Individuals purchase personal consumption expenditures-durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation).

Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.

Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of domestically-produced goods and services. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP.

Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.

The GDP deflator is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods tend to be less expensive than consumer goods and services.

Importance
Gross Domestic Product is the country's most comprehensive economic scorecard.

Interpretation

When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings which bode well for the stock market.

The four major categories of GDP-personal consumption expenditures, investment, net exports and government-all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.

Economists and financial market participants monitor final sales-GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.

It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.

Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.

Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.

Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.

Frequency
Quarterly.

Source
Bureau of Economic Analysis, U.S. Department of Commerce.

Availability
Usually during the fourth week of the month.

Coverarge
Data are for the prior quarter. Data released in April are for the first quarter.

Revisions
Monthly, revised estimates are released based on more complete information during the second and third months of the quarter. Annually, benchmark data and new seasonal adjustment factors are introduced in the second half of the year. This revision affects at least three years of data. The magnitude of the revision is generally moderate.