Whether GDP swings up or down, there are limits to what it says about the economy and your place in it

The Bureau of Economic Analysis^[1] released the latest U.S. gross domestic product^[2] data on April 30. In the first three months of 2025, it said, GDP contracted by 0.3%. The GDP growth rate captures the pace at which the total value of goods and services grows or shrinks. Together with unemployment and inflation, it usually receives a lot of attention as an indicator of economic performance.

Some economists and analysts^[3] said the economy might not be as bad as this rate’s decline might suggest. While this is the first time in three years that GDP has shrunk instead of growing, it is a relatively small decline.

This raises a critical question: Does a relatively small GDP contraction mean the economy is in trouble? I have spent much of my working life studying economic well-being^[4] at the level of individuals or families.

What I’ve learned can offer a different lens on the economy than you’d get from just focusing on the most popular indicators, such as the GDP growth rate.

GDP problems

The GDP growth rate has many limitations^[5] as an economic indicator. It captures only a very narrow slice of economic activity: goods and services. It pays no attention to what is produced, how it is produced or how people assess their economic lives.

GDP gets a lot of attention, in part, because of the misconception that economics only has to do with market transactions, money and wealth. But economics is also about people and their livelihoods.

Many economists would agree that economics treats wealth or the production of goods and services as means to improve human lives.

Since the 1990s, a number of international commissions and research projects have come up with ways to go beyond GDP. In 2008, the French government asked two Nobel Prize winners, Joseph Stiglitz and Amartya Sen, as well as the late economist Jean-Paul Fitoussi, to put together an international commission of experts to come up with new ways to measure economic performance and progress. In their 2010 report^[6], they argued that there is a need to “shift emphasis from measuring economic production to measuring people’s well-being.”

Considering complementary metrics

One approach^[7] is to use a composite index that combines data on a variety of aspects of a country’s well-being into a single statistic. That one number could unfold into a detailed picture of the situation of a country if you zoom into each underlying indicator, by demographic group or region.

The production of such composite indices has flourished. For example, the Human Development Index of the United Nations^[8], started in 1990, covers income per capita, life expectancy at birth and education. This index shows how focusing on GDP alone can mislead the public about a country’s economic performance.

In 2024, the U.S. ranked fifth in the world in terms of GDP per capita^[9], but was in 20th place^[10] on the Human Development Index due to relatively lower life expectancy and years of schooling compared to other countries at the top of the list, like Switzerland and Norway.

Monitoring other indicators

Another approach is to rely on a larger number of indicators that are frequently updated. These other data points reflect a variety of perspectives about the economy, including subjective ones that convey personal perceptions and experiences.

For instance, in addition to inflation rates, there is data on stress due to inflation^[11] as well as inflation expectations^[12]. Both offer insights into people’s perceptions, perspectives and experiences about inflation.

During the COVID-19 pandemic, the annual U.S. inflation rate increased from 1% in July 2020 to 8.5% in July 2022^[13]. My research partners and I found, using U.S. Census data, that more than 3 in 4 adults in the U.S. were experiencing moderate or high levels of stress due to inflation^[14] at that time and continued to do so even after inflation went down in 2023.

More recently, the Trump administration’s sporadic tariff changes^[15] have made future prices more uncertain, which exposes people to risks. That, in turn, makes people adjust their expectations and feel worse off.

The share of consumers expecting higher inflation rates has climbed sharply in 2025^[16], while consumer confidence has declined abruptly. About 1 in 3 consumers expect that there will be fewer jobs created^[17] in the next six months, which is almost as low as during the Great Recession of 2007-2009.

Consumers also have negative expectations about their own future income and worry about their own economic status.

At this moment, the U.S. economy has not officially entered a recession^[18] – which requires a longer period of GDP contraction than just one quarter. Although unemployment^[19] and inflation rates remain relatively low^[20], the broad picture of the economy that takes into account people’s expectations and perceptions is troubling. To be clear, I’m not saying that just because of what the GDP data may indicate.

This article includes material from an article originally published on Aug. 7, 2018^[21].

References

1. ^{^} The Bureau of Economic Analysis (www.bea.gov)
2. ^{^} gross domestic product (www.bea.gov)
3. ^{^} Some economists and analysts (www.bloomberg.com)
4. ^{^} studying economic well-being (scholar.google.com)
5. ^{^} many limitations (www.economie.gouv.fr)
6. ^{^} their 2010 report (www.economie.gouv.fr)
7. ^{^} One approach (www.insee.fr)
8. ^{^} Human Development Index of the United Nations (hdr.undp.org)
9. ^{^} ranked fifth in the world in terms of GDP per capita (data-explorer.oecd.org)
10. ^{^} 20th place (hdr.undp.org)
11. ^{^} data on stress due to inflation (www.bls.gov)
12. ^{^} inflation expectations (www.newyorkfed.org)
13. ^{^} 1% in July 2020 to 8.5% in July 2022 (www.bls.gov)
14. ^{^} moderate or high levels of stress due to inflation (doi.org)
15. ^{^} Trump administration’s sporadic tariff changes (theconversation.com)
16. ^{^} climbed sharply in 2025 (data.sca.isr.umich.edu)
17. ^{^} 1 in 3 consumers expect that there will be fewer jobs created (www.conference-board.org)
18. ^{^} has not officially entered a recession (finance.yahoo.com)
19. ^{^} unemployment (www.bls.gov)
20. ^{^} inflation rates remain relatively low (www.bls.gov)
21. ^{^} published on Aug. 7, 2018 (theconversation.com)