Gross domestic product (GDP)

A national statistics agency compiles it three ways, which in principle agree: by adding up what was produced, what was spent, and what was earned. In practice the three estimates differ, and the published figure reconciles them. It arrives quarterly in successive estimates, a first or flash reading built on incomplete data, then one or more revisions as the underlying returns come in, so the same quarter is reported several times over.

Two adjustments matter before any comparison is made. The figure is stated in real terms, meaning the effect of price changes has been stripped out, so that a rise reflects more output rather than higher prices; the unadjusted figure is called nominal. And it is seasonally adjusted, so that a predictably quiet quarter does not read as a contraction.

The reporting convention differs by country and is the single most common source of misreading. The United States reports quarterly growth at an annualised rate, which compounds the quarterly change as though it continued for four quarters. The euro area and the United Kingdom report the plain quarter on quarter change. Setting one against the other without converting makes the American figure look several times larger than the European one for identical growth.

The statistic is also backward looking by construction: it describes a quarter that has already ended, and a first estimate can be revised substantially. That is why it moves markets mainly through the surprise in the first release, and why traders following the same economy watch monthly indicators that arrive sooner, such as purchasing managers index surveys. A technical recession, two consecutive quarters of contraction, is a convention read off this series rather than an official designation in most countries.