1. Economic Indicators: Introduction
  2. Economic Indicators: Beige Book
  3. Economic Indicators: Business Outlook Survey
  4. Economic Indicators: Consumer Confidence Index (CCI)
  5. Economic Indicators: Consumer Credit Report
  6. Economic Indicators: Consumer Price Index (CPI)
  7. Economic Indicators: Durable Goods Report
  8. Economic Indicators: Employee Cost Index (ECI)
  9. Economic Indicators: Employee Situation Report
  10. Economic Indicators: Existing Home Sales
  11. Economic Indicators: Factory Orders Report
  12. Economic Indicators: Gross Domestic Product (GDP)
  13. Economic Indicators: Housing Starts
  14. Economic Indicators: Industrial Production
  15. Economic Indicators: Jobless Claims Report
  16. Economic Indicators: Money Supply
  17. Economic Indicators: Mutual Fund Flows
  18. Economic Indicators: Non-Manufacturing Report
  19. Economic Indicators: Personal Income and Outlays
  20. Economic Indicators: Producer Price Index (PPI)
  21. Economic Indicators: Productivity Report
  22. Economic Indicators: Purchasing Managers Index (PMI)
  23. Economic Indicators: Retail Sales Report
  24. Economic Indicators: Trade Balance Report
  25. Economic Indicators: Wholesale Trade Report

The gross domestic product (GDP) is a comprehensive scorecard of the country’s economic health. As an aggregate measure of total economic production for a country, GDP represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance (exports are added, imports are subtracted).

GDP consists of the total value of the nation’s production and is made up of purchases of domestically produced goods and services by individuals, businesses and the government.

On a quarterly basis, GDP is often presented on an annualized percent basis. Most of the individual data sets will also be given in real terms, meaning that the data is adjusted for price changes, and is therefore net of inflation.

 

There are several types if GDP measurements:

  •          Nominal GDP is the measurement of the raw data.
  •          Real GDP takes into account the impact of inflation and allows comparisons of economic output from one year to the next and other comparisons over periods of time.
  •          GDP growth rate is the growth in GDP from quarter to quarter.
  •          GDP per capita measures GDP per person and is a great way to compare GDP data between various countries.

 

Importance for investors

Investors look at the growth rate in GDP as part of their asset allocation decision. They can also compare the GDP growth rates of different countries and make decisions about allocating their assets to stocks in these fast-growing economies.

The Federal Reserve uses the growth rate and other GDP stats as part of their decision process in determining what type of monetary policies to implement. If the growth rate is slowing they might implement an expansionary monetary policy to try to boost the economy.

If the growth rate is robust they might use monetary policy to slow things down in an effort to ward off inflation.

Real GDP is the indicator that says the most about the health of the economy and the advance release will almost always move markets. It is widely followed and discussed by economists, analysts, investors and policy makers.

The corporate profits and inventory data in the GDP report are a great resource for equity investors, as both categories show total growth during the period; corporate profits data also displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the economy. The biggest downside of this data is its lack of timeliness; investors only get one update per quarter and revisions can be large enough to significantly change the percentage change in GDP.

 

Strengths of the GDP:

  • GDP is considered the broadest indicator of economic output and growth
  • Real GDP takes inflation into account, allowing for comparisons against other historical time periods
  • The Bureau of Economic Analysis issues its own analysis document with each GDP release, which is a great investor tool for analyzing figures and trends, and reading highlights of the very lengthy full release

 

Weaknesses of the GDP:

  • The data is not very timely—it is only released quarterly
  • Revisions can change historical figures significantly

Economic Indicators: Housing Starts
Related Articles
  1. Insights

    The GDP and its Importance

    GDP is an accurate indication of an economy's size. Few data points can match the GDP and its growth rate's conciseness.
  2. Insights

    How to Calculate the GDP of a Country

    The GDP of a country can be calculated using two different approaches.
  3. Insights

    How Is the GDP of India Calculated?

    India is a front-runner among developing economies. Investopedia explains how India calculates its GDP, an indicator of economic health and performance.
  4. Investing

    Something Gross in GDP

    GDP is used to gauge the strength of the economy, but what is it actually measuring?
  5. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  6. Insights

    Deadly Flaws in Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect.
  7. Investing

    Why GDP Can Grow at 3%: The Skeptics Are Wrong

    Hard data including booming earnings show the economy will pick up steam
  8. Insights

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  9. Taxes

    Countries With The Highest Taxes

    If you thought your taxes as an American were high, think again. Here's a list of the top five countries with the highest tax revenues as a percentage of GDP.
  10. Investing

    Can Global Investors Profit From GDP Watching?

    GDP growth is not necessarily a solid indicator of stock market returns in emerging markets. Find out what to watch instead.
Frequently Asked Questions
  1. What are the advantages and disadvantages of using systematic sampling?

    Learn about the primary advantages and disadvantages of using a systematic sampling method when conducting research of a ...
  2. Is Technical Analysis a Self-Fulfilling Prophecy?

    Technical analysis seems to be useful, but some say it is simply reinforcing what investors believe.
  3. How does a cost-of-living adjustment (COLA) affect my salary?

    Learn how employers add cost-of-living adjustments to workers' salaries to offset the effects of inflation or aid in a relocation ...
  4. Is Net Operating Income (NOI) the same thing as Earnings Before Interest and Taxes (EBIT)?

    Find out about net operating income, earnings before interest and taxes, why they are not equivalent, and which measure takes ...
Trading Center