378 billion or 4.8 percent of the U.S. Gross Domestic Product (GDP) [1, 2] (figure 1).
Trucking maintained a two-thirds share of transportation GDP, with in-house trucking contributing a larger share than for-hire trucking (figure 2). In 1996, in-house trucking accounted for 58 percent of trucking GDP and 38 percent of total transportation GDP. Air transportation, the fastest growing mode, was the next largest contributor to transportation GDP, followed by rail [1, 2].
Figure 3 shows that many industries rely more heavily on in-house transportation than for-hire transportation services to support their production. The agriculture, forestry, and fisheries industry sector is the most transportation-intensive. However, the second most transportation-intensive industry-construction-spends more on in-house transportation to produce a dollar of construction output.
1. U.S. Department of Transportation, Bureau of Transportation Statistics, Transportation Satellite Accounts: A New Way of Measuring Transportation Services in America, BTS99-R-01 (Washington, DC: 1999).
2. ____. U.S. Transportation Satellite Accounts for 1996,data, available at http://www.bea.doc.gov/bea/dn2.htm, as of May 2001.
Transportation Labor Productivity
For the past four decades, transportation has been one of the leaders in U.S. productivity growth. As shown in figure 1, U.S. business sector productivity, measured in real output per employee, grew 122 percent between 1955 and 1998. In contrast, several transportation modes had much higher growth rates over this period. For example, between 1955 and 1997, railroad labor productivity grew 752 percent; pipeline grew 577 percent; air transportation grew 500 percent; and for-hire trucking grew 202 percent. In recent years, however, labor productivity growth in the trucking industry flattened out and air transportation fluctuated. When compared with the economy as a whole, labor productivity in the railroad and pipeline industries continues to increase at a faster rate, while the bus mode shows no growth . Data for water transportation are not available.
Deregulation, technological change, and labor force reductions have all contributed to higher labor productivity in transportation. Specifically, air transportation labor productivity increased .because of the introduction of larger and faster aircraft, computerized passenger reservation systems, the hub-and-spoke flight network, and changes in requirements for flight personnel. In the railroad industry, consolidation of companies, more efficient use of equipment and lines, increased ton-miles, and labor force reductions have played a role.
1. U.S. Department of Labor, Bureau of Labor Statistics, Office of Productivity and Technology, "Historical Indexes of Output per Employee, All Published Industries, Productivity Trends for Transportation Industries," available at ftp://ftp.bls.gov/pub/special.requests/opt/dipts/oaehaiin.txt, as of September 2000.
Consumer Prices for Transportation
Improvements in transportation labor productivity have made transportation less expensive for consumers. Since 1978, transportation prices increased less than those for other major consumer expenditure categories. For example, the price for the same amount of goods or services increased 172 percent for housing and 322 percent for health care between 1978 and 2000 (figure 1). By comparison, the overall price of trans.portation increased 148 percent. In more recent years, from 1994 to 2000, price inflation for transportation was the lowest among the four major consumer expenditure categories.
Within transportation, the price for consumer-operated transportation (e.g., private passenger car transportation) increased more slowly than for purchased transportation services. Between 1978 and 2000, the price of consumer-operated transportation increased 139 percent, while the price of purchased transportation services increased 307 percent (figure 2).
The average price of motor gasoline fuel in the United States increased from $1.03 per gallon in January 1999 to $1.64 per gallon in July 2000, a 59 percent increase within 18 months (figure 1). By the end of the year, however, the price had declined to $1.53. Although these fuel prices were far below record highs in real terms, the rapid rise attracted consumer attention and affected the profitability of transportation industries, whose profit margins, on average, have been less than 7 percent in the past few years . Figure 1 shows that the consumption of motor fuels in the United States has not been very sensitive to changes in fuel prices in recent years. For the transportation sector, the price of fuel would have to increase 14 percent for a 1 percent reduction in fuel consumption to occur. Conversely, a small change in supply would cause a large change in price.
The impact of increases in fuel prices can also be measured by the added cost that industry incurs to produce $1 of net output, which is also known as industry Gross Domestic Product. Measured in this way, the impact of higher motor fuel prices would be the most severe on the railroad, transit, air, and trucking modes. According to a Bureau of Transportation Statistics (BTS) analysis, higher gasoline prices in 2000 would have cost transit an additional 9 cents to produce $1 of net output. The additional costs for air transportation and railroad were estimated to be 8 cents. For trucking, the estimate was 6 cents (figure 2). The impact of higher fuel prices on water transportation and pipelines would be less severe because they are less energy intensive than other modes. The additional fuel cost to produce $1 of net output was expected to be 2.8 cents for water transportation and 0.4 cents for pipelines [2, 3, 4].
