Understanding the Importance of County-Level GDP

Like an economic thermometer, gross domestic product “takes the temperature” of an area’s economy, and forecasting future GDP is an important yet challenging practice used to guide policy and business decisions. By reporting the total dollar value of all goods and services produced within an economy over a specified period (typically a quarter or a year), GDP is an indicator of growth, resilience, business development and many other economic metrics.

GDP counts only what is produced inside the borders of an observed jurisdiction, usually a county, state or country. If a US company makes cars in Mexico, for instance, that production is counted toward Mexico’s GDP, not America’s. Duke Health Lake Norman Hospital counts toward the GDP of Iredell County, North Carolina, home to the hospital, rather than Durham County, where the hospital’s parent institution is based.

At any level, the growth of real GDP (which has been adjusted for inflation) is vitally important for raising standards of living. A local GDP that grows faster than inflation may indicate an expanding population, job growth, enhanced productivity, rising incomes and/or increases in public revenue. The growth in production translates to increases in wealth, consumption, business activity and public services. Negative GDP indicates economic contraction, suggesting a declining population, job loss and an increased prevalence of personal and commercial bankruptcy.

GDP is most useful in comparison, by viewing the economic metric relative to past measures and to the GDP of other places. Tracking GDP over time allows observers to benchmark economic growth and assess the effects of development strategies. Comparing one area’s GDP with another’s helps to evaluate and learn from policies and programs that promote growth. By observing, for instance, the strong recent GDP growth in Granville County shown in the figure, decision-makers in comparably sized nearby counties (such as County B with muted growth and County C with declining GDP) could examine the reasons for Granville’s success. These observers would find the benefits coming from the large and growing Triangle North Business Park, targeted workforce training efforts of Vance-Granville Community College, meaningful infrastructure upgrades and broadband expansion.

While it does not capture many details that matter to individual households, such as cost of living, strength of infrastructure, or environmental health, GDP helps planners identify opportunities for diversification, target key industries to support, and respond to emerging weaknesses. In times of stress, GDP trends can signal emerging downturns, highlighting areas that require swift policy action.

Forecasting GDP

Because of GDP’s importance, forecasting it is an essential yet challenging practice. It involves estimating future economic output based on a combination of historical data, current trends and predictive models. The federal Bureau of Economic Analysis releases national GDP quarterly, but county GDP figures are published only once a year – typically in December of the following year. This means that in the above figure, we see published data that reflects GDP only through 2023, not the present. Forecasts can provide estimates of what is happening now and what will happen in the near future.

The figure above also shows the results of a Kenan Institute of Private Enterprise GDP forecast for these three counties. In addition to showing historical evidence, this figure visualizes forward-looking information to help decision-makers plan budgets, allocate resources and set economic policies. A GDP forecast such as this could guide infrastructure investment, workforce development policy and planned business incentives. Accurate forecasts also support risk management, helping leaders prepare for downturns or capitalize on growth opportunities.

The limitations of forecasts must also be acknowledged. Estimates can change as more data comes in, and models that rely on employment and wage figures are sensitive to revisions. Unforeseen events – whether a pandemic, a hurricane or a sudden plant closure – may affect the economy in ways that no forecast could reasonably anticipate. Shocks impact local economies more than national economies, which are buffered by scale and diversity. A single factory closure or the relocation of a major employer may barely register in national GDP figures, but it can transform the economic outlook of a small county.

For these reasons, GDP forecasts should be viewed as informed estimates rather than precise predictions. They are most useful when combined with other economic indicators. Equally important, leaders need to tap into their community’s knowledge to ground data-based metrics. Conversations with businesses, workers and residents often spot changes in conditions well before they show up in official statistics. Flexible policies that blend data and local insight work better than relying solely on modeled forecasts.