GDP measures the market value of all the final goods and services produced in a country in a given time period. It is a key indicator of economic health and is used around the world as the primary gauge of a nation’s economic success. The percentage that GDP grows (or shrinks) from one period to the next is widely considered a barometer of the economy’s strength.
Economists use it to track economic trends, understand economic cycles and predict future growth. Policy makers use it to make decisions about public spending, tax rates and interest rates. Central banks closely follow changes in inflation-adjusted GDP to determine how fast they should increase or decrease interest rates to control inflation and stimulate the economy.
There are several issues with using GDP as a measure of a nation’s economic well-being. First, it does not take into account non-market transactions. This includes under-the-table employment, underground markets and unremunerated volunteer work. It also does not capture certain phenomena impacting citizens’ well-being, such as pollution caused by traffic jams.
In addition, it is important to understand how GDP is measured. BEA publishes three estimates of GDP each quarter, and each estimate is revised as new data become available. The advance or first estimate of GDP, which comes out about a month after the end of the quarter, incorporates source data that were not yet available at the time BEA published the last quarterly release. The second and third estimates incorporate additional source data that improves accuracy. Only expenditures on final goods and services count toward GDP; purchases of intermediate products do not count.