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 declined at a 6.2% annual pace in the fourth quarter of 2008, according to the second estimate from the Bureau of Economic Analysis.
The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in the first quarter of 1982.
The only good news in this report is that the drop in inventories suggests there is less of an inventory overhang, said Matthew Carniol, chief currency strategist at TheLFB-forex.com. Still, the inventory to sales ratio has gone up, indicating there still is excess inventory which needs to be worked off. Firms do that by reducing production and their amount of workers, so expect to see employment weaken going forward.
The report showed businesses inventories shrank $19.9 billion in the fourth quarter, instead of rising by $6.2 billion as originally estimated. Third-quarter inventories fell by $29.6 billion in the third quarter.
The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by a positive contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports.
Final sales of computers subtracted 0.01 percentage point from the fourth-quarter change in real GDP, the same contribution as in the third quarter. Motor vehicle output subtracted 2.04 percentage points from the fourth-quarter change in real GDP after adding 0.16 percentage point to the third-quarter change.
U.S. imports fell 16.0% instead of 15.7% as originally reported. Exports were revised down, dropping 23.6% instead of falling 19.7%. Trade reduced GDP by 0.46 of a percentage point in the fourth quarter. Originally, trade was seen adding 0.09 of a percentage point to GDP.
Business spending fell by 21.1% in the period, lower than the originally estimated 19.1% decrease. Business spending fell 1.7% in the third quarter. Fourth-quarter investment in structures decreased 5.9%. Equipment and software plunged 28.8%.
Fourth-quarter spending by consumers tumbled 4.3%, down from a previously reported 3.5% decrease and below the third quarter's 3.8% decline. It cut 3.01 percentage points out of GDP in the fourth quarter, instead of the tamer reduction of 2.47 percentage points initially thought.
Purchases of durable goods plunged 22.1% in October through December, a bit up from the previously reported 22.4% decrease but below a decline of 14.8% in the third quarter. Fourth-quarter non-durables spending tumbled by 9.2%. Services spending went 1.4% higher.
Housing remained a huge drag on the economy; residential fixed investment decreased by 22.2% in the fourth quarter, a smaller drop than the originally estimated 23.6% but bigger than a third-quarter spending drop of 16.0%.
The government's price index for personal consumption expenditures decreased 5.0%, smaller than the previously estimated 5.5% drop. The index rose in the third quarter by 5.0%. The PCE price gauge excluding food and energy increased 0.8%, a bit above the previously estimated 0.6% increase but below the third quarter's 2.4% increase.
Forex Technical Reaction: S&P futures began falling sharply soon after the news regarding Citigroup was announced, and the dollar gained on the higher-yielders. Futures declined further after the report, and the dollar continued to gain.