Gross output

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Gross output is an economic concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the US National Income and Product Accounts (NIPA). It is equal to the value of net output or GDP (also known as gross value added) plus intermediate consumption.

Gross output represents, roughly speaking, the total value of sales by producing enterprises (their turnover) in an accounting period (e.g. a quarter or a year), before subtracting the value of intermediate goods used up in production. This description is not quite accurate though, among other things because flows and imputations relating to government services and households are also included.

To obtain a measure of gross value added or Net output, the value of intermediate goods and services must be subtracted from gross output. Net value added is obtained by additionally subtracting consumption of fixed capital (depreciation).

Definition of production[edit]

The statistical definition of gross output is dependent upon the definition of production applied. Typically some economic flows and activities are excluded from coverage in calculating the value of gross output, on the ground that they are unrelated to production in the domestic economy. These include certain foreign transactions, property income, transfers, land sales, and various government disbursements, unpaid housework and voluntary work. On the other hand, items are included which some economists would regard as spurious, such as the imputed rental value of owner-occupied housing (this is the average rents, at market rates, which owners of residential housing would receive if they rented out the housing they occupy).

Presentations in UNSNA accounts and US national accounts[edit]

In the UNSNA standard "product account", gross output is the largest aggregate, and it is shown how GDP is derived from it, via subtracting intermediate consumption. However, in the American NIPA system, no annual totals for gross output and intermediate consumption are shown in the product account, the focus being on GDP and its components only - gross output and intermediate consumption are cited only in the input-output tables compiled for intermittent years. Thus, to find annual data for gross output and intermediate consumption of the United States, one needs to refer to UNSNA data sets. The estimates for components of US gross output in UNSNA and NIPA differ somewhat, because NIPA accounts do not fully conform to the UN standard.

Gross output versus net output[edit]

Gross and net output are frequently confused with each other in economic discourse, insofar as the net output of a particular industry or economic sector is assumed to refer to the total sale value of its products produced during an accounting interval. This is however not the case, because the net output of a sector refers only to the value-added by that sector, equal to the factor income it generates. The total value of its output is in reality its gross output, which includes the value of materials and operating costs used to produce the output. It is only the net output of the whole economy (equal to GDP) which provides a measure of the total value of all new goods and services produced together. If, say, a car factory produces a car, the value of the car includes both labour costs, tax imposts and gross profit (its value-added, which is its contribution to GDP), but also the value of materials and services used up to make the car, which are inputs purchased from other sectors (or imported) that are used up in production. Since the inputs of one industry are the outputs of another, goods and services used up in production have to be subtracted from the grand total of output sales in the whole economy in order to obtain a grand total for the net output value in the whole economy. But at the level of an individual sector, the total value of the goods and services it produced in an accounting interval is not the net output, but the gross output.

Sector transactions[edit]

Typically national accounts are sectorized, i.e. separate accounts are compiled for distinct industry output sectors such as manufacturing, agriculture, and different services; economic sectors such as market and non-market sectors; and institutional sectors such as the public sector, the private sector and households. Thus it is usually possible to obtain measures of the gross output for different sectors of the economy.

The transactions between different sectors who purchase inputs and sell outputs to each other are analyzed by national statistical offices using an input-output model. The input-output matrix tables which are calculated every few years by statistical offices provide a means to assess the effect which the growth or decline of particular sectors has on other sectors of the economy, which either buy its products or supply goods and services to them. They show, for each sector, the value of the inputs it purchases from other sectors, and the value of purchases of its gross output by other sectors. Sectoral output is the value sold by an industry to other industries; it excludes that output sold within the industry itself.

See also[edit]