According to the recently published 1996 U.S. Transportation Satellite Accounts, developed jointly by BTS and the Bureau of Economic Analysis (U.S. Department of Commerce), fuel accounts for about 7 percent of the total operating costs of the for-hire trucking industry, 7 percent for the railroad industry, 9.2 percent for in-house trucking operations, 11 percent for the airline industry, and 8 percent for mass transit and local passenger transportation services .
1. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, various issues.
2. ____. "Gross Domestic Product by Industry," October 2000.
3. U.S. Department of Transportation, Bureau of Transportation Statistics, estimates based on U.S. Depart-
ment of Energy, Energy Information Administration, "Energy Consumption by Transportation Sector," monthly reports.
4. ____. U.S. Transportation Satellite Accounts for 1996, data, available at http://www.bea.doc.gov/bea/dn2.htm, as of May 2001.
Household Spending on Transportation
Households spend more money, on average, on transportation than any other expenditure category except housing. In 1999, households on average spent about $7,000 on transportation, or 18.9 percent of their total spending (table 1). This share was slightly lower than that in 1984 (the first year for which data are available). Roughly 94 percent of household transportation expenditures went to purchase, maintain, and operate cars and other private vehicles. Purchased transportation services, including airline, intercity train and bus, and mass transit, accounted for less than 6 percent of household transportation expenditures in 1999 (table 2).
Measured in constant 1982 dollars, household transportation expenditures have decreased 2 percent between 1984 and 1998 (figure 1). During the same period, vehicle-miles traveled per household increased about 27 percent, indicating that transportation has become cheaper to consumers.
Household transportation expenditures vary by region (table 3). In 1999, on average, households in the West spent more on transportation than those in other regions. However, households in the Midwest and South spent a higher percentage of their income on transportation. Since 1994, however, regional differences in spending have decreased as automobiles have become relatively less expensive and more American households can afford multiple vehicles. Household transportation expenditures in the Northeast, which used to be the lowest among regions for both the amount and share in household spending, increased faster in terms of amount than that for other regions. However, the Northeast is the only region that showed an increase in the proportion of expenditures on transportation.
Spending on transportation differs among rural and urban households as well. During much of the 1990s, rural households, on average, spent more on transportation than urban households. In 1999, for instance, average urban household transportation expenditures were $6,975, while those of rural households were $7,276 .
Not surprisingly, the age of the head of the household also has an impact on transportation spending. Household transportation expenditures rise as the age of the head of the household increases, peaking between 45 and 54 years of age and then decreasing. In 1999, for example, households in which the head of the household was between 45and 54 years of age spent, on average, $9,028 on transportation, while households in the under 25 years of age bracket spent a little more than half of that amount. Spending on transportation was lowest in households headed by people 75 years of age or older. However, transportation as a share of total household expenditures was highest in young households, averaging 23.2 percent. The percentage decreased gradually as age increased, reaching its lowest point at 14 percent for households in the 75 years and over age bracket.
Half of the transportation expenditures in young households were to purchase vehicles, compared with 37 percent for households in the oldest age group (figure 2). Moreover, younger households spent a smaller share of transportation expenditures on purchased transportation services, such as air travel, mass transit, and taxi fares .
1. U.S. Department of Labor, Bureau of Labor Statistics, "Consumer Expenditure Survey," 1999, available at http://www.bls.gov, as of May 2001.
Fuel Tax Revenue
The Highway Trust Fund (HTF), which provides funding for surface transportation, has received its major source of revenue from federal motor fuel taxes paid by households (figure 1 and box). In 1970, for example, households paid $8.5 billion (chained 1998 dollars) in federal motor fuel taxes, accounting for about 50 percent of HTF revenue. By 1998, the share of federal motor fuel taxes paid by households increased to 69 percent of the HTF, or $18.3 billion.
Households paid an average of $176 each in 1998 in federal fuel taxes, five times the amount they did in 1966, when measured in current dollars (figure 2a). However, when the effect of inflation is removed, federal motor fuel taxes paid by the average American household increased by only 27 percent between 1966 and 1998 (figure 2b), while household real disposable income rose by 60 percent. Hence, the share of federal motor fuel tax in household disposable income decreased from 0.37 percent in 1966 to 0.29 percent in 1998 (figure 3).
Improvements in automobile fuel economy were largely responsible for the slower growth of household motor fuel consumption and hence household expenditures on the motor fuel tax relative to the growth of household income and travel demand. Between 1966 and 1998, vehicle-miles traveled per household increased 68 percent, while motor fuel consumption per household increased only 15 percent.
Highway Capital Stocks
Through decades of government investment, the United States has developed a large and extensive transportation system that is an important component of our national wealth and a contributor to productive capacity. Currently, however, adequate economic data on transportation infrastructure and vehicle capital stocks are only available for highways, although an effort is underway to expand knowledge in this area (see box).
