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Fundamental Analysis |
Gross Domestic Product
Definition Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. It represents the total value of the country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and government entities.
Importance Gross Domestic Product is the country's most comprehensive economic scorecard.
Why do Investors Care? GDP is the consummate measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road to inflation. By tracking economic data like GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information, which not only paints an image of the overall economy, but also tells investors about important trends within the big picture. GDP components like consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Interpretation When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings that bode well for the stock market.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP. |
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Frequency Quarterly.
Source Bureau of Economic Analysis, U.S. Department of Commerce.
Availability Usually during the fourth week of the month.
Coverage Data are for the prior quarter. Data released in April are for the first quarter.
Revisions Monthly, revised estimates are released based on more complete information during the second and third months of the quarter. This revision affects at least three years of data. The magnitude of the revision is generally moderate. |
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