Three Things to Know About The Most Closely Watched Indicator: GDP
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By Ryan Casey Stephens, FPQP®
Special Contributor
Each week in December we’ll take a deep dive into one report that moves markets and impacts mortgage rates.
Imagine a single economic report that possesses the power to rank the wealth of nations, influence tax and spending policies here at home, and point in real time to industries that are thriving or lagging, all while being used to color the past.
It’s not an exaggeration to say Gross Domestic Product or GDP is the most closely watched economic indicator. This nearly all-encompassing metric is a data powerhouse and moves not only markets but tax and political policies that affect every one of us. We’ll get a fresh reading later this week, so let’s examine it in this week’s Three Things to Know.
X-Ray of a Giant
Released the fourth week of every month, the Bureau of Economic Analysis assembles GDP data on a quarterly basis. That means we track the data in three-month batches and use it to measure whether the most recent past quarter grew or declined compared to the prior three months. The most basic definition of our GDP is the value, in trillions of dollars, we produce in the U.S. via labor or property.
The numbers that make up GDP come from a variety of sources including the Census Bureau, Treasury, and the Bureau of Labor Statistics. Data also comes in from private industry and trade organizations reporting in real-time. The numbers are adjusted for seasons to remove the influence of weather on production or holidays that might skew the findings.
It’s Growth or Bust
The most interesting hallmark of the GDP report is how the data is consumed by the average user. Instead of focusing on the raw data, such as how many trillions of dollars the United States produced, we tend to examine whether that number grew, shrank, or remained flat. In other words, GDP is a trend-based report, rather than a simple production measuring device.
The data on our economy goes all the way back to 1929. The metrics we measure have obviously changed along the way, but so have the goods we produce. Inflation has also dramatically changed the value of the U.S. Dollar in that span of time as well. That’s why quarter-over-quarter growth or decline is so intriguing — it levels the playing field and allows us to take a broad look at eras in our history that saw tremendous growth or slogging decline.
The Ripples of the Report
Every economist, politician, or trader on Wall Street seems to have their own interpretation bias for this data set. It can sometimes cause market movement simply due to the disagreement over what the change in GDP means for our nation. The most well-known example of this is the technical definition of recession, and whether two back-to-back quarters of decline signal the start of recessionary conditions.
One thing is not up for debate — each month’s reading or revision carries immense weight and causes wrinkles and ripples across the investment landscape. Mortgage bonds are not immune, the data we receive this week will send mortgage rates higher or lower.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
