Posted on Tuesday, September 21, 2010
Gross Domestic Product: What You Need to Know
by NAR Research Staff
Gross Domestic Product – GDP – measures the total final market value of all goods and services produced in a given year in the United States. A number of components make up the GDP: Consumption, Investment, Government Expenditures, and Net Exports. Total GDP was in the neighborhood of $14.119 trillion in 2009. In general, consumer spending (consumption) accounts for the largest share of GDP – generally around 70 percent
Factors that cause the GDP to increase include rising consumer confidence, productivity improvements, increased business investment, increased exports, falling interest rates, and rising consumer and government expenditures. Factors that cause the GDP to decrease include declining consumer confidence, rising imports, declining exports, lower consumer spending, a poor investment outlook, and rising interest rates.
The GDP is a circular flow of expenditures by businesses and consumers. Consumer, government, and business expenditures wind up with stores, vendors, and other recipients. These recipients in turn allocate the money to wages, rents, and profits, and the money flows back to the consumers —who then spend it again. This is why the GDP is frequently termed a “circular flow.” Anything that increases the circular flow—such as tax rebate check, additional exports, or additional government spending—causes the GDP to increase. Anything that takes money out of the circular flow—such as taxes or spending on additional imports— causes the GDP to decrease.
In general, prosperity is associated with rising GDP, with recession being associated with falling GDP. Sometimes the GDP just remains constant or grows very slightly. When this happens it is sometimes called a “growth recession.”
The Bureau of Economic Analysis – which is part of the U.S. Department of Commerce – releases figures on GDP growth several times during a quarter. There are usually three estimates of GDP for each quarter – based on the amount of “complete” data the bureau was able to collect and analyze. You can always find the latest GDP figures on the Bureau’s web site at www.bea.gov.
In addition to the “official” release of GDP figures, NAR economists give their take on what the latest
GDP data mean for real estate and REALTORS®. Be sure to visit www.realtor.org/research and click on “Economists Outlook” to get valuable insights.