GDP, or gross domestic product, is a measurement of the total value of all goods and services produced in the United States over a given time period. It is used by economists, government officials, market forecasters and others to gauge the overall health of the U.S. economy.
Although there are several ways of calculating GDP, the expenditures approach is the most common. It focuses on final goods and services purchased by four groups: consumers, businesses, governments (federal, state, and local), and foreign users.
The calculation and a description of its components follow:
C+I+G+(X-M)
Consumption (C): Also known as personal consumption, this category measures how much all individual consumers spend in the U.S.
Investment (I): Not to be confused with investments in the stock and bond markets, this is the amount businesses spend on fixed assets (e.g., machines and equipment) and inventories, as well as the amount spent on residential construction.
Government (G): This category tracks the amount the government spends on everything from bridges and highways to military equipment and office supplies. It does not include “transfer payments”–for example, Social Security and other benefit payments.
Exports (X): This is the value of goods and services produced in the U.S. and purchased in foreign countries.
Imports (M): This is the value of goods and services produced in foreign countries and purchased in the U.S.
Historically, the U.S. has run a “trade deficit,” which means imports have outpaced exports.
Once the final GDP values are calculated, the percentage change is calculated from one time frame to the next, generally quarter to quarter or annually. Reported quarterly by the Bureau of Economic Analysis, these percentages can influence both investment markets and policy decisions.
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