We originally posted this chart in February 2011, which we just updated also breaking out the real estate industry from FIRE (finance, insurance, and real estate). It is still just as shocking as it was back when we first produced it.
Economy Jumps The Shark
The U.S. economy jumped the shark in 1990 when FIRE overtook the manufacturing sector in terms of its contribution to GDP. More stunning is that real estate is now the largest industry sector of the U.S. economy in terms of value added output, now surpassing manufacturing by 0.8 percent of GDP.
An Economy Of Flippers
Who would have thought in 1947 that output of the country’s manufacturing sector would decline from one-quarter of the gross domestic product to close to 11 percent and would be surpassed by the output of a bunch of real estate agents and house flippers? Nothing against real estate agents, by the way, and Flipper was my favorite television show as a kid.
Real estate is now the largest industry as a percentage of GDP.
Greater Sensitivity To Interest Rates And More Leverage
No wonder why the economy and markets are so addicted to and can’t live without low-interest rates. The danger is, however, the real estate sector is a highly leveraged industry. Real estate deflation the one the Fed fears most.
Appendix
See BEA classification guide here
Global Macro Monitor 
This is a very important point. Adair Turner in “Between Debt and the Devil” (Princeton, 2015) drew the implications of this point for financial services. It is the mirror image of the economy, with the lion’s share of bank lending now going to real estate (majority consumers not commercial). A further implication is that for a large share of the population wealth consists primarily of real estate. This is widely the case throughout the OECD. Have we been blinded by the tremendous vitality and innovation in the tech sector to such an extent the we have failed to consider whether the dominance of real estate in the economy is a recipe for economic growth and development?
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When they count the value add of the manufacturing sector, does that take account of off-shoring? For example, ‘computer and electronic products’ is 1.4%, does that include companies that are manufacturing in China as contributing to manufacturing? Are automobiles manufactured in Mexico included? If a car company gets revenue from finance, does that go under finance or manufacturing? Just wondering to what degree these stats underestimate financialization.
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I suspect that among the ‘insurance’ is the covert insurance of REMITTANCES. Remittances now control the global dollar economy. The US has waged economic war for decades in Latin America and Mexico and Hispanola. The slaughter in Vietnam allowed the elite forced to flee to return with US dollars and inch into the local economy. We will now see a repeat in Afghanistan as in Pakistan. We have yet to have peace accords with countries intentionally divided as spoils of war, with the sole exception of Germany, the western stabilizer of the continent.