Everything You Need to Know About Today’s GDP Report

A revised improvement signals continued optimism

   

Today I want to talk about what may be the most important three-letter acronym when it comes to the U.S. economic recovery: GDP, which stands for Gross Domestic Product.

GDP is the broadest measure of a nation’s economic activity—adding up the total value of all goods and services produced in the U.S. This influential status update on the U.S. economy takes into account net exports, government spending, consumption, investment and inventory. Of course, out of these, the most important component is consumption, which accounts for about two-thirds of GDP.

The latest report is the preliminary revision for second-quarter GDP—because this is such an important report, the Commerce Department officially revises each quarter’s GDP estimates a total of four times: three during the quarter (advance, preliminary and final), as well as a final time once a year in July when the annual benchmark revisions are announced.

And what had the newswires buzzing this morning is that second-quarter GDP has been revised to 1.7% growth, compared with the advance estimate of 1.5%. The increase was chalked up to higher consumer spending and exports. As usual, government spending and imports continued to drag GDP down, but to a lesser extent than past quarters.

There’s no doubt that we would have liked to have seen faster growth—after all, it takes a 2% annual rate to make the unemployment rate decline. As we saw with yesterday’s consumer confidence report, Americans are still quite skittish about their job prospects. But the American economy still remains an oasis amid the global slowdown.

To put it into perspective, forecasts call for advanced economies to advance just 1.3% in 2012. For example, Denmark just announced that its second-quarter GDP declined by 0.5% and Spain announced its GDP shrunk 0.4% yesterday.Most developed economies, especially in the eurozone, have been floundering while the U.S. has been posted slow-but-steady growth.

And in this case, I believe that slow, but steady, can still win the race. In the last GDP report, economists upped their first-quarter estimates from 1.9% to 2% growth, and with the housing market heating up and jobless claims remaining well below the 400,000 cutoff, I anticipate that more upward revisions will come.


Article printed from InvestorPlace Media, http://investorplace.com/2012/08/everything-you-need-to-know-about-todays-gdp-report/.

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