GDP (Gross Domestic Product)

Gross Domestic Product is the headline measure of a country's economic output. US GDP is roughly $28 trillion annually. When GDP grows, the economy is expanding — more goods and services are being produced, typically meaning more jobs, higher wages, and growing corporate profits. When GDP contracts, the economy is shrinking.

GDP is reported quarterly by the Bureau of Economic Analysis, with three estimates: advance (30 days after quarter end), second (60 days), and final (90 days). The advance estimate gets the most market attention, though revisions can be significant. GDP is expressed as an annualized growth rate — "3% GDP growth" means the economy would grow 3% if the quarter's pace continued for a year.

The GDP formula is: C + I + G + (X - M) — Consumer spending + Investment + Government spending + Net exports. Consumer spending typically accounts for roughly 70% of US GDP, which is why consumer confidence and spending data are so closely watched by markets.

Real GDP adjusts for inflation (using a GDP deflator), while nominal GDP does not. Real GDP is the meaningful measure — if nominal GDP grows 5% but inflation is 4%, real growth is only about 1%. Economists and investors focus on real GDP growth to understand actual economic expansion.

For investors, GDP growth drives corporate earnings growth over the long run. The stock market tends to perform well when GDP is growing steadily and inflation is contained. However, the stock market is forward-looking — it often declines before GDP actually turns negative and recovers before GDP turns positive.