Real gross domestic product (GDP) is one of the primary measures used by economists to track the performance of the United States economy. As Kavan Choksi points out, the real GDP effectively captures the total inflation-adjusted value of the final goods and services produced by the economy over a certain span of time. This measure is computed for each quarter of the year by the U.S. Bureau of Economic Analysis (BEA) computes this measure for each quarter of the year.
Kavan Choksi sheds light on the two measures of GDP Growth used in the United States
When assessing the performance of the United States economy in a given year, economists typically take the annual percent change in real GDP or its growth rate into account. For growth rate, one number that is commonly cited is the Q4-over-Q4 (Q4/Q4) growth rate, which was 2.5% in 2024. There is also another number quoted frequently, which is the year-on-year (Y/Y) growth rate. This was 2.8% in 2024.
The most widely used measure of the annual growth of the United States economy is the Q4/Q4 growth rate. It compares the level of GDP in the fourth quarter of a year with the corresponding quarter of the year before. The United States economy produced final goods and services worth around $5.88 trillion in real terms in the fourth quarter of 2024, as per the BEA. That compares with the $5.74 trillion over the same period of 2023, adjusted for inflation, and ultimately results in a Q4/Q4 growth rate of around 2.5%. This measure is extensively used as it roughly equals to the simple average of the growth rates in each of the quarters in the year. When considering the economy’s productive capacity as expanding each quarter, the Q4/Q4 growth rate serves as an approximation of the simple average of the annualized growth rates recorded in each individual quarter. Here the GDP level in the fourth quarter reflects the cumulative growth from the first through the fourth quarters. Overall, the Q4/Q4 growth rate is a metric that provides a simple and straightforward summary of the U.S. economy’s growth over the past year.
The Y/Y growth rate is the second most widely used measure of annual GDP growth in the United States. This metric sums the flow of all production within each of the four quarters in the year and subsequently compares it with the total flow of production in all four quarters of the previous year. As per the BEA, the United States economy produced about $23.3 trillion worth of final goods and services in 2024, as opposed to $22.67 trillion in 2023 after adjusting for inflation. As a result, the Y/Y growth rate was 2.8%.
In the opinion of Kavan Choksi, the Y/Y measure places a higher level of weight on economic growth in the fourth quarter of the previous year as well as the first quarter of the current year, than it does on the growth in the other quarters. This can be an issue when using the data to determine the start and end of economic expansions, and therefore the Q4/Q4 measure is more common.