Gross Domestic Product (GDP)

Table of Contents

1. What is Gross Domestic Product (GDP)?
   Impact on the Market
   Key Considerations
   Release Time (Summer & Winter Time)
   Conclusion

1. What is Gross Domestic Product (GDP)?

Overview

Gross Domestic Product (GDP) is a key economic indicator that measures the total value of goods and services produced within a country over a specific period. It is one of the most important metrics for assessing economic growth and overall economic health.

There are three main types of GDP:

• Real GDP (Inflation-Adjusted GDP): Removes the effects of inflation to reflect actual economic growth.
• Nominal GDP: Includes price changes and reflects the total market value of output.
• GDP Growth Rate: Measures the percentage change in GDP compared to the previous quarter or year.

In the U.S., GDP is released quarterly in three stages: Advance (Preliminary), Second Estimate (Revised), and Final Estimate. The Advance GDP release has the biggest market impact as it provides the first look at economic growth.

2. Impact on the Market

GDP is a fundamental measure of economic performance and a major factor influencing Federal Reserve (Fed) monetary policy. Higher GDP growth indicates economic expansion, while lower or negative growth signals a potential recession.

Market Reactions

Stronger-than-expected GDP (accelerating economic growth) → Increases expectations for Fed rate hikes → USD strengthens, bond yields rise, and stock prices may rise or fall depending on inflation risks.

Weaker-than-expected GDP (slowing economic growth) → Increases expectations for Fed rate cuts → USD weakens, bond yields fall, and stocks may rise due to looser monetary policy.

Additionally, components of GDP such as consumer spending (PCE) and business investment are closely watched to assess economic trends.

3. Key Considerations

1. Understanding the Different GDP Releases

Advance GDP: The first estimate and most impactful on markets. However, it is subject to significant revisions.
Second Estimate GDP: Incorporates additional data for improved accuracy.
Final Estimate GDP: The most accurate version, but it has less market impact.

2. Analyzing GDP Components

Consumer Spending (PCE): Accounts for about 70% of U.S. GDP, making it the most crucial component.
Business Investment & Government Spending: Key drivers of economic growth alongside exports and imports.

3. Relationship with Fed Policy

If GDP growth is too strong, inflation concerns may rise, increasing the likelihood of Fed rate hikes.
If GDP growth is negative, recession fears may push the Fed toward rate cuts to stimulate the economy.

4. Release Time (Summer & Winter Time)

GDP data is released quarterly (January, April, July, October).

※ The Advance GDP release generates the most market volatility, as it provides the first indication of economic growth trends.

5. Conclusion

GDP measures the total value of goods and services produced within a country and serves as a key indicator of economic growth.
Stronger GDP growth signals economic expansion, while weaker or negative growth suggests a slowdown or recession.
Markets react most strongly to the Advance GDP release, which influences Fed monetary policy expectations.
GDP is released quarterly at 8:30 AM (ET), corresponding to 9:30 PM (JST) during Summer Time and 10:30 PM (JST) during Winter Time.