The Gross Domestic Product (GDP) of the United States is a crucial indicator of the nation’s economic health, representing the total value of all goods and services produced within its borders. As of 2023, the U.S. GDP reached approximately $27.36 trillion, reflecting a growth rate of 2.5 percent from the previous year. This growth was primarily driven by increases in consumer spending, non-residential fixed investment, and government expenditures, despite declines in residential fixed investment and private inventory investment.
The GDP figure not only highlights the resilience of the U.S. economy in the face of global challenges but also underscores the importance of consumer demand, which accounts for about 70 percent of economic activity. As the economy continues to evolve, understanding the dynamics of GDP growth will be essential for policymakers, businesses, and investors alike. Looking ahead, the economic outlook for 2024 remains cautiously optimistic, with expectations of continued growth supported by strong consumer spending and strategic investments in infrastructure and technology.
The U.S. GDP reflects the nation’s economic health and is influenced by various factors, including consumer behavior, government policies, and global trade dynamics. As we look toward 2024, the outlook remains cautiously optimistic, with expectations of continued growth driven by strong consumer spending and strategic investments.
How GDP reflects economic performance?
GDP serves as a key indicator of economic performance, providing insights into the economic health of a nation. A rising GDP indicates a growing economy, while a declining GDP may signal economic trouble. Policymakers, economists, and investors closely monitor GDP to make informed decisions regarding fiscal and monetary policies.
Historical trends of U.S. GDP
GDP growth over the last decade
Over the past decade, the U.S. has experienced significant fluctuations in GDP growth, influenced by various economic factors, including the COVID-19 pandemic. From 2013 to 2019, the U.S. economy saw steady growth, with GDP increasing at an average annual rate of about 2.3 percent. However, the pandemic in 2020 led to a sharp contraction, with GDP falling by 3.4 percent that year. The economy rebounded in 2021, growing by 5.7 percent, and continued to expand in 2022 and 2023, albeit at a slower pace.
Key milestones in economic expansion and contraction
- 2010-2019: A period of recovery following the Great Recession, characterized by consistent GDP growth.
- 2020: A significant contraction due to the COVID-19 pandemic, with GDP declining by 3.4 percent.
- 2021: A robust recovery with GDP growth of 5.7 percent, driven by consumer spending and government stimulus.
- 2022: Continued growth at 2.1 percent, supported by strong consumer demand and investment.
- 2023: Preliminary estimates indicate a growth rate of 2.5 percent for the year, reflecting resilience in consumer spending and government investment.
Factors driving U.S. GDP
Consumer spending and domestic demand
Consumer spending is the largest component of GDP, accounting for approximately 70 percent of total economic activity. In 2023, consumer spending increased significantly, particularly in services such as healthcare and food services, which contributed to overall GDP growth.
Manufacturing, technology, and innovation
The manufacturing sector, particularly in technology and innovation, plays a crucial role in driving GDP growth. Investments in technology and infrastructure have driven productivity and efficiency, contributing to economic expansion.
Government policies and federal spending
Government spending, including federal investments in infrastructure and social programs, has a direct impact on GDP. In 2023, federal government spending increased, particularly in non-defense areas, which supported economic growth.
Exports and global trade
Exports are vital for GDP growth, as they represent the sale of goods and services to foreign markets. In 2023, both goods and services exports increased, contributing positively to GDP. The U.S. economy benefits from a diverse range of exports, including technology, agricultural products, and manufactured goods.
U.S. GDP in 2024: Current statistics and forecast
As of the latest estimates, the U.S. GDP is projected to continue its growth trajectory into 2024. The breakdown of GDP by industry indicates that services will remain the dominant sector, followed by manufacturing and trade. On an annual-average over annual-average basis, the forecasters expect real GDP to increase 2.7 percent in 2024 and 2.2 percent in 2025. The forecasters see little change in the outlook for the unemployment rate from the survey of three months ago.
Forecasters predict higher near-term growth
According to a survey conducted by the Federal Reserve Bank of Philadelphia, 33 forecasters have revised their near-term outlook for the U.S. economy, indicating a more favorable perspective than three months ago. They project the economy will grow at an annual rate of 2.2 percent this quarter and 1.9 percent in the first quarter of 2025, an increase from the previous forecast of 1.7 percent. On an annual-average basis, real GDP is anticipated to rise by 2.7 percent in 2024 and 2.2 percent in 2025.
