MACRO: The Past and Future of U.S. Structural Change: Compositional Accounting and Forecasting; Dr Pierre-Daniel Sarte (Federal Reserve Bank of Richmond)

Abstract

We study the shifting relative importance of different production sectors in the U.S. economy since World War II, and provide methods for estimating and forecasting these trends. Using a compositional accounting approach, we find that the well-documented shift from goods to services is primarily driven by two compositional changes: 1) the rise of Intellectual Property Products (IPP) as an input producer, replacing Durable Goods almost one-for-one in terms of input shares in virtually all sectors; and 2) a shift in consumer spending from Nondurable Goods to Services. A structural model replicating these historical trends reveals that trend variations in sectoral total factor productivity, and their attendant effects on relative prices and income, are the main driver of evolving consumption patterns. The rise of IPP at the expense of Durable Goods is largely explained by increases in the efficiency of IPP inputs used in production: input-biased technical change. Both reduced-form and structural forecasts project these trends to continue over the next two decades, albeit at reduced rates, indicating a slower pace of structural change.