In 1999, the accumulated public capital stock in highways and streets was valued at $1.3 trillion (current dollars). From 1988 to 1999, the value (in chain-type 1996 dollars) of highway capital stock increased by 22.5 percent. More dramatic increases in the value of highway capital stock occurred between 1953 and 1971 when the Interstate system was under development. Figure 1 shows the growth pattern in public capital in highways and streets between 1925 and 1999. Since the early 1970s, highway vehicle stocks have grown much faster than highway capital stocks, indicating that highways support much more rolling stock today than they did 20 years ago.
Continuing growth of international trade is influencing the development of transportation systems and services within the United States. Increased international merchandise trade has spurred the development of marine and air cargo facilities, land border crossings, and domestic access infrastructure to connect international gateways with domestic U.S. origins and destinations. New technologies, including intelligent transportation systems, facilitate lower transportation costs and higher levels of service and speed.
Between 1997 and 1999, U.S. international merchandise trade rose 10.3 percent to $1.7 trillion (current dollars). Canada continued as the number one overall trade partner of the United States in 1999, a position the country has held for decades. Meanwhile, Mexico surpassed Japan to move into the number two position. In 1999, 10 nations accounted for almost 70 percent of all U.S. merchandise trade, and 5 of these were Asian Pacific countries (figure 1). Despite the recession in East and Southeast Asia in 1997, the overall U.S. trade relationship with many countries in the Pacific region, expanded between 1998 and 1999.1
In 1999, higher value manufactured goods dominated U.S. trade, accounting for $1,497 billion or 87 percent of the value of all merchandise trade. Motor vehicles, electrical machinery and appliances, office machines (including computers and other automated data processingequipment) were among the top U.S. import and export commodities when measured by value. Transportation equipment was one of the leading U.S. manufactured exports, accounting for $53 billion in 1999. Agricultural goods accounted for approximately 5 percent of the share of U.S. international trade, and Japan was the top market for U.S. agricultural exports. Canada and Mexico were also leading purchasers and suppliers of U.S. agricultural commodities. Mineral fuels accounted for an approximate 5 percent share of U.S. international trade in 1999; the majority of this trade was U.S. imports of crude petroleum and related products. Venezuela was the leading supplier of petroleum products to the United States in 1999, followed by Canada and Saudi Arabia.
Between 1997 and 1999, the relative roles of the transportation modes in carrying U.S. international trade were in flux due to the continuing growth in trade within North America and internationally. During this period, U.S. international trade carried by truck increased 19 percent to $385 billion, air freight expanded 15 percent to $496 billion, while waterborne trade grew by less than 1 percent. Despite the small increase in waterborne trade during this time, over $631 billion of U.S. exports and imports moved by this mode in 1999, accounting for about 37 percent of the value of all U.S. international trade (table 1).
By value, Japan is the leading U.S. maritime trade partner, representing almost one-fifth of all U.S. waterborne trade. The ports of Long Beach and Los Angeles account for the majority of West Coast trade and also represented in 1999 over one-quarter of the value of overall waterborne trade for the United States (table 2).
Waterborne trade accounts for a much higher percentage of U.S. international trade tonnage compared with other modes. By weight, the top U.S. waterborne trade partner was Mexico, followed by many other U.S. trade partners for crude petroleum and petroleum products (table 3). Houston and other Gulf Coast ports accounted for the majority of U.S. international waterborne tonnage, a large component of which is the trade of bulk commodities and crude petroleum.
Growth in air cargo, especially of high-value, time-sensitive commodities, continued into 1999. Lower shipping costs and more frequent service have made air cargo a major factor in the way global business is conducted. Air cargo is carried both by all-passenger carriers as well as air freight carriers, including integrated express carriers, such as Federal Express, United Parcel Service (UPS), DHL, Airborne Express, CF/Emery, Burlington and others. Air freight accounted for approximately 29 percent (by value) of U.S. international trade in 1999. Japan was the leading trade partner for U.S. air freight, followed by the United Kingdom and Germany (figure 2). New York's John F. Kennedy (JFK) International Airport was the leading gateway for international air shipments, accounting for $105 billion in 1999. Following JFK were San Francisco, Los Angeles International Airport, and Chicago.2
See box for International Trade Data.
1 U.S. overall merchandise trade with many Asian Pacific countries fell between 1997 and 1998 due to the region's recession. However, by 1999, trade with many of these same countries had risen to or exceeded the 1997 levels. Some of this trade growth was due to the expansion in imports from these countries, as these goods became relatively cheaper due to currency exchange rates.
2 San Francisco includes the San Francisco International Airport and other smaller regional airports. Chicago includes O'Hare, Midway, and other smaller regional airports.
