Quarterly Changes in US Real GDP
A growth mindset
After looking at a bunch of relatively straight and clean lines over the last few weeks, it’s time to look at something a little messier. Economists can say that the real economic output of the US is about $19 Trillion dollars but the dollar value isn’t as important to them as is the change over time. That is to say, GDP is big but is it getting bigger and, if so, how quickly? That’s where the quarterly change in GDP comes in:
Finally - something choppy and interesting! As opposed to the dollar-based chart for Gross Domestic Product, which shows a slight dip here or there, this chart is absolutely crazy. And, the value in that messiness is, ironically, a much clearer picture of what is happening to the economy and how it compares to previous periods of economic growth.
Periods of recession are a lot more apparent here because the dips in GDP are much more visible. It is clear that a recession is not a fun time economically and that the economy shrinks (aka negative growth rates aka below zero on the chart aka everybody is sad).
The worst dip on the chart came during the financial crisis, where the economy shrank at a ridiculous -8.4% annualized rate in the fourth quarter of 2008. Now, annualized basically just means the actual quarterly growth rate times four. So, when economists say something like “the economy grew at a 2% rate this quarter”, they really mean that the economy grew 0.5% this quarter compared to last quarter. It’s just a convention and nothing to get too worked up about. But, still, -8.4% is really, really bad.
The other thing to notice is the relatively weak growth since the last recession. While there hasn't been a recession (i.e. a scary shaded section on the chart), it’s obvious that the recent growth rate isn’t nearly as high as, say, in the 1990s. This is something that people are upset about. Economists talk about it all the time and a lot of smart people are working on it but…answers are hard to come by. We can’t just snap our fingers and make the economy grow faster. (Well, maybe we kind of could if everyone just suddenly agreed to work much harder but good luck getting everyone to do that!)
Ultimately, this is one of the most important metrics in the entire world of finance and economics. Every quarter, nerds like me in the industry eagerly await the announcement of the latest GDP growth rate. And, it makes sense. This is the measurement of the entire economic engine that is the United States. Pretty cool when you think about it.
And, at some point along the way, people got so excited for the release of GDP that they couldn’t wait and had to make a guess on what it might be. Then, a bunch of super smart people built complicated tools to predict what GDP is going to be. Now the fun never ends! So, in the next post, we will take a look at two great resources to track the latest estimates for GDP.
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What’s Next for Endless Metrics