Understanding Gross Domestic Product
GDP is a significant indicator of economic health
by Kristen Stephenson
Earlier this year, GPEC launched the Economic Monitor, a comprehensive web tool designed to provide timely, actionable insights into the state of the economy. Through an exploration of key economic indicators, the Economic Monitor offers a concise picture of health at both national and regional levels.
Each month, I’m diving into one of the indicators from the Monitor to share in greater detail what the metric measures are, why it matters to the economy and what the current numbers tell us. This month we’re going to look at the impact of one of the most significant measures of our economy, Gross Domestic Product (GDP).
What does the gross domestic product measure?
Gross Domestic Product measures the value of production in the economy related to goods and services. GDP is calculated measuring money spent on private consumption expenditures (i.e. consumer spending), government expenditures, capital investments and net exports. This data is tracked by the Bureau of Economic Analysis.
There are two ways of measuring GDP: nominal and real. Nominal looks at the output of the goods and services in current price dollars. Real GDP adjusts for inflation and allows us to see the actual increase or decrease in the value of production. Because real GDP gives a better understanding of the direction the economy is heading, the economic monitor tracks real GDP.
Why does gross domestic product matter?
GDP is one of the primary indicators of the health of the economy. It measures how productive we are, and a growing GDP is a sign of a healthy economy. For example, as consumer spending rises, it generally means consumers are confident in the economy, although as seen recently this is not always the case. As more goods are produced, more workers generally need to be hired, leading to job growth. On the other hand, recessions are generally indicated by two consecutive quarters of GDP decline (although officially the National Bureau of Economic Research makes the final determination on the dates of U.S. economic cycles).
What do the current numbers say?
As of 2022, the most recent year released, Greater Phoenix has the 14th largest GDP in the country at $308B. Over the past two years, the region has ranked in the top 10% of all metros for change in GDP. From 2020–21, GDP grew by an unprecedented 8.6% in the metro area. This was followed by 4.0% growth from 2021–22. Greater Phoenix GDP growth outpaced U.S. growth by a fairly significant margin over the last few years, as the U.S. gross domestic product increased by 6.0% from 2020–21 and 2.1% from 2021–22.
While the Bureau of Economic Analysis only releases metropolitan level data on an annual basis, it does provide quarterly estimates for national gross domestic product which gives us insight into the direction the economy is heading. As of third quarter 2023, real GDP growth was estimated to be increasing at a 4.9% annualized rate. This is compared to 2.1% in the second quarter and an indication the economy is still growing.
To monitor gross domestic product in real time along with me, mapped alongside 13 other key indicators of health, visit gpec.org/monitor. We hope you find the Monitor a valuable tool in understanding the ever-changing economic landscape.