gross domestic product

The total production and consumption of goods and services in a country. GDP measures production by totaling the labor, capital, and tax costs of producing the output. To calculate consumption, GDP adds up expenditures by households, businesses, government, and net foreign purchases. GDP is a closely watched economic indicator that provides a wide and encompassing picture of economic activity. In the United States, the Department of Commerce assembles GDP data in its Bureau of Economic Analysis. The report is produced one month after the quarter’s end and then is updated a month later followed by another update a month later.

GDP is closely watched because it is a very comprehensive measure of economic activity. It also measures inventories, which is an important indicator of economic activity. If inventories are growing strongly, then that suggests a slowing economy because products are sitting on the shelf and not being sold. However, GDP is problematic because the date is not as timely as monthly or weekly indicators. There also is not regional breakout for GDP.

The data also includes the GDP price deflator, which is used to convert output measured at current prices into constant-dollar GDP. This data is used to define business cycle peaks and troughs. Total GDP growth of between 2.0 percent and 2.5 percent is generally considered to be optimal when the economy is at full employment (unemployment between 5.5 percent and 6.0 percent). Higher growth than this leads to accelerating inflation, while lower growth indicates a weak economy.