Intermediate consumption

Intermediate consumption (also called "intermediate expenditure") is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts (NIPA) and the European System of Accounts (ESA).

Conceptually, the aggregate "intermediate consumption" is equal to the amount of the difference between gross output (roughly, the total sales value) and net output (gross value added or GDP). In the US economy, total intermediate consumption represents about 45% of Gross Output. The services component in intermediate consumption has grown strongly in the US, from about 30% in the 1980s to more than 40% today.

Thus, intermediate consumption is an accounting which consists of the total monetary value of goods and services consumed or used up as inputs in production by enterprises, including raw materials, services and various other operating expenses.

Because this value must be subtracted from gross output to arrive at GDP, how it is exactly defined and estimated will importantly affect the size of the GDP estimate.

Intermediate goods or services used in production can be either changed in form (e.g. bulk sugar) or completely used up (e.g. electric power).

Intermediate consumption (unlike fixed assets) is not normally classified in national accounts by type of good or service, because the accounts will show net output by sector of activity. However, sometimes more detail is available in sectoral accounts of income & outlay (e.g. manufacturing), and from input-output tables showing the value of transactions between economic sectors.

Excluded from intermediate consumption in the UNSNA system are:

Included in intermediate consumption in the UNSNA system are:

Conceptually, intermediate goods or services should be valued at purchaser's market prices (including transaction costs and tax), at the point in time when the good or service enters the process of production, not when they were acquired by the producer.

In practice, the two times will coincide for inputs of services, but often not for goods, because these can be bought and stored some time as inventories, before they are actually used in production.

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