The Gross Domestic Product Report, released by the , is one of the most crucial releases analyzed by traders. Apart from providing a snapshot of production in the past quarter, the release provides important data on inflation, employment, and consumption, all of which are considered by the Federal Reserve in the setting of monetary policy. The report measures all end-good production that took place within the borders of a nation, in current dollar terms.
The main drawback of the GDP data is its nature as a backward looking indicator. As such, it often leads to a great deal of commotion before its release, but frequently lacks a strong follow up in the absence of a great surprise that forces traders to readjust their scenarios and conceptions. In spite of this short term drawback, it is exceptionally valuable as a lagging coordinator, or coincident indicator of economic activity.
The GDP deflator, contained in this report, differs from the CPI and the PPI in that it measures price changes in all final goods and services produced in the nation, regardless of who the eventual consumer will be. The CPI measures the price changes of goods consumed by U.S. citizens, and as such must consider price changes of imported products as well. The GDP deflator does not measure any changes in imported goods. But price changes in goods destined for export markets are incorporated in its calculation.
The best way of making use of the GDP release is using it in combination with other data types, such as the NFP, and trade balance data in order to analyze and qualify the data contained in it in a better way. Taken alone, the headline number may be misleading, since it’s not clear if any rise or fall is the result of inventory accumulation, export sector dynamism, or consumer demand. These differences have great value for inflation trends, and in turn, for the direction of interest rates, which are always the foremost concern in trader’s minds.
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