GDP

What it Measures:

The Gross Domestic Product or GDP is the net worth of the sum of all that is produced in a country along with services, investments, public expenditures, government outlays, and the balance of trade measured annually.

In essence, the GDP measures the national standard of living as well as the overall economic health in the country and so holds an important place among the fundamental indicators of any country.

What effect it has:

If the U.S. Gross Domestic Product number comes out higher-than-expected, that usually appreciates the U.S. Dollar. On the other hand, a lower-than-expected number will prompt the Dollar’s decline. GDP is one of the most widely watched of all fundamental indicators, and its revisions can also prompt significant market activity.

GDP movements can influence equity prices, currency exchange rates and interest-rate policy for the Federal Reserve.

How often it is released:

Gross Domestic Product or GDP is a quarterly report released with an annualized change that consists of the change for the quarter times four. The advance GDP release comes out four weeks after the end of the quarter, while the final release comes out three months after the end of the quarter.

Why it is important:

The GDP has an enormous effect on the economy, with rising GDP manifesting as businesses hire and expand to meet rising demand for products, goods are exported and the business cycle shows a growing economy. While a declining GDP signals a slowdown of the economy when demand for products wane and the business cycle moves toward recession.

Furthermore, the indicator is the most important indicator in determining if the economy is healthy and growing or slipping into recession. Economists and traders rely on this indicator which typically indicates a healthy economy when growing at a 3% to 3.5% rate. At these moderate levels, the indicator will not signal an excess of inflation.

Basically, GDP is the broadest indicator for gauging the health of a country’s economy and so is closely-watched by the Federal Reserve in the United States to determine the strength of the economy in order to adjust interest rates and monetary policy.