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. GDP or gross domestic product of a country provides a measure of the monetary value of the goods and services that country produces ...
  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. Insights

    Why GDP Is Not an Accurate Measure of the Economy

    Is gross domestic product (GDP) an accurate measure of the strength or weakness of the U.S. economy?
  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

    Healthiest And Safest European Economies

    Economic indicators are to economists what symptoms are to doctors: signs of the relative well-being of the patient.
  7. Insights

    U.S. Second Quarter GDP Disappoints

    The first reading of U.S. second-quarter GDP showed the economy grew at 1.2%, much slower than expected.
  8. Investing

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

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

    Explaining The World Through Macroeconomic Analysis

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

    Does High GDP Mean Economic Prosperity?

    Find out how GDP is the typical indicator used to measure a country's economic health, what it fails to reveal, and how GPI can help.
Frequently Asked Questions
  1. How Can I Access a Company's Earnings Report?

    Find out how to access the quarterly and annual earnings reports for publicly traded companies, and how to listen in to company ...
  2. What Can Cause a Negative Terminal Growth Rate?

    Learn about the assumptions built into terminal valuations and in what circumstances the applied terminal growth rate might ...
  3. What Is the Effect of Price Inelasticity on Demand?

    Find out how price inelasticity of demand shows the relationship between demand and price when the price of an inelastic ...
  4. How Are Business Decisions Made in a Partnership?

    Understand how partners in a business can tackle decision making, and learn the options available for partnerships to develop ...
Trading Center