Reading: Tracking Real GDP Over Time

Tracking Real GDP Over Time

When news reports indicate that “the economy grew 1.2% in the first quarter,” the reports are referring to the percentage change in real GDP. By convention, GDP growth is reported at an annualized rate: Whatever the calculated growth in real GDP was for the quarter, it is multiplied by four when it is reported as if the economy were growing at that rate for a full year.

The graph illustrates that both real GDP and real GDP per capita have substantially increased since 1900.

Figure 5.10. U.S. GDP, 1900–2012 Real GDP in the United States in 2012 was about $13 trillion. After adjusting to remove the effects of inflation, this represents a roughly 20-fold increase in the economy’s production of goods and services since the start of the twentieth century. (Source:


Real GDP is important because it is highly correlated with other measures of economic activity, like employment and unemployment. When real GDP rises, so does employment.

The most significant human problem associated with recessions (and their larger, uglier cousins, depressions) is that a slowdown in production means that firms need to lay off or fire some of the workers they have. Losing a job imposes painful financial and personal costs on workers, and often on their extended families as well. In addition, even those who keep their jobs are likely to find that wage raises are scanty at best—they may even be asked to take pay cuts or work reduced hours.

Table 5.7 lists the pattern of recessions and expansions in the U.S. economy since 1900. The highest point of the economy, before the recession begins, is called the peak; conversely, the lowest point of a recession, before a recovery begins, is called the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. The movement of the economy from peak to trough and trough to peak is called the business cycle. It is intriguing to notice that the three longest trough-to-peak expansions of the twentieth century have happened since 1960. The most recent recession started in December 2007 and ended formally in June 2009. This was the most severe recession since the Great Depression of the 1930s.

Table 5.7. U.S. Business Cycles since 1900
Trough Peak Months of Contraction Months of Expansion
 December 1900  September 1902  18  21
 August 1904  May 1907  23  33
 June 1908  January 1910  13  19
 January 1912  January 1913  24  12
 December 1914  August 1918  23  44
 March 1919  January 1920  7  10
 July 1921  May 1923  18  22
 July 1924  October 1926  14  27
 November 1927  August 1929  23  21
 March 1933  May 1937  43  50
 June 1938  February 1945  13  80
 October 1945  November 1948  8  37
 October 1949  July 1953  11  45
 May 1954  August 1957  10  39
 April 1958  April 1960  8  24
 February 1961  December 1969  10  106
 November 1970  November 1973  11  36
 March 1975  January 1980  16  58
 July 1980  July 1981  6  12
 November 1982  July 1990  16  92
 March 2001  November 2001  8  120
 December 2007  June 2009  18  73

A private think tank, the National Bureau of Economic Research, is the official tracker of business cycles for the U.S. economy. However, the effects of a severe recession often linger on after the official ending date assigned by the NBER.