Federal Reserve Board research links the industrial production and goods GDP divergence to imports and rising wholesale and retail service content

The Federal Reserve Board published a FEDS Note revisiting why the industrial production (IP) index and the goods component of GDP have increasingly diverged since the early 2000s. The analysis finds that adjusting goods spending for imports and for the growing contribution of wholesale and retail activity embedded in final goods largely reconciles spending-based and production-based measures, with the remaining aggregate gap attributed to rising service content in goods. Component comparisons show divergences for consumer durables, consumer nondurables, and equipment spending versus corresponding IP indexes, while construction supplies track construction investment more closely. Import adjustments explain only a small share of the durable-goods divergence on average 11.7 percent since the early 2000s, close around 50 percent of the nondurable-goods gap on average since the early 1990s, and fully account for the equipment divergence, alongside an increase in the import share of domestic equipment consumption from under 5 percent in the early 1980s to more than 60 percent in recent years. To capture the role of wholesalers and retailers, the note re-deflates import-adjusted consumer spending with producer price indexes, which almost fully aligns spending with production for durables and nonenergy nondurables, consistent with rising service content associated with final goods.