GDP is the most well-known statistic about a nation’s economy, and it gets lots of attention from journalists and investors. It is also a critical component of economic policy discussions. It is important to understand how it’s measured and how it might change over time.
The official definition of GDP is market value of a country’s final goods and services at current prices. This includes all consumption, investment, additions to private inventories and paid-in construction costs. A country’s GDP tends to increase when the value of its exports is greater than the value of its imports. The difference is a trade surplus. GDP also increases when the price of imported goods and services goes up. This is known as “inflation.” GDP can be adjusted for inflation to allow comparisons between periods. This is called real GDP.
Normally, the largest component of GDP is consumption (C). This includes consumer spending on food, rent, jewelry and gasoline. It is often influenced by consumer confidence, and it can move markets. Other large components of GDP are investment in businesses and infrastructure and government spending, including military spending. The remainder of the components are small and can vary greatly from period to period. For example, mining investments might make large contributions to GDP when a resource boom is occurring, and subtract from growth during a bust.
The US Bureau of Economic Analysis (BEA) releases new GDP statistics three times per quarter. The first release is an advance estimate, which comes four weeks after the end of a quarter. The second and third releases incorporate additional source data that weren’t available in the advance estimate, improving accuracy.
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