Prelim GDP (Q4) Actual -3.8%, Expected -5.4%, Previous -0.5%
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 contracted at a 3.8% annual pace in the fourth quarter of 2008, the Commerce Department said today. It was the largest contraction since 1982.
Economists had expected to see a 5.4% rate of contraction. Today's number is the first of two preliminary estimates; the number is subject to revision in future reports.
Inventories added 1.3 percentage points to the headline number, a sign that businesses are not cutting stockpiles quickly enough as the economy slows, which means that further cutbacks in production and jobs are likely be seen in the first quarter of 2009 and beyond. Companies have announced nearly 100,000 job cutbacks this week and today, Kodak said it would cut an additional 4500 jobs.
For all of 2008, the economy expanded 1.3%. The GDP price gauge dropped at a 0.1%. annual pace in the fourth quarter, the most since 1954. That sent the nominal rate of contraction to 4.1%, the most since the first quarter of 1958.
Consumer spending contracted at a 3.5% annual rate following a 3.8% decline in Q3, the first time consumption declined by more than 3% in consecutive quarters since records began in 1947. The fall in consumption included a 7.1% drop in spending on services, a 3.5% drop in spending on durable goods and a 22.4% decline in spending on nondurable goods, the weakest in 21 years.
Headline consumer inflation fell at a 5.5% annual rate, the biggest drop on record, which means real disposable income rose 3.3% annualized in the fourth quarter after falling 8.8% in the third. The savings rate increased to 2.9% in the fourth quarter, up from 1.2% in the third.
Business investment fell 20.1% in the fourth quarter, subtracting 2.3% points from growth, the largest drop since 1980. Investments in equipment and software dropped 27.8%, the weakest in 50 years. Investments in structures fell 19.1%, the largest decline since the first quarter of 1975.
Exports fell 19.7% in the period while imports, a subtraction from the calculation of GDP, fell 15.7%. That narrowed the trade deficit, adding 0.09 percentage points to growth.
Forex Technical Reaction: S&P futures jumped on the headline number, fell back, then rose to a gain compared to their pre-release level. The dollar was heading lower against the euro but was unchanged on the pound.
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