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: The U.S. economy contracted at a 0.5% annualized rate, the Commerce Department said today, in line with economists' expectations. That was the same rate reported a month earlier and was the first full quarter of contraction in a recession which began Dec. 2007.
The 0.5% slide in third-quarter GDP marked the biggest decrease since a 1.4% decline in third-quarter 2001.
"The danger from this point is that conditions will worsen at a much faster pace," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "The spillover effects on credit markets as a result of the Lehman Brothers collapse and deteriorating housing and job markets could lead to a 6.5% annualized contraction in the fourth quarter."
The biggest component of GDP, about 70%, is consumer spending. Third-quarter spending by consumers fell 3.8%, worse than the previously estimated 3.7% decrease. Consumer spending on durable goods decreased 14.8% in July through September while non-durables spending fell by 7.1%.
Residential fixed investment, which includes spending on housing, declined by 16.0% in the third quarter, less than the 17.6% previously estimated. Second-quarter spending fell by 13.3%.
Exports rose by 3.0% instead of rising 3.4% as earlier reported. Imports decreased 3.5% after a previously-estimated decline of 3.2%.
Business spending fell 1.7%, below the previously estimated 1.5% decrease and below the second quarter's 2.5% increase. Investment in structures in the third quarter increased 9.7%; equipment and software decreased 7.5%.
The price index for personal consumption rose 5.0%, below the previously estimated 5.2% increase. Core PCE, excluding food and energy, rose 2.4%, below the previously estimated 2.6%.
Forex Technical Reaction: Markets were very quiet in the overnight session on thin volume and little movement was seen after the GDP report was released.