U.S. Waterborne Trade
U.S. domestic waterborne trade was fairly stable from the mid-1980s until the 1990s, when U.S. coastal trade (i.e., domestic traffic over the ocean or the Gulf of Mexico) declined due to a decrease in Alaskan crude oil shipments. Internal U.S. trade, which occurs on U.S. rivers and waterways, has remained fairly constant in recent years (figure 1). In 1999 when measured by tonnage, petroleum and petroleum product shipments were down 5.5 percent and food and farm products were up 9.3 percent over 1998 levels. Coal shipments were down 4.6 percent over this period .
Since the early 1990s, U.S. international water trade has paralleled world trade growth. At the end of 1999, the United States accounted for 15.3 percent of the value of world maritime trade (table 1). The U.S.-flag share of U.S. foreign waterborne trade increased slightly from 2.7 percent in 1998 to 3.1 percent in 1999 . The highest value cargo in U.S. foreign trade is liner service, which consists primarily of container vessels (figure 2).
Because of low freight rates and profits in recent years, shipping companies have attempted to improve usage of their vessels and other assets through consolidation, partnerships, and vessel-sharing agreements. These arrangements as well as the growth in e-commerce have had an impact on the makeup of the industry, the provision of transportation services, and the geographic flow of goods internally and into and out of the United States.
1. U.S. Army Corps of Engineers, Water Resources Support Center, Waterborne Commerce of the United States, Calendar Year 1999; Part 5: National Summaries, available at http://www.wrsc.usace.army.mil/ndc/wcsc.htm, as of Dec. 31, 2000.
2. U.S. Department of Transportation, Maritime Administration, "U.S. Waterborne Commerce," 1999, adapted from U.S. Department of Commerce, U.S. Census Bureau, U.S. waterborne commerce data, various years.
The United States, Mexico, and Canada have signed two free trade agreements: the North American Free Trade Agreement (NAFTA) in 1993 and the Free Trade Agreement in 1989. Both agreements have led to the gradual reduction of tariffs on goods. These agreements have brought the share of U.S. merchandise trade with Canada and Mexico, now our two largest trading partners, to about 34 percent-Canada accounts for 22 percent and Mexico, 12 percent-in 1999.
Since NAFTA went into effect, the value of U.S. trade with Canada and Mexico has risen 63 percent in current dollars, from $343 billion to $559 billion (figure 1). In addition to the trade agreements, several other factors contributed to this increase, including the sustained economic expansion in the United States, U.S./Canada and U.S./ Mexico exchange rates, and changes in industry manufacturing and distribution patterns.
Motor vehicles, parts, and accessories dominate NAFTA trade by value, as North American automobile manufacturing is increasingly integrated across the three countries. Other leading commodities traded among NAFTA partners are consumer electronics, telecommunications equipment, petroleum and petroleum products, and aircraft equipment and parts [1, 2].
In 1999, trucks transported about 69 percent of the value of NAFTA merchandise trade, a share that has remained constant since 1997. Rail accounted for about 14 percent of the share, and air and water modes accounted for approximately 4 to 6 percent. In recent years, trade by air hasgrown more rapidly than the other modes .
Six ports account for 65 percent of all North American trade by land, with Detroit, Michigan, and Laredo, Texas, handling the majority of trade on each U.S. border (figure 2). Trucks carry most of the trade at each of these ports, and the number of trucks entering at these border gateways has increased, in some cases, substantially (table 1). The origins and destinations of the trucks crossing at a particular port are often outside of the port state. For example, over 70 percent of the shipments that cross through the ports of Laredo and Buffalo have their respective origins or destinations outside of Texas or New York.
Map 1 and map 2show the top trade flows by truck between the United States and Canada and the United States and Mexico. Many of these flows represent relatively shorter hauls while others involved longer distance North American trade. These flows are increasingly characterized as trade and transportation corridors. The Transportation Equity Act for the 21st Century contained specific provisions for funding of trade corridor planning and border infrastructure enhancement to facilitate increases in North American trade.
Ten U.S. states accounted for about two-thirds of the value of North American land trade in 1999. They are Michigan, Texas, California, New York, Ohio, Illinois, Indiana, Pennsylvania, North Carolina, and Washington (table 2).1
1. U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division, FT920 U.S. Merchandise Trade: Selected Highlights, December 1994 (Washington, DC: 1994).
2. ____. FT920 U.S. Merchandise Trade: Selected Highlights, December 1999 (Washington, DC: 1999).
3. U.S. Department of Transportation (USDOT), Bureau of Transportation Statistics (BTS), special tabulation, August 2000, based on the following: USDOT, BTS, Transborder Surface Freight Data; and Source 2 above.