What is GDP?
GDP sums the value of all goods and services produced in a country during a quarter or year. US GDP was approximately $28.8 trillion in 2024, making it the world's largest economy. GDP is calculated as consumption (about 68% of US GDP) plus investment (18%) plus government spending (17%) plus net exports (-3%). Two consecutive quarters of negative GDP growth is the common shorthand definition of a recession, though the official determination involves broader criteria.
Real GDP vs. Nominal GDP
Nominal GDP measures output at current prices, while real GDP adjusts for inflation to show actual growth in production. If nominal GDP grows 5% but inflation is 3%, real GDP growth is approximately 2%. The US has averaged about 2.0-2.5% real GDP growth over the past two decades. China's real GDP growth has slowed from double digits in the 2000s to roughly 5% in recent years. Japan has struggled with real GDP growth below 1% for much of the past 30 years, partly due to its aging population.
Key Considerations
GDP has significant limitations as a welfare measure. It counts disaster rebuilding as positive economic activity, ignores unpaid household work, and does not account for income inequality or environmental degradation. GDP per capita provides a better comparison between countries of different sizes - the US at roughly $85,000 versus Japan at $34,000 and India at $2,500. For investors, GDP growth rates influence corporate earnings, interest rate policy, and currency values, making GDP reports among the most market-moving economic releases.