Real GDP per capita is a measurement of the total economic output of a country divided by the number of people and adjusted for inflation. It's used to compare the standard of living between countries and over time.
This economic indicator consists of the following three concepts. You must understand these first if you want to comprehend GDP per capita.
The first concept is “gross domestic product.” That measures everything that a country produces in a year. The components of GDP are personal consumption, business investment, government spending, and exports minus imports. The Bureau of Economic Analysis reports it quarterly, updating its estimate each month.
The second is “real GDP,” which is GDP without the effect of price changes. Inflation makes regular, “nominal” GDP higher, so real GDP is a more accurate measurement when you want to compare an economy over time.
The third is “per capita,” which means “per person.” Real GDP is divided by the population of a country to calculate real GDP per capita. It's the best way to compare economic indicators like GDP for countries with very different population sizes.
Real GDP Per Capita Formula
The formula for real GDP per capita depends on what data you have available. Let's start with the simplest. If you already know real GDP (R), then you divide it by the population (C):
R/C = real GDP per capita.
In the United States, the Bureau of Economic Analysis calculates real GDP using 2012 as the base year. If you don't know real GDP, you can calculate it from nominal GDP (N) if you know the implicit price deflator (D). The deflator is the ratio of what goods and services would cost today if there had been no inflation since the base year. It's similar to another measure of inflation, the Consumer Price Index. Its components are weighted differently.
Fortunately, the BEA provides the deflator for 2012 in Table 1.1.9. Here's the formula to calculate real GDP per capita (R) if you only know nominal GDP (N) and the deflator (D):
(N/D) / C = real GDP per capita
The best way to calculate real GDP per capita for the United States is to use the real GDP estimates already published by the BEA. Then just divide it by the population. Fortunately, the Federal Reserve Bank of St. Louis already calculated it, as shown below.
Annual U.S. Real GDP Per Capita Since 1947 in 2012 Dollars
|Year||Real GDP Per Capita||Event Affecting GDP|
|1948||$14,316||Recession. Adjustment to peace-time.|
|1949||$14,202||Recession ongoing. Adjustment to peace-time.|
|1953||$17,013||Eisenhower took office. War ended. Recession.|
|1957||$17,583||Fed raised rates. Recession.|
|1958||$16,793||Fed lowered rates. Recession ended.|
|1959||$17,734||Fed raised rates.|
|1961||$17,816||JFK took office, ended recession.|
|1963||$19,257||JFK assassinated. LBJ took office.|
|1966||$22,510||Fed raised rates to fight inflation.|
|1968||$23,551||Fed raised rates.|
|1969||$24,365||Nixon took office. Fed raised rates.|
|1971||$24,520||Burns chaired Fed. Stagflation. Wage-price controls. Gold standard ended.|
|1972||$25,083||Burns chaired Fed. Stagflation. Wage-price controls.|
|1973||$26,718||OPEC embargo. Recession.|
|1974||$26,643||Ford took office.|
|1977||$27,706||Carter took office.|
|1978||$28,549||Fed raised rates.|
|1979||$30,077||Volcker chaired Fed. Raised rates.|
|1981||$30,316||Reagan took office. Recession. Cut tax rate.|
|1983||$29,511||Payroll taxes raised.|
|1986||$33,972||Reagan cut taxes.|
|1987||$34,585||Greenspan chaired Fed. Inflation.|
|1988||$35,728||Fed raised rates.|
|1989||$36,929||Bush 41 took office. S&L Crisis.|
|1992||$37,304||Fed lowered rate.|
|1993||$38,029||Clinton took office. NAFTA and EU.|
|1994||$38,852||Economy grew 4%.|
|1995||$39,729||Fed raised rates.|
|2000||$45,944||Tech bubble burst.|
|2001||$46,531||Bush 43 took office. Recession. 9/11 attacks.|
|2002||$46,690||War on Terror.|
|2003||$47,078||Fed lowered rate. Iraq War. JGTRRA|
|2004||$48,663||Fed raised rates, hurting interest-only loan holders.|
|2005||$50,081||Fed raised rates, hurting interest-only loan holders.|
|2006||$51,277||Fed raised rates, hurting interest-only loan holders.|
|2007||$51,540||Dow hit 14,164.43.|
|2008||$51,637||Financial crisis. Fed lowered rates. QE.|
|2009||$49,491||Obama took office. American Recovery and Reinvestment Act.|
|2010||$49,903||ACA passed. Tax cuts.|
|2011||$50,495||Iraq War ended.|
|2014||$52,293||Strong dollar hurt exports.|
|2017||$55,240||Trump took office. Dollar weakened.|
|2018||$56,503||Trump tax cuts.|
Frequently Asked Questions (FAQs)
What would cause a fall in real GDP per capita if real GDP were to grow at a constant rate?
If the population grows too quickly, that could cause a fall in real GDP per capita. If real GDP grows, but the population grows at a more rapid rate, then the real GDP per capita will decrease.
What phase of the business cycle corresponds with declining real GDP?
When real GDP declines, it marks the contraction phase of the business cycle. This continues until the trough marks the bottom of the contraction. After the trough, rising real GDP marks the start of the expansion phase.
Bureau of Economic Analysis. “What Is GDP?”
Bureau of Economic Analysis. “Gross Domestic Product.”
Bureau of Economic Analysis. “Concepts and Methods of the U.S. National Income and Product Accounts,” Pages 4-25–4-26.
Bureau of Economic Analysis. “Table 1.1.9. Implicit Price Deflators for Gross Domestic Product.”
Congressional Research Service. "Introduction to U.S. Economy: The Business Cycle and Growth."