Gross domestic product (GDP) measures a nation’s economic growth or decline based on productivity and purchases. It can be evaluated on a real or nominal basis, and a GDP price index takes inflation into account. GDP is reported quarterly and can be revised up to two times, impacting how economists determine business cycle shifts.
Gross domestic product (GDP) is a barometer of how much a nation’s economy is growing or shrinking. This indicator measures growth based on the level of productivity in a region, along with the pace at which nationally produced goods and services are purchased. GDP is an economic indicator released quarterly in many countries, and the most recent quarterly data reflects activity for the previous three-month period. Data can be evaluated on a real or nominal basis, both of which are linked to the pace at which inflation may be rising. Economists revise quarterly results up to two times so that market participants can consider preliminary data, followed by interpretation of revised information in subsequent months.
Among the ways to approach the GDP include the evaluation of nominal and real results. Variations in these results reflect whether inflation in the economy, which is when the cost of goods increases and the value of a region’s currency decreases, is being considered. Nominal results are those that reflect any growth or contraction of the economy without taking inflation into account. Real gross domestic product, on the other hand, takes inflation into account and reflects the growth or contraction of the economy after inflation.
A GDP price index illustrates the change in direction of economic growth or contraction in a region compared to the previous year or other time period. This barometer takes inflation into account. Later, economists can identify rising inflation by recognizing a rising trend in the price index. The index is not the only measure of inflation, however, and it is not the most common. This is because the index does not take into account all of a country’s relevant price exposures and the data reflects activity in the previous quarter as opposed to current activity.
While GDP is typically reported four times a year, the information has the potential for upward or downward revisions for two months after the original results. This can impact how economists determine the starting or ending point of a business cycle shift. For example, if an economy is entering a recession, the gross domestic product retreats or declines for at least two consecutive quarters. A change in the revision of this economic indicator may prompt economists to adjust when the business cycle changes.
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