GDP stands for gross domestic product and is one of the primary ways economists measure the health of an economy. It's calculated quarterly by the U.S. Bureau of Labor Statistics and other organizations, such as the World Bank. There are several ways to figure GDP but basically it's a measure of the total production in a country. Its change or growth from quarter to quarter indicates whether things are getting better or worse.
There are three basic ways to calculate GDP: expenditure, product and income. The most common method, expenditure, uses consumption or total purchases of goods and services, plus government spending, investments and net exports. The product approach figures the market value of goods and services produced. Income totals the money received by all producers in a country. These methods generate similar results.
A country's GDP doesn't have a direct impact on the lives of most people. It does affect government policies and investments, and it influences businesses' decisions on whether to expand or not. It also affects prices, wages and most other spending and is a guide to whether the national economy is inflating or deflating. A declining GDP, for instance, indicates a recessionary trend, which can be reflected in a business slowdown.
Per Capita GDP
The per capita GDP in the United States, the total value for each person, was about $1,700 in 1947, but grew at a rate of about 2.5 to 3 percent a year and reached $47,000 by 2008, fueled in part by inflation. Growth has slowed since then and it grew at only about 3 percent in 2011 and slowed to 1.9 percent in the first quarter of 2012. It remained at about $47,000 as of 2011.
National GDP is used to compare the economies of various countries. Greece, for instance, saw its per capita GDP drop from over $30,000 in 2008 to about $26,000 when it stumbled into a major financial crisis in 2011. Japan, by contrast, saw its per capita GDP increase from $38,500 to over $43,000 in that same period. All GDP figures are given in terms of U.S. dollars, for comparison.
GDP by Area
The Bureau of Labor Statistics figures GDP by state and metropolitan area, which is a good guideline for an individual looking at job prospects, thinking of relocating or just assessing a financial future. A booming area will have a high GDP growth. In 2011, for instance, growth ranged from 2.9 percent in Alaska to 6.7 in North Dakota, the latter fueled by oil activity.
Economists make many adjustments in figuring GDP. The basic BLS figures are released each quarter, but revised in each of two quarters after that, so the actual GDP calculation is always behind the current situation. Individual factors also are adjusted. For example, the value of steel and the value of a car can't both be counted, because that would count steel twice, so the cost of steel is deducted from the price of the car when figuring GDP.