The GDP growth rate is driven by retail expenditures, government spending, exports and inventory levels. Rises in imports will negatively affect economic growth.
The GDP growth rate is the most important indicator of economic health. If it is growing, so will business, jobs and personal income. If it's slowing down, then businesses will hold off investing in new purchases and hiring new employees, waiting to see if the economy will improve. This, in turn, can easily further depress the economy and consumers have less money to spend on purchases. If the GDP growth rate actually turns negative, then the U.S. economy is heading towards or is already in a recession.
When the economy is expanding, the GDP growth rate is positive. However, in a recession, the economy contracts. When that happens, the GDP growth rate is negative. This happened most recently in 2008 and 2009, when the GDP growth rate was negative for four quarters in a row. The last time this happened was during the Great Depression. The growth rate turned positive in Q2 2008, and then turned negative again, prompting concerns about a double-dip recession. The growth rate was negative for two quarters during the 2001 recession. To see all occurrences of negative economic growth, see History of Recessions.
Because so many things are measured, the BEA often revises the GDP growth rate within a month after releasing it. This can impact the stock market as investors get this new information about the state of the economy’s health. To see how the GDP growth rate has been changed, see GDP Current Statistics (Updated June 28, 2011)
GDP FAQ
- What Are the Components of GDP?
- What Is the Difference Between GDP and Growth Rate?
- What Is the Ideal Growth Rate?
- What Is a Recession?
- What Is a Depression?
