The gross domestic product (or “GDP”) measures the value of all the final goods and services produced within a country in a given period. It is the broadest measure of economic activity and is closely watched around the world as an indicator of a nation’s health. When GDP growth is rapid, it can indicate strong economic momentum and is often linked to unemployment rates, inflation and other macroeconomic policies. On the other hand, slow GDP growth may indicate a decelerating economy that can lead to job loss and slower wage growth.
The components of GDP are C (consumption), I (investment) and X (exports). Unlike other economic measurements, which can include indirect spending or business-to-business transactions, the GDP calculation intentionally ignores such activity. This makes it less sensitive to economic fluctuations compared to metrics that take such activity into account. This is one of the reasons why GDP is considered a “domestic” measure and not an international one.
A country’s GDP is normally measured in its own currency. This can make it difficult to compare between countries, unless it is converted into a common currency such as the U.S. dollar. This is done using either market exchange rates or purchasing power parity (“PPP”) exchange rates.
The White House and Congress use GDP numbers when planning government spending and tax policy. The Federal Reserve also rely on them when setting monetary policy. And businesses follow the numbers, too, as they make decisions about expansion, hiring and investment. The BEA publishes monthly, quarterly and annual GDP data for the entire United States as well as state, metropolitan area and county GDP estimates.
