The Role of Transportation The Role of Transportation in the U.S. Economyin the U.S. Economy

Presentation to the National Surface Transportation

Policy and Revenue Study Commission

June 26, 2006

Jack Wells

Chief Economist

U.S. Department of Transportation

Scope of the Transportation Scope of the Transportation SectorSector

NIPA accounts show Transportation as NIPA accounts show Transportation as 2.9% of GDP in 2004 (for-hire only)2.9% of GDP in 2004 (for-hire only)

Adding in In-house Transportation Adding in In-house Transportation increases the total to about 4.9%increases the total to about 4.9%

GDP produced for a Transportation GDP produced for a Transportation purpose: 11.2%purpose: 11.2%

Adding in the Household sector raises Adding in the Household sector raises Transportation to about 18.6% of GDPTransportation to about 18.6% of GDP

Growth in Passenger and Ton Miles

0

1

2

3

4

5

6

1960 1970 1980 1990 1996 1998 2000

Mile

s (M

illio

ns)

Passenger-miles

Ton-miles

Year

Growth in Freight Relative to GDP

0

50

100

150

200

250

300

350

1965 1975 1985 1995 1997 1999

Year

GDP

GDP for Goods

Ton-miles

Transportation is particularly Transportation is particularly important to certain industriesimportant to certain industries

Input-output data show transportation is Input-output data show transportation is 12 % of Agricultural Fertilizers and Chemicals12 % of Agricultural Fertilizers and Chemicals 10 % of Steel and other Metals10 % of Steel and other Metals 9 % of Coal9 % of Coal 8 % of Chemicals8 % of Chemicals 8 % of Motor Vehicles8 % of Motor Vehicles 8 % of Food8 % of Food High percentages of Stone and Clay, Livestock, High percentages of Stone and Clay, Livestock,

Paper, Paints, Rubber, Lumber, and PlasticsPaper, Paints, Rubber, Lumber, and Plastics

Why is Transportation Critical Why is Transportation Critical to These Industries?to These Industries?

Freight Transportation is important Freight Transportation is important because of thebecause of the Weight of goods that must be carriedWeight of goods that must be carried Distance that goods must be carriedDistance that goods must be carried Speed that goods must be carriedSpeed that goods must be carried

Weight of GoodsWeight of Goods

Industries that use heavy inputs or outputs Industries that use heavy inputs or outputs includeinclude Construction (stone and gravel)Construction (stone and gravel) Steel and other metalsSteel and other metals AgricultureAgriculture Energy (coal and oil)Energy (coal and oil) ChemicalsChemicals

Distance of GoodsDistance of Goods

Industries that must move goods over Industries that must move goods over great distances includegreat distances include Energy (coal and oil)Energy (coal and oil) Retail tradeRetail trade AgricultureAgriculture

Speed that Goods Must be Speed that Goods Must be CarriedCarried

Perishable commoditiesPerishable commodities Flowers, fresh foodsFlowers, fresh foods Fashion merchandiseFashion merchandise High-Technology productsHigh-Technology products

High-value commoditiesHigh-value commodities High value creates incentives to reduce inventory High value creates incentives to reduce inventory

carrying costs by reducing transportation timecarrying costs by reducing transportation time PharmaceuticalsPharmaceuticals ElectronicsElectronics

Labor ProductivityTransportation vs. All U.S. Business, 1990-2000

80

100

120

140

160

180

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

Ind

ex

(19

90=

10

0)

U.S. Business

Air Transp

Local Trucking

Rail

Trucking, except local

Source: Bureau of Labor Statistics

Petroleum Pipeline

Changes in Average Length of Haul

0

200

400

600

800

1,000

1,200

1,400

1,600

1960 1970 1980 1990 1996 1998 2000

Mile

s

Air

Rail

Truck

Year

U.S. International Merchandise Trade and GDP1970-2001

(In current dollars)

-

500

1,000

1,500

2,000

2,500

1970 1975 1980 1985 1990 1995 2000

Ind

ex o

f cu

rre

nt

do

llars

(19

70=

100)

Merchandise Trade

Gross Domestic Product

Source: BTS, based on BEA dataYear

“The greatest improvements in the productive powers of labor . . . seem to have been the effects of the division of labor. . . . The division of labor is limited by the extent of the market.”

