Prepared for Brookings Economic Measurement Workshop Two Topics in Finance

Some Information on the (Nonbank, Noninsurance) Financial Services Industries

Finance and insurance account for over 8 percent of gross domestic product (GDP) and the share of these rapidly expanding industries is growing—it was only 6 percent 15 years ago (Table 1). In the old SIC, finance and insurance was composed of six industries: depository institutions (banks, SIC 60), nondepository credit institutions (SIC 61), security and commodity brokers, dealers, exchanges and services (SIC 62), insurance carriers (SIC 63), insurance agents, brokers and service (SIC 64), and holding and other investment offices (SIC 67).

Brookings Measurement Workshops have previously covered banking and insurance. Banking and insurance account for about three-quarters of the finance total, but the other two industries (nondepository financial institutions and financial and commodity brokers) have far higher output growth rates (Table 2). Additionally, these are the industries where new financial products arise. For these reasons, it is important to examine the data for "nonbank, noninsurance financial services," which is the topic of this workshop.

I. Recent growth and productivity trends.

Table 3 presents an overview of the three financial services industries. As the table indicates, all three have experienced very rapid output growth in recent years. For example, securities industry real output in 2000 was over seven times as high as it was in 1987 (an index number of 287.1, compared with an index of 39.3)

Financial services industries not only have high output growth in recent years, they have very high productivity growth rates. Indeed, their productivity growth rates are at or near the top of all services industries (Triplett and Bosworth, 2002). Table 4 and Charts 1 and 2 present the data. We also present in Table 4 data for banks (depository institutions, SIC 60), partly for comparison, and partly because in our previous paper we combined depository and nondepository financial institutions because of certain data problems.

Though much recent analysis of productivity acceleration in the U.S. uses 1995 as the "break year" (Jorgenson and Stiroh, 2000, Oliner and Sichel, 2000, Stiroh, 2001), examination of the data for the financial industries suggests that 1992 is a better year to mark productivity acceleration.3 The choice of break year has no important substantive implications: Numerical magnitudes of the average annual growth rates are affected by it, but the qualitative results and conclusions are not.