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How much did the US economy grow last year?

There are two commonly reported ways of computing the annual growth in real GDP.

First is the fourth quarter-over-fourth quarter (Q4/Q4) measure, which compares the amount of production of final goods and services in the December quarter with the amount produced in the December quarter of the previous year.

Second is the year-over-year (YoY) measure, which compares total production for the year with total production for the previous year. Both growth rates are plotted in the FRED graph above. The blue line is the Q4/Q4 growth rate, and the red line is the YoY growth rate.

While the two growth rates look similar over long periods of time, there can be significant differences at any point in time. Which measure should we use? Some examples may help.

Example 1: Higher-frequency data show that the global financial crisis began in 2008, which is shown in the Q4/Q4 annual growth measure. But the YoY measure records the recession as beginning in 2009. For questions about the timing of booms and recessions, the Q4/Q4 measure is probably better.

Example 2: The COVID recession began in the first quarter of 2020: The economy hit bottom in the second quarter, and it recovered substantially by the fourth quarter of the year. The Q4/Q4 measure therefore records a much milder recession than the YoY measure, which uses data for the entire year’s production. For questions about the level of production, the YoY measure is probably better.

How this graph was created: Search FRED for and select “Real GDP Seasonally Adjusted Annual Rate” (series ID: GDPC1). Click “Edit Graph” and, under the “Modify Frequency,” change Quarterly to Annual and change the aggregation method to “End of Period.” Change the units to “Percent Change from Year Ago.” Then click “Add Line” at the top and add the “Real GDP Seasonally Adjusted Annual Rate” (series ID: GDPC1) series again. Under “Edit Lines”, make sure you are editing Line 2. Change the “Modify Frequency” to be Annual and the Aggregation method to be “Sum.”

Suggested by Amy Smaldone and Mark Wright.

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