Bureau of Economic Analysis
How the BEA Affects You
The Bureau of Economic Analysis is the research arm of the U.S. Department of Commerce. It provides some of the most closely watched U.S. economic indicators. The government uses the BEA reports to form economic policy. Investors change their buying habits as a result. Companies also use BEA data to make business decisions. As a result, the Bureau influences tax laws, government spending, and the stock market.
What the BEA Does
The BEA collects exhaustive amounts of data from businesses, summarizes them, and presents reports regularly. It does not interpret the data or forecast trends.
The Bureau releases statistical reports on four levels: international, national, regional, and industry.
There are three international subject areas. The balance of payments measures trade in goods and services. The BEA compares the value of U.S.-owned assets held abroad vs. the amount of foreign investment in the United States. These statistics describe the effects of international lending and investment on the U.S. economy. The BEA also provides the most comprehensive data on multinational corporations.
There are five national reports. The most important covers gross domestic product (GDP), which describes economic output. The personal income and outlay report is a significant component of GDP. The Bureau also reports on corporate profits and their fixed assets. The fifth national report is called integrated macroeconomic accounts, which links production and income to changes in net worth. This helps determine how much capital is available for investment.
The BEA also breaks down GDP and personal income on a regional level. Various data are available for states, counties, and metropolitan areas. The statistics help local governments manage their economies. They can evaluate the impacts of changes in government regulations, policies, or programs. The federal government also uses regional estimates to distribute funds to states.
On an industry level, the BEA provides three reports:
- GDP by industry (with breakouts for crucial areas, such as durable goods, construction, and real estate)
- The flow of goods and services for 400 industries
- Details on capital flow by industry
The Bureau also creates satellite accounts for industries of particular interest. These include travel- and tourism-related industries, arts and culture, and health-care spending by disease. There are also special reports on the digital economy, measurement of innovation, and industries involved in outdoor recreation.
Gross Domestic Product
GDP is the most important of the BEA's economic reports. It tells you how much the United States produced in the last year. It's calculated for each quarter and updated monthly. The BEA also calculates the GDP growth rate, which tells you how fast the economy grew.
The BEA reports on the most important component of GDP. The statistics on personal consumption expenditures tell you how much Americans are spending. Historically, spending has driven between 60% and 70% of the economy. If personal consumption drops enough, it will send the country into a recession.
The chart below shows the quarterly GDP rate from 2007 through 2020. A healthy economy generally grows between 2% and 3% annually—that's the ideal GDP growth rate.
The Balance of Trade
The BEA reports on the U.S. balance of payments, including imports and exports. When exports are higher than imports, it contributes to GDP. When imports are greater than exports, it creates a trade deficit. This helps explain why President Trump was willing to start a trade war to reduce the U.S. trade deficit: A trade surplus would increase economic growth.
How the Bureau Affects the Economy
The BEA reports influence virtually all financial and business decisions. For example, if the BEA reports that GDP did not rise as high as expected, the stock market may drop. Businesses, anticipating a recession, may delay investing in new capital equipment. Reports from the BEA can influence policy decisions about the economy, as well.
How to Use the BEA Reports to Make Money
Learning to interpret BEA reports can be a great way to improve your skills as an investor.
You can interpret the reports by learning the four phases of the business cycle. For example, if GDP growth is 3 to 4%, you'll know that the U.S. economy is in the expansion phase of the cycle. If growth is 4% or higher, you'll be aware of the irrational exuberance of a peak. You'll be on the lookout for the next phase of contraction. The BEA may not report a contraction until a month, a quarter, or even a year after it's over, thanks to its many revisions. But you'll know where we are in the business cycle by keeping a close watch on the BEA's GDP report.
Besides the BEA's reports, you should also follow other leading economic indicators. For example, if GDP is 3%, but the durable goods order report shows future business orders are down, it's a likely indicator that a contraction is coming.