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Home » Online Forex Trading Blog » US Gross Domestic Product Q4

US Gross Domestic Product Q4

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Gross Domestic Product (GDP) provides us with the data we need to determine if the economy is gaining strength or getting weaker.  It measures the current value of goods and services.  All of these goods and services are produced inside of the United States.  Most economists believe that the GDP tells us the current state of the economic health in the United States. Much of this is what drives consumer confidence. The more secure the consumer feels, the more likely they are to spend which helps drive GDP (as well as consumer confidence levels) upwards.

The GDP Numbers

The fourth quarter 2008 GDP numbers released on Friday, February 27, 2009 came in at 6.2%. This number was significantly lower than originally forecaste. In reaction to this news (as well as the news on Citibank which broke the same morning) the market continued to see downward pressure in the futures index prior to the open.  In the currency market, the dollar depreciated against the yen.  Other immediate data on currencies reflected:

  • Euro – was down .9 percent against the dollar
  • Swiss Franc – the dollar gained .8 percent

Stock and Currency Market Reaction

When the initial report came in the S & P Futures showed a drop of 21 points (below value), the Dow Jones Industrial average futures also dropped by 155 points and the Nasdaq 100 lost more than 24 points.  Gold prices were edging slightly higher ahead of the news.

The markets opened markedly lower than originally anticipated. There was already some downward pressure on the market due to the Citibank news overnight.  The opening bell showed a decline of more than 125 points in the DJIA and more than 16 points in the NASDAQ. The S Y P dropped more than 13 points on the open and volume was brisk.

Actual vs Forecast GDP Results

The GDP was forecast to come in at 5.4%. This number marks a low since an annualized GDP of 6.4 percent was recorded in 1982.  Most will remember we were in a deep recession at this time.  Since the actual number came in at 6.2% it is a strong indicator that consumer confidence is much lower than anticipated – people are spending far less than was originally anticipated.

Future GDP Outlook

The GