What is Gross Domestic Product (GDP)?

U.S. GDP is reported quarterly by the Bureau of Economic Analysis in three estimates: advance (30 days after quarter-end), second (60 days), and third (90 days). GDP is measured in three ways that theoretically produce the same result: expenditure approach (C+I+G+NX), income approach (wages + profits + rent + interest), and production approach (value added at each stage of production).

The GDP growth rate is more important than the absolute number. Real GDP growth (adjusted for inflation) of 2-3% annually is considered healthy for the U.S. economy. Two consecutive quarters of negative real GDP growth is the commonly cited (though technically unofficial) definition of a recession. The NBER officially determines recession dates based on a broader set of indicators.

GDP data influences markets through several channels: strong GDP growth supports corporate earnings and stock prices, but can also lead to higher interest rates if the economy overheats. Weak GDP may lower stock prices but could prompt Fed rate cuts. The market typically reacts more to GDP surprises (actual vs. consensus forecast) than to the absolute level.

Limitations of GDP include: it doesn't measure income distribution, environmental costs, unpaid work, or quality of life. It can be boosted by inventory accumulation or government spending that may not be sustainable. GDI (Gross Domestic Income) and GDP can diverge, creating confusion. Investors often look at specific GDP components (consumer spending, business investment) for more actionable insights.