Gross Domestic Product

Gross Domestic Product (GDP) is the market value of all the finished goods and services produced within a country’s borders in a specific time period. As such, it functions as a comprehensive scorecard of a country’s economic health. Recessions are defined as a significant, widespread, and prolonged downturn in economic activity. The National Bureau of Economic Research (NBER) is responsible for “officially” defining when recessions begin and end. However, a popular rule of thumb is two consecutive quarters of negative GDP growth represent a recession.

Components of GDP

GDP is made up of four primary components:

  1. Personal Consumption
  2. Investment (residential, non-residential, & change in inventories)
  3. Government Spending (Federal, state, & local)
  4. Net Exports (exports less imports)

About 70 percent of the U.S. economy is personal consumption. The graph below shows quarterly GDP growth (blue bar) and the contribution to that growth by each of the various components. For purposes of this graph, the three types of investment have been broken out individually.