GDP

What Is GDP?

GDP (Gross Domestic Product) is the monetary value of all finished goods and services produced within a country's borders in a specific time period. It is the primary measure of economic size and growth. The US releases GDP quarterly, in three successive estimates: Advance (first estimate), Preliminary, and Final.

The Components (Expenditure Method)

GDP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X-M)

• C (~70% of US GDP): Personal consumption — cars, food, healthcare, services
• I (~18%): Business fixed investment, residential investment, inventory changes
• G (~17%): Federal, state, and local government spending (not transfers)
• X-M (~-4%): Exports minus imports (the US runs a persistent trade deficit)

Nominal vs Real GDP

Nominal GDP measures output in current dollars. Real GDP adjusts for inflation using a price deflator. When analysts discuss GDP "growth," they typically mean real GDP growth — otherwise inflation alone would make the economy look like it's always growing.

Two Consecutive Quarters Rule

A common rule of thumb defines a recession as two consecutive quarters of negative real GDP growth. However, the NBER (National Bureau of Economic Research) — the official recession arbiter — looks at a broader set of indicators and can declare a recession that doesn't meet this simple test.

Why Markets Watch GDP

GDP is a lagging indicator — it tells you where the economy was, not where it is going. Markets have typically priced in the growth or recession scenario well before the GDP print confirms it. However, the GDP report also contains revisions to prior quarters and detailed component data that can meaningfully shift the macro narrative.