This page is about US Gross Domestic Product/Income (the output of goods and services produced by labor and property located in the United States). This is one natural, overall measure of how well the economy is working.


16 Oct 2014.

For now indications are that we remain in a steady but lackluster recovery.

GDP and GDI are calculated by the Bureau of Economic Analysis (BEA) as part of the NIPA.


16 Oct 2014. Data through 2014 Q2.

Click for larger image. Data are from NIPA tables 1.1.6, 1.1.9, and 1.10. “Domestic private final demand” measures what households and businesses are spending. It excludes inventory adjustments, net exports, and the whole government sector.


Basics (29 Jul 2011)

  • Real GDP is calculated as a “chain-type” index, meaning that
    • A base year is chosen, and real is defined as nominal for the base year
    • The calculation chains out from the base year by calculating the ratio of real GDP between successive years
    • The ratio for successive years uses only data from those two years, rather than (in the alternative, fixed-weight approach) price data from the base year
  • The GDP deflator is defined as the ratio of nominal to real (chained) GDP
    • It can also be defined, at least for annual data, by chaining out from the base year, calculating the ratio of average price level as (more or less) a ratio of weighted averages of prices, where the weights are given by the quantities of goods and services
    • The GDP deflator thus gives an inflation measure that represents the whole marketplace, with each item weighted according to its market share (different from the CPI, with a fixed basket of goods)

Effect of financial crisis (29 Jul 2011)

  • A typical recession following a major financial crisis lasts two years and involves a drop of about 9% in GDP
  • Although the growth rate returns to trend eventually, a total drop in GDP of about 10% (on average) is probably lost forever
  • Sovereign debt tends to rise substantially; if it rises above about 90% of GDP this tends to slow the GDP growth rate by about 1 percentage point

National income and product accounts background (4 Apr 2010) The national income and product accounts (NIPA), calculated by the Bureau of Economic Analysis, are a double entry accounting system of all US production of goods and services and the income that results. Every payment for goods or services is recorded as a payment from one sector to another (or the same) sector, where the sectors are business, household, government, and rest-of-world.

The accounts also treat savings and investment. For each sector there is a production account, an income and outlay account, and a capital account. The treatment of some items differs between these accounts. For example, transfer payments are included in income in an income and outlay account, but not in a production account.

The treatment of homes occupied by the owner sometimes causes confusion. An owner-occupant is treated as a pair of entities. One is a tenant, who pays an imputed gross rent, included in Personal Consumption Expenditures (PCE) and thence in GDP, for the service provided by the house. The other entity is a landlord, who runs a small business owning and renting the house; the landlord has a net income, included in Personal Income (PI) and thence in National Income, constituting the gross rent less mortgage interest, property tax, maintenance, insurance and depreciation.


GDP is calculated by the Bureau of Economic Analysis in the Commerce Department

See also

Clippings below were used in the construction of this page

Covered through 31 Dec 2009.

Main idea behind the chained-dollar indices

Undated, about 1997. Academic paper.

“Chain-Type Data and Macro Model Properties: the DRI/McGraw-Hill Experience. Mark J. Lasky”

[The following is my summary, not a quote. In the paper, which is well written, the equations do the heavy lifting. Here I attempt to put it into words.]

Real GDP should be a measure of quantity, irrespective of prices changes. It is easy to measure how the quantity of any one good or service changes over time, but to put all goods and services on one scale, dollars must be used. It turns out that the question of just how prices should enter the calculation is quite a complicated one, with advantages and disadvantages attached to each of several approaches.

One simple approach, common until the 1990s, was to choose a base year, and use (1) the prices from the base year, with (2) the quantities from each other year. This does eliminate price changes, but it introduces another distortion. In each year, one is multiplying the quantity of each good or service (barrels of oil, hours of consulting) by a base-year price. Suppose, for example, that you choose for a base year one in which the price of oil is very high. Then in succeeding years, as demand for oil grows, that growth has a larger effect on GDP growth than it should, because you are using too high a price. In general, growth tends to be highest in those items for which prices are growing most slowly. Hence this approach tends to overstate growth.

