Economic Output

What do the data show?

Real GDP has increased steadily over the long run. Loosely speaking, when GDP falls, it means we are in a recession; in the figure, we show these recessions with gray vertical boxes. The 1990s and early 2000s were a period of relative stability, but this was interrupted by two major economic events: The 2008 Great Recession and the brief, though sharp, recession at the beginning of the COVID pandemic. These recessions had far-reaching social, political, and economic impacts, though GDP itself quickly rebounded and is currently at an all-time high, ranking just below China.

What might explain these patterns?

GDP is driven by three immediate factors: the size of the labor force, average hours per worker, and worker productivity. Our rise in GDP in recent years has been driven by productivity growth as well as some increase in population size (driven mainly by immigration).

The fact that we rank second to China in terms of total GDP might seem surprising because the press normally compares GDP on an exchange rate basis. However, exchange rates fluctuate much more than actual economic activity and, in some countries, are manipulated by government policies, so this measure is problematic. We therefore use a “purchasing power parity” (PPP) measure instead. This is more widely accepted by economists and, using this method, the US ranks second globally.

While we rank second to China in total GDP, our GDP per capita is much higher than China’s. Likewise, China’s high ranking in total GDP is driven by the fact that it has a much larger population and workforce.