Economics
Gross Domestic Product (GDP)
Reviewed
What does GDP measure?
Gross domestic product measures the value of final goods and services produced within a country's borders. Counting only final output avoids double-counting intermediate inputs. In the United States, the Bureau of Economic Analysis publishes the official estimates.
The GDP formula
The expenditure approach is commonly written as GDP = C + I + G + (X - M).
| Component | What it includes |
|---|---|
| C | Household consumption |
| I | Business and residential investment |
| G | Government consumption and investment |
| X - M | Exports minus imports |
Imports are subtracted because their value may already appear in consumption, investment, or government spending but was produced outside the country.
Nominal GDP versus real GDP
Nominal GDP uses current prices, so it can rise because production increased, prices increased, or both. Real GDP adjusts for inflation and is the better measure of changes in output over time. GDP per capita divides output by population and is more useful for comparing average economic output across countries or periods.
How investors use GDP
Markets compare growth with expectations and with the economy's sustainable pace. Stronger real growth can support earnings but may also keep inflation and interest rates higher. Weak growth can pressure cyclical profits and eventually encourage easier policy. GDP is backward-looking and revised repeatedly, so investors pair it with timelier labor, spending, and survey data.
Does two negative quarters mean recession?
Two consecutive quarters of falling real GDP are a popular rule of thumb, not the official U.S. definition. The National Bureau of Economic Research evaluates a broader, sustained decline across income, employment, production, and sales.
Example
Two consecutive quarters of shrinking GDP is a common rule of thumb for a recession, though not the official definition.
Related terms
Gross Domestic Product (GDP) — FAQ
What is Gross Domestic Product (GDP)?
Gross domestic product (GDP) is the total value of all goods and services produced within a country over a given period, the broadest measure of economic output.
Can you give an example of Gross Domestic Product (GDP)?
Two consecutive quarters of shrinking GDP is a common rule of thumb for a recession, though not the official definition.
What is the difference between nominal and real GDP?
Nominal GDP values output at current prices. Real GDP removes the effect of price changes so it better reflects whether the quantity of economic output grew or shrank.
Why are imports subtracted from GDP?
Imported goods can be included in consumption, investment, or government spending, but GDP measures domestic production. Subtracting imports removes that foreign-produced value.
Is GDP the same as the stock market?
No. GDP measures current domestic production, while stock prices reflect expected future profits and discount rates. They can move in different directions, especially over short periods.
Can GDP estimates change after release?
Yes. Statistical agencies revise GDP as more complete source data arrive, so the advance estimate can differ from later estimates for the same quarter.
The term is free. The call is membership.
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