Definition
Gross domestic product (GDP) is the market value of all final goods and services produced in the United States in a period. Nominal GDP uses current prices, so it can rise just because prices rose. Real GDP removes the effect of inflation and measures the change in the actual quantity produced. When the news reports that “the economy grew 2.5%”, it means real GDP.
How it works
The Bureau of Economic Analysis builds GDP mainly by adding up spending: consumer spending (about two-thirds), business investment, government purchases and net exports. Real GDP is published every quarter and reported as an annualized growth rate: the change from the previous quarter compounded over four quarters.
Annualized growth = ((real GDP this quarter ÷ real GDP last quarter)4 − 1) × 100
The first estimate (advance) comes about a month after the quarter ends and is revised twice in the following two months, then again in annual updates years later.
Example
If real GDP rises from $23.00 trillion to $23.15 trillion in one quarter, it grew 0.65%; compounded over four quarters that is about 2.6% at an annual rate. The annualizing explains the extreme numbers of 2020: output fell about 8% in the second quarter, reported as −28% annualized, then rebounded about 7.8%, reported as +34.9%.
Revisions matter too. The first estimate for the second quarter of 2022 showed a decline, making two negative quarters in a row and setting off a debate about recession. After later revisions the quarter shows growth.
Real GDP in history
Readings at turning points, taken from the same data as the chart above.
| Date | Real GDP growth | Jobless rate | What was happening |
|---|---|---|---|
| Q1 1950 | 16.7% | 6.5% | Postwar boom. |
| Q1 1958 | −10.0% | 5.8% | Deepest quarterly drop of the 1957–58 recession. |
| Q2 1980 | −8.0% | 6.9% | Sharp contraction in the short 1980 recession. |
| Q4 2008 | −8.5% | 6.5% | Worst quarter of the Great Recession. |
| Q2 2020 | −28.0% | 14.8% | Pandemic lockdowns: the largest decline on record. |
| Q3 2020 | 34.9% | 10.2% | Rebound: the largest gain on record. |
| Q2 2022 | 0.6% | 3.7% | First reported as a second straight decline; revised to growth. |
| Q3 2026 | 3.4% | 4.1% | Latest reading. |
Monthly values, except quarterly GDP. Explore every month on the US GDP Growth chart.
Common mistakes
- “Two negative quarters is the official definition of a recession.” In the US, recessions are dated by the National Bureau of Economic Research, which looks at a broad set of indicators, especially jobs and income. The two-quarter rule is only a rule of thumb.
- Reading the annualized rate as the quarterly change A reported 4% growth rate means about 1% growth in that quarter.
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Real GDP: questions and answers
What is a normal GDP growth rate?
Since 2000, US real GDP has grown a little over 2% a year on average. Economists put long-run potential growth at around 2%, depending on labor-force and productivity growth.
Is GDP the same as GDP per person?
No. GDP can grow simply because the population grows. Real GDP per capita, which divides by population, is a better guide to living standards.