Two negative quarters in a row = the conventional definition of a recession.
The short answer
- What is the Real GDP indicator (Real GDP)?
- Real GDP: the value of output adjusted for inflation, annual or quarterly.
- When does Real GDP get it wrong?
- Released two months late and revised twice. See it on market data now in the "Macro map". Open the macro map →
Indicator limit
Released two months late and revised twice. Not suited to timing.
Read it with
Nonfarm payrolls: released quarterly with a lag, and monthly jobs data has a faster pulse.
Answers: how is the economy doing?
What it measures
Real gross domestic product measures the total value of goods and services produced inside the US economy, after removing the effect of inflation. The word "real" is the key. Nominal growth of 6% with 4% inflation means real growth of only 2%, so most of the increase was higher prices, not more output.
How it is read in practice
It is released quarterly in three readings: an advance estimate, then two revisions, and the gaps between them are sometimes large. It is quoted annualized, as if the quarter's pace had continued for a full year. And because it is lagging by nature (it describes a quarter that has ended), it is a confirmer, not a predictor: it confirms what faster indicators concluded weeks earlier.
Its components tell the story
Growth driven by consumption and business investment is healthy and lasting. Growth driven by inventory build-up is fragile, because piled-up stock produces a weak quarter later. The same number can tell two very different stories, and the details decide which one.
A recession, two definitions
The common definition is two consecutive quarters of contraction. But the National Bureau of Economic Research, the body that officially dates recessions, uses broader criteria that include employment, income and industrial production. So an official recession can be declared without two negative quarters, and the reverse.
Hypothetical example
A quarter grows 2 percentage points, but breaking it down shows 1.5 of them are inventory build-up: final demand grew only half a point. The next quarter falls as the stock is worked off. Someone reading the components saw it coming.
Read it with
Read it with the labor market and inflation to build the big picture. Add the yield curve, which signals it months ahead, and retail sales, which measure consumption at a monthly pace.
Where to see it on the platform
The macro dashboard shows growth within its composite verdict, and the recession risk indicators build on it alongside its peers.