In 1996 the BEA switched to what is called a chain-type index. Here again you have a base year, but it is only used to set the scale: in the base year real output is defined to be equal to nominal output. In order to chain out from the base year, one needs to be able to calculate the ratio of real output between any two succeeding years. This is done using prices only for those two years, and using them in a way that gives equal weight to each of the two years. First the ratio of output is calculated with one of the years: quantities in the two years are multiplied by prices of the one year, summed, and the ratio taken. Then the ratio of output is calculated with prices from the other year. Finally the geometric mean of the two is taken.

A chain-type price index can be calculated in a symmetrical way. The ratio of a weighted average of prices in one year to a weighted average of prices in the other year is first calculated using the quantities of one year, then calculated again using the quantities of the other year, and then the geometric mean is taken. Chaining together the successive-year ratios gives the price index for any year.

For annual data, it an be shown that, in any year, the price index is the ratio of nominal to real GDP. This is what the BEA calls the “GDP deflator”. (The calculations for the quarterly GDP deflator still use annual price data, so the price index is no longer the ratio of nominal to real for quarterly data. That is why the BEA defines the GDP deflator as the ratio of nominal GDP to real chained GDP.)

[See also for comments from the BEA about the reasons for, and effects of, the changeover in 1996.]

Measures: GDP deflator

18 Nov 2007. Wikipedia.

“In most systems of national accounts the GDP deflator measures the difference between the real (or chain volume measure) GDP and the nominal (or current price) GDP. The formula used to calculate the deflator is: GDP deflator = (Nominal GDP/Real GDP)*100. … Unlike some price indexes, the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. (Specifically, for GDP, the “basket” in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.) Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices. The advantage of this approach is that the GDP deflator reflects up to date expenditure patterns. … In practice, the difference between the deflator and a price index like the CPI is often relatively small. … [in the US] The GDP and GDP deflator are calculated by the Bureau of Economic Analysis (BEA).”

About correctly stating, and understanding, the QTQ numbers

8 May 2008. FTUSA p11.

“Misleading growth statistics give false comfort. MARTIN FELDSTEIN, professor of economics at Harvard University”

“Prepositions matter. The recent government report that US gross domestic product inc-reased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.”

Historically typical aftermath of systemic financial crises

3 Jan 2009. Paper prepared for presentation at the American Economic Association meetings in San Francisco.

“The Aftermath of Financial Crises. Carmen M. Reinhart and Kenneth S. Rogoff”

“A year ago, we … presented a historical analysis comparing the run-up to the 2007 U.S. subprime financial crisis with the antecedents of other banking crises in advanced economies since World War II. We showed that standard indicators for the United States, such as asset price inflation, rising leverage, large sustained current account deficits, and a slowing trajectory of economic growth, exhibited virtually all the signs of a country on the verge of a financial crisis— indeed, a severe one. In this paper, we engage in a similar comparative historical analysis that is focused on the aftermath of systemic banking crises. In our earlier analysis, we deliberately excluded emerging market countries from the comparison set, in order not to appear to engage in hyperbole. … In fact … the antecedents and aftermath of banking crises in rich countries and emerging markets have a surprising amount in common. … this study … includes a number of recent emerging market cases to expand the relevant set of comparators. Also included in the comparisons are two prewar developed country episodes for which we have housing price and other relevant data. …

[a previous study] included all the major postwar banking crises in the developed world (a total of 18) and put particular emphasis on the ones dubbed “the big five” (Spain 1977, Norway 1987, Finland, 1991, Sweden, 1991, and Japan, 1992). It is now beyond contention that the present U.S. financial crisis is severe by any metric. As a result, we now focus only on systemic financial crises, including the “big five” developed economy crises plus a number of famous emerging market episodes: the 1997–1998 Asian crisis (Hong Kong, Indonesia, Malaysia, the Philippines, and Thailand); Colombia, 1998; and Argentina 2001. These are cases where we have all or most of the relevant data that allows for thorough comparisons. Central to the analysis is historical housing price data, which can be difficult to obtain and are critical for assessing the present episode. We also include two earlier historical cases for which we have housing prices, Norway in 1899 and the United States in 1929. …