The outlook for the unemployment rate remains largely unchanged from the last survey. Forecasters expect the unemployment rate to rise from 4.0 percent in 2024 to 4.3 percent in 2025, before decreasing to 4.1 percent by 2027. These estimates are consistent with the previous projections, varying by only 0.1 percentage point.
In terms of employment, forecasters foresee minimal changes in job growth for 2024 and 2025. They estimate monthly job gains at a rate of 208,400 in 2024 and 134,100 in 2025, based on annual-average nonfarm payroll employment levels.
Forecasters lower near-term projections for headline inflation
The forecasters anticipate that headline CPI inflation for the current quarter will average 2.2 percent at an annual rate, a decrease from the previous estimate of 2.5 percent. Similarly, headline PCE inflation is expected to be slightly lower at 2.0 percent. Conversely, the projection for current-quarter core CPI inflation has risen to 2.9 percent, up from 2.6 percent in the last survey.
Inflation projections for headline and core CPI and PCE in 2025 and 2026 remain largely unchanged compared to prior estimates. Over the next decade, from 2024 to 2033, forecasters expect headline CPI inflation to average 2.23 percent annually, slightly lower than the previous estimate of 2.30 percent. The 10-year annual-average PCE inflation remains at 2.10 percent, unchanged from earlier predictions.
Lower risk of negative QoQ growth in 2025
The likelihood of a downturn in real GDP this quarter is now estimated at 8.9 percent, a significant reduction from the earlier estimate of 21.0 percent. Additionally, forecasters have lowered their probability estimates for negative growth in the subsequent three quarters compared to previous assessments.
S&P Global Ratings forecasts economic growth
Similarly, S&P Global Ratings anticipates that the U.S. economy will expand by 2.7 percent in 2024 and 1.8 percent in 2025, based on annual averages. These growth forecasts represent increases of 0.2 and 0.1 percentage points, respectively, compared to June projections. This adjustment reflects improved financial conditions and stronger-than-expected core goods consumption.
On a year-end basis, growth is expected to reach 2.0 percent in the fourth quarter of 2024, down from 3.1 percent in the fourth quarter of 2023.
Despite ongoing sluggishness in the housing and manufacturing sectors, recent activity indicators suggest that economic growth momentum remains slightly above trend, though it has moderated since the fourth quarter of the previous year. The recent easing in the labor market indicates a normalization rather than an impending recession. The unemployment rate has risen primarily due to an expanding labor force, not a decline in employment, marking a key difference from previous recession cycles, the agency noted.
Real income growth has softened, with signs of a slowdown in discretionary consumption. The base case assumes no changes in tax policy, as policymakers typically compromise to avoid sunset clauses set to expire at the end of 2025 under the Tax Cuts and Jobs Act of 2017. However, the public sector’s contribution to GDP and employment growth is expected to be tempered, aside from ongoing infrastructure initiatives, as state and local government finances have weakened due to slowing revenues and binding balanced budget rules. Businesses are grappling with higher capital costs and policy uncertainty, which will likely constrain capital expenditures and hiring. The unemployment rate is projected to rise to 4.5 percent by the end of 2025, up from 4.2 percent currently.
Inflation forecasts
Inflation is expected to slow further in the coming months. Normalization in the labor market has contributed to reduced growth in unit labor costs and increased labor productivity. Inflation expectations among households, businesses, and financial markets remain aligned with the Fed’s 2 percent target. Despite a potentially bumpy path, annual inflation is anticipated to stay close to the 2 percent target in 2025, barring unforeseen supply shocks.
Macroeconomic outlook and future rate easing
Monetary policy is not on a preset course, but with the inflation target appearing more achievable, the Fed’s risk management approach is increasingly focused on downside risks to the labor market. In its September meeting, the Fed indicated a commitment to prevent further loosening of the labor market, as demonstrated by a 50-basis point rate cut on September 18 and subsequent projections. Consistent with the macroeconomic outlook, S&P anticipates an additional 50 basis points of easing in 2024, followed by another 125 basis points in 2025.
Current data suggests that the Fed’s policy rate may not need to be as restrictive as it is. A gradual reduction of 25 basis points per meeting to reach a neutral stance appears reasonable. However, due to uncertainty surrounding the potential neutral rate, confidence in the rate outlook is limited. There is a risk that cuts may be front-loaded, potentially leading to slower easing in the spring as rates approach the estimated neutral range of 2.5 percent to 3.5 percent. Front-loaded cuts carry a higher risk of inflation overshoot and subsequent policy corrections.
