Release Explanation: This report measures the monetary value of all goods and services produced within a Country’s borders in a specific time period. GDP is calculated on an annual basis, is the broadest measure of activity, and the primary gauge of each economy’s overall health. It includes all Company and Personal consumption, government outlays, investments, and exports less imports, that occur within a defined territory.
A strong annual GDP outlook will lead to strong investment in an economy especially from overseas. A weak annual GDP outlook will usually lead to a slowdown in the economic business cycle. The yearly forecast is as important as the actual release number. As a reflection of the value of what an economy is producing, GDP will invariably have a ripple effect across all other economic releases, over a period of time:
TIC Data because of overseas investors wanting to participate in future growth, or liquidate investments in an economy moving into a period of contraction.
CPI because a reducing GDP outlook will therefore reduce the rate of future Inflation, as an increasing GDP outlook will likely lead to Inflationary pressures.
Retail Sales, Consumer Confidence, PCE, they all are affected by the strength or weakness of GDP.
A volatile release because just one airplane order not accounted for can move the number by 0.5% and therefore lead to volatile re-alignments of Currency positions.
Trade Desk Thoughts: Real gross domestic product (GDP) contracted at a 6.3% annual pace in the fourth quarter of 2008, the Commerce Department said today. It was the largest contraction since 1982. The report also showed that corporate profits fell by the most since 1953, losing more that 25% of their value.
Economists had expected to see a 6.6% rate of contraction for the period. Today's report was the final measure of fourth quarter GDP although the report is still subject to revisions.
The first quarter of 2009 is likely to be just as bad as the last quarter, said Matthew Carniol, chief currency strategist at TheLFB-forex.com. However, recent better reports on retail sales, housing starts and durable goods orders could be indicating the rate of contraction could slow in coming quarters.
Consumer spending, which accounts for about 70% of output, fell at a 4.3% pace, marking the first back-to-back decreases in excess of 3% since record- keeping began in 1947.
After-tax corporate earnings fell 28.4% to $931.2 billion in October through December period from the third quarter and that the decline in profits accelerated sharply. Third-quarter profits decreased 3.2% compared to the second quarter. For all of last year, profits were down 10.1%, the biggest annual drop since 1970.
Federal government spending increased 7.0% in the fourth quarter, a bigger climb than the earlier estimated 6.7%. Third-quarter spending surged 13.8%.
For all of 2008, the economy grew 1.1%, the same as previously estimated, as exports and government tax rebates in the first six months helped offset the slump in consumer spending that followed.
Forex Technical Reaction: S&P futures fell about 3 points after the report and the dollar gained on the higher-yielders as it declined against the yen.