What is GDP? And what does it tell us about the economy?

August 04, 2017

A bellwether statistic many economists look at to gauge the health of the U.S. economy is Gross Domestic Product (GDP). GDP is defined simply as the total value of goods produced and services provided in a country during one year. Over the past 50 years, the United States has averaged an increase of 2.8% in real GDP growth per year. Since the recession, however, GDP growth has averaged 2.1%.

The sluggish post-recession growth has led to many debates over what long-term growth rates will be in the future.  Last Friday, the Bureau of Economic Analysis reported the United States GDP grew 2.6%. The report was viewed by most as a positive indicator of economic health and an acceleration from previous quarters.

This report, coupled with strong earnings reports from large U.S. companies, has contributed to solid stock market returns for the year. But a key question that we continue to follow is whether or not GDP growth will steadily advance to a 3% annualized rate, or revert back to 2%.