Growth forecasts for 2026 and 2027 have also been slightly revised upward due to an increase in potential growth. The baseline forecast envisions the positive output gap closing by 2027. The Congressional Budget Office estimates real potential output growth for the U.S. economy to be 2.1 percent on average for 2024-2029, an increase from the previous 1.8 percent, largely due to a higher-than-anticipated rate of net immigration from 2021-2026.
Recent economic developments: Solid domestic demand
Real GDP grew at a 2.2 percent annual rate in the first half of the year, with a tracking estimate of 2.5 percent growth for the third quarter, S&P highlighted. Real final sales to private domestic purchasers, a measure of private domestic demand, grew at a solid 2.8 percent annualized pace in the first half.
High-frequency real-time data, such as the Weekly Economic Index (WEI) from the Dallas Federal Reserve, indicates a current estimate of 2.3 percent for four-quarter GDP growth as of September 12. This is lower than the 3.1 percent growth observed through the second quarter of 2024, but still indicates solid performance.
Read more: U.S. business activity grows in October, price pressures ease
Consumer spending
Strong core retail sales in July and August, along with rebounding motor vehicle sales, suggest steady consumer demand in the third quarter, S&P explained. However, not all consumer data is robust; real restaurant sales, which are a measure of discretionary spending, remain weak, tracking down to an annualized rate of 2.25 percent in the third quarter to date.
The current estimate for consumer spending is a robust 3.5 percent annualized for the third quarter, marking the fastest pace of personal consumption expenditure (PCE) growth since the first quarter of 2023. Nonetheless, with clear signs of cooling in the labor market, real income growth lagging behind spending growth since mid-last year, and a declining household savings rate at a two-year low, consumers are expected to rein in spending in the coming quarters.
Business investment spending
Industrial production has remained flat in the third quarter, despite a rebound in auto production in August following a decline in July, S&P’s paper noted. A 0.9 percent month-over-month increase in manufacturing production was largely driven by a 9.8 percent jump in motor vehicle and parts production, recovering from an earlier slump due to temporary plant retooling. However, as vehicle sales dropped in August, this strong production increase is unlikely to continue. Aerospace production, which increased by 1.2 percent last month, is also expected to be affected by ongoing strikes at Boeing. Survey-based manufacturing activity indices from regional Federal Reserves, the Institute for Supply Management (ISM), and S&P Global remain muted, indicating that a cyclical recovery in manufacturing has not yet begun.
Comparing U.S. GDP to other major economies
U.S. vs. China GDP
The United States remains one of the largest economies globally, with a GDP of approximately $27.36 trillion in 2023. In comparison, China’s GDP is estimated to be around $17.73 trillion. While the U.S. economy is characterized by high consumer spending and a diverse service sector, China’s growth has been driven by manufacturing and exports. The competition between these two economies continues to shape global economic dynamics.
In comparison, India’s nominal GDP stood at around $3.94 trillion, reflecting a robust growth rate of 6.8 percent for the year, which highlights its rapid economic expansion.
Japan’s economy, while significantly smaller than that of the U.S., had a nominal GDP of approximately $4.11 trillion, with a modest growth rate of 0.9 percent. Russia, on the other hand, faced economic challenges, resulting in a nominal GDP of about $2.24 trillion and a contraction of -2.07 percent in 2023.
U.S.’s role in the global economy
The U.S. economy plays a pivotal role in the global market, influencing trade policies, investment flows, and economic trends worldwide. As a leader in technology, finance, and innovation, the U.S. sets the tone for economic policies that affect other nations.
FAQs about U.S. GDP
What is the current GDP of the U.S.?
As of the latest estimates, the current GDP of the U.S. is approximately $27.36 trillion.
How is U.S. GDP calculated?
U.S. GDP is calculated using three primary approaches: the production approach (total output), the income approach (total income earned), and the expenditure approach (total spending on goods and services).
What are the key factors that contribute to U.S. GDP growth?
Key factors include consumer spending, government policies, business investments, exports, and technological advancements.
How does the U.S.’s GDP compare to China’s?
The U.S.’s GDP is approximately $27.36 trillion, while China’s GDP is around $17.73 trillion, making the U.S. the largest economy in the world.
What is the GDP growth rate for the U.S. in 2024?
While specific growth rates for 2024 are yet to be finalized, preliminary estimates suggest continued moderate growth driven by consumer spending and government investment.
How does consumer spending impact U.S. GDP?
Consumer spending is the largest component of GDP, and increases in spending directly contribute to economic growth by driving demand for goods and services.
