Gross domestic product (GDP) is the most comprehensive measure of economic activity. GDP is broken up into four categories - personal consumption expenditures, investment, net exports and government spending. US GDP is released in three parts with the advance report released about a month after the quarter end, the preliminary report released two months after the end of the quarter and the final report out three months after the end of the quarter. On Thursday August 27th US Q2 preliminary GDP will be released.
The advance Q2 GDP report showed that the US economy slowed by 1% compared to -6.4% in the previous quarter. A 1.5% declined was expected for Q2 GDP. The GDP report means that US recession is nearing an end. Government spending helped offset weak consumer spending in Q2. Government spending rose by 5.6%. This was the largest quarterly rise in government spending since 2003. Consumer spending fell by 1.2%. The advance GDP report shows that the US economy remains dependent on government spending and suggests the recovery is likely to be weak because of sluggish consumer spending. The advance GDP also generates concern that the US economy could face another downturn when government stimulus is removed if consumer spending does not improve. Domestic investment fell by 20.4%, business inventories decreased by $141.1bln and exports fell 7%. Imports declined by 15%. The combination of lower investment and declining inventories reduced Q2 GDP by 2.64%. The decline in exports contributed 1.38% to Q2 GDP and government spending was 1.12% of GDP.
GDP has fallen for the last four quarters - the longest streak of quarterly GDP declines on record. GDP is down 3.8% from Q2 2008. The preliminary Q2 GDP estimate will reflect more complete quarterly data and is expected to be revised Â to -1.4%. GDP is a backwards looking indicator and should have limited impact on FX trade as investors are currently positioning for the end of the recession.