What is gross domestic product (GDP)?

Gross domestic product (GDP) is the most important and talked about data for the trading month. It assesses the value of finished goods and services produced by a country over a fixed period of time and provides insight into the real growth of the economy.

Generally speaking, economic indicators can be divided into three categories:

Synchronous indicators emphasize the current economic situation

Leading indicators show the direction of the economy

Lagging indicators show recent changes in overall economic vitality

Although it is a lagging indicator, the GDP report is widely seen as a key indicator of economic health and has always been the most intuitive way to judge whether the economy is growth, contraction or recession.

The GDP report consists of several parts, and in order to interpret the data effectively, it is critical to understand which information has the most significant impact on the market.

Annualized GDP data

Annualized GDP data, also known as headline data, is the first and most valued data in the market. As with any other data, it is useful to know the range of analysts' expectations through interviews to determine whether the data are in line with market consensus. Please note that the more you deviate from the expected median, the more likely you are to have a volatile response.

Revision

The next most important data is the revision.

The GDP data released for the first time is called advance data or first data and needs to be revised regularly.

The first data is released in the first month after the end of the relevant quarter and contains some rough estimates. As more and more information became available, these estimates were revised over the next two months to release second and third (final) GDP data.

Historically, the market has reacted most strongly to the first release of data. By the time the final report was released, the market had more or less absorbed the impact of the data.

Personal consumption expenditure

Since the US economy as a whole is based on consumption and services, personal consumption expenditure (PCE) accounts for 68 per cent of gross domestic product. Therefore, after the release of personal consumption expenditure, it is also another indicator to pay attention to.

Conclusion

As you know, there are many factors to consider when trading with US GDP data, but with some insight and a little preparation, investors can use the published data to find many trading opportunities.

Source of course: CME