-- Adam Smith, Wealth of Nations, 1776

Domestic Freight Ton-Miles by Mode1991-2001

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Ind

ex 1

991

= 1

.0

AirRailroad

Truck

Oil and Gas Pipelines

Water

Year

Source: Bureau of Transportation Statistics

1980 1985 1990 1995 2000

50

60

70

80

90

100

110

120

Start ofthe latestrecession

Sep-01

Jul-02

Apr-00

Dec-99

Apr-79

Feb-88

Jul-89

Aug-90

June-91

Start ofthe latestrecession

NBER-defined recession NBER-defined slowdown

Dec-80

May-03

Freight Transportation Output Index (FTOI)

Business Travel and Leisure Travel

18%

82%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Business Leisure

Percentage of Business Trips by Distance to Trip Destination

41%

33%

12%

5% 3%7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50-99miles

100-249miles

250-499miles

500-749miles

750-999miles

1000+miles

1980 1985 1990 1995 2000

60

70

80

90

100

110

120

Impactof 9/11

Sep-01

Dec-02

Start ofthe latestrecession

Jan-03

NBER-defined recession

Noc-00 Aug-01

Aug-02

Nov-79

Feb-89

May-81

May-03

Passenger Transportation Output Index (PTOI)

Average Hourly Earnings - Transportation vs. Total Private Sector

6

6.5

7

7.5

8

8.5

9

9.5

10

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Month/Year

19

82

Do

llars

Source: Bureau of Labor Statistics

Total Private Sector

Transportation and Public Utilities

Roadway Congestion Index

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1982 1985 1990 1995 1996 1997 1998 1999 2000

YearSource: Texas Transportation Inst

TTI Estimates Leave Out TTI Estimates Leave Out Many Congestion CostsMany Congestion Costs

Billions of dollars

TTI estimates of delay and fuel waste 63.1

Cities not included in TTI estimates 12.8

Productivity losses 38.0

Unreliability losses 38.0

Truck cargo delays 3.8

Safety and environmental costs 12.6

Total highway congestion costs 168.3

Congestion Costs are Growing Congestion Costs are Growing Faster than GDPFaster than GDP

Since 1982, the cost of congestion has Since 1982, the cost of congestion has grown at 8 % per year, more than double grown at 8 % per year, more than double the rate of growth of the economythe rate of growth of the economy

In 20 years, continued growth at this rate In 20 years, continued growth at this rate would bring the cost of congestion to would bring the cost of congestion to $890.5 billion $890.5 billion

Equal to 4.3 % of GDPEqual to 4.3 % of GDP

Congestion is Growing Faster in Congestion is Growing Faster in Rural Areas and Small CitiesRural Areas and Small Cities

Congestion has traditionally been an Congestion has traditionally been an urban phenomenonurban phenomenon

But congestion is growing most rapidly in But congestion is growing most rapidly in rural areasrural areas

From 1992 to 2002, traffic per lane-mile From 1992 to 2002, traffic per lane-mile grew grew 35 % on rural interstates35 % on rural interstates 21 % on urban interstates21 % on urban interstates

Rural congestion particularly affects freightRural congestion particularly affects freight

Congestion is growing more Congestion is growing more rapidly in smaller citiesrapidly in smaller cities

TTI found congestion costs grew from TTI found congestion costs grew from 1997 to 2003 –1997 to 2003 – 24% in Very Large Cities24% in Very Large Cities 26% in Large Cities26% in Large Cities 36% in Medium Cities36% in Medium Cities 56% in Small Cities56% in Small Cities

Real Net Capital Stock for Transportation and Other Industries

0

1

2

3

4

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997

Years

Log (

$B)

Highway

Other Industries

Railroad

Motor Vehicles

Government Revenues Generated by Transportation

-20,00040,00060,00080,000

100,000120,000140,000

1985 1987 1989 1991 1993 1995 1997 1999 2001

Year

Dolla

rs ($

Milli

ons) All Levels

Federal Highway