[The criteria for inclusion of a crisis are not given, but the main one is probably that total losses are as large as total bank capital. In a closely related paper (, Reinhart and Rogoff say, “For post-1970, the comprehensive and well-known study by Caprio and Klingebiel—which the authors updated through 2003—is authoritative, especially when it comes to classifying banking crises into systemic or more benign categories”. The original Caprio and Klingebiel paper is “Caprio, Jerry and Daniela Klingebiel (2002), “Episodes of Systemic and Borderline Financial Crises”, In: Daniela Klingebiel and Luc Laeven (Eds.), Managing the Real and Fiscal Effects of Banking Crises, World Bank Discussion Paper No. 428, Washington, D.C.”, at In that paper, Caprio and Klingebiel say, “The following table presents information on 113 systemic banking crises (defined as much or all of bank capital being exhausted) that have occurred in 93 countries since the late 1970s.”]

Figure 4 looks at the cycles in real per capita GDP around banking crises. The average magnitude of the decline, at 9.3 percent, is stunning. … smaller for advanced economies than for emerging market economies. A probable explanation for the more severe contractions in emerging market economies is that they are prone to abrupt reversals in the availability of foreign credit. … cycle from peak to trough in GDP is … only two years. … Even so, the recessions surrounding financial crises have to be considered unusually long compared to normal recessions that typically last less than a year. …

these historical comparisons were based on episodes that, with the notable exception of the Great Depression in the United States, were individual or regional in nature. The global nature of the crisis will make it far more difficult for many countries to grow their way out through higher exports, or to smooth the consumption effects through foreign borrowing.”

The BEA GDP number usually reported is real QTQ change annualized

21 Jul 2009. BEA web page “Overview of the U.S. Economy”

“Overview of the U.S. Economy”

“Gross Domestic Product (GDP)

Current Numbers:

  • 1st quarter 2009: -5.5 percent
  • 4th quarter 2008: -6.3 percent

Next release: July 31, 2009

Quarterly data: Real gross domestic product – the output of goods and services produced by labor and property located in the United States – decreased at an annual rate of 5.5 percent in the first quarter of 2009, (that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent.”

[In particular, this means that if we have zero growth in one quarter, then the widely reported number will be zero.]

IMF on long-term damage from the crisis

Oct 2009. World Economic Outlook from IMF.


“The key stylized facts that emerge from the analysis are as follows:

  • Typically, output does not recover to its pre-crisis trend. On average, output falls steadily below its precrisis trend until the third year after the crisis and does not rebound thereafter.
  • The medium-term output losses following banking crises are substantial. Seven years after the crisis, output has declined relative to trend by close to 10 percent on average. As indicated by the shaded area measuring the 90 percent confidence band, the average decline relative to trend is statistically significant.
  • Medium-term growth rates tend to eventually return to the precrisis rate. As illustrated in Figure 4.5, the medium-term growth rate is typically statistically indistinguishable from the precrisis trend growth rate.
  • The variation in outcomes is substantial. For example, whereas the change in output relative to trend following banking crises has a mean of –10 percent, the middle 50 percent of cases had a range of –26 percent to +6”

Reinhardt and Rogoff on debt, growth and inflation

31 Dec 2009. Paper prepared for the American Economic Review Papers and Proceedings.

“Growth in a Time of Debt. Carmen M. Reinhart, Kenneth S. Rogoff”


We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. … Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases. …

In this paper “public debt” refers to gross central government debt. “Domestic public debt” is government debt issued under domestic legal jurisdiction. Public debt does not include debts carrying a government guarantee. Total gross external debt includes the external debts of all branches of government as well as private debt that is issued by domestic private entities under a foreign jurisdiction.”