Gross Domestic Product

An economy, as defined by Investopedia, is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated. There are four key indicators that measure conditions of an economy: Gross Domestic Product, Unemployment Rate, Inflation, and Consumer Price Index. Studying these indicators over time demonstrates economies are cyclical and fluctuate between periods of growth and contraction. According to the National Bureau of Economic Research, the most recent recession started in 2007 and ended in 2009. Current data from the key indexes discussed below indicate the U.S. economy is currently in a recovery period.

Gross Domestic Product (GDP) measures national income and output for a country’s economy and is the total value of goods and services produced in a country in a given year. The Bureau of Economic Analysis released the Fourth Quarter 2016 GDP estimates on January 27, 2017 which showed an estimated 1.9% increase in the GDP from the Third Quarter 2016. Reviewing historical GDP data since the end of the recent recession in 2009, shows positive GDP growth for all quarters (except Q1 2011 and Q1 2014). The Bureau of Economic Analysis also provides GDP data in US dollars. This data shows the GDP has steadily increased between $500-$700-billion each year; from approximately $14.6 trillion in 2009 to approximately $18.9 trillion in 2016. This data shows the GDP is steadily trending up at such a pace that indicates the economy is still in the recovery phase following the great recession in 2007-2009.

The unemployment rate refers to the percentage of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks. The unemployment rate is indicative of the health of the economy, as it is closely related to GDP. When the unemployment rate is high, fewer people are working which means there is less disposable income to spend on goods and services. Additionally, there are less people working to produce the goods and services that make up the GDP. When the unemployment rate is low, more of the population is working. This means there are more people working to produce goods and services, as well as earning money to spend on goods and services. The Bureau of Labor and Statistics provides monthly unemployment rates. Reviewing this data, calculated as yearly average, shows the unemployment rate was approximately 9.3% (yearly average) in 2009. It increased to 9.6% in 2010, but then began decreasing steadily each year, culminating at 4.9% in 2016. This data shows the unemployment rate is steadily decreasing, which indicates the economy is still recovering from the end of the recent recession in 2009.

Inflation is the general rise in the prices of goods and services over time. If inflation is too high the economy can suffer: purchasing power of consumers is reduced and the standard of living decreases and the cost of doing business increases.