Manufacturers increasingly use global supply chains to provide inputs for their production operations. Outsourcing elements of the production process can lead to genuine improvements in productivity if the supplier of the outsourced inputs is able to produce those inputs more efficiently than the original manufacturer. These improvements are reflected in the growth of output and productivity for the U.S. manufacturing sector and may accrue not only to domestic production workers, but also to the designers, managers, engineers, distribution network, other U.S. workers, and owners of companies involved in the global production of U.S. products.
Since imported inputs are subtracted in calculating GDP for the manufacturing sector, nominal (or current-dollar) GDP is not overstated. The value added of the U.S. manufacturing sector reflects the gains in efficiency associated with lower-cost imported inputs, which in turn, may be reflected in the sector’s productivity. However, real (or inflation adjusted) GDP and productivity growth for the manufacturing sector may be overstated because the price indexes used to deflate imported inputs do not fully capture shifts in sourcing to, and among, foreign suppliers.
BEA has conducted and helped fund research suggesting that difficulties in measuring the fast-changing characteristics of the prices of imported inputs may result in an overstatement of real GDP and productivity (estimates range from 0.1 to 0.2 percentage point on real GDP growth), but this is likely to be offset by a similar problem in measuring domestically produced inputs of goods and services.
For more information, see the FAQ, "Is offshoring causing GDP and productivity growth to be overstated?" BEA is working with BLS and with other researchers to assess these issues and to develop improved methods for measuring import prices.