What is GDP and Why it Matters to Marketers

The U.S. GDP is at 6.9%. U.S. real GDP growth rate (annualized) during the fourth quarter of 2021, up from the 2.3% growth in the third quarter. For all of 2021, real GDP grew by 5.7%, versus a 3.4% decline in 2020.

So, what exactly IS GDP? It’s an acronym for Gross domestic product. It is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

The calculation of a country’s GDP encompasses all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade. (Exports are added to the value and imports are subtracted).

Of all the components that make up a country’s GDP, the foreign balance of trade is especially important. The GDP of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. When this situation occurs, a country is said to have a trade surplus.

If the opposite situation occurs—that is the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers are able to sell to foreign consumers—it is called a trade deficit. In this situation, the GDP of a country tends to decrease.

GDP can be computed on a nominal basis or a real basis, the latter accounting for inflation. Overall, real GDP is a better method for expressing long-term national economic performance since it uses constant dollars.

A constant dollar is an adjusted value of currency used to compare dollar values from one period to another. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values. Constant dollar value may also be referred to as real dollar value.

Successful marketing strategies use economic indicators to make sound decisions and identify the best timing for messages. The economy has a direct impact on the way we market to consumers and understanding the connection is an essential practice to any successful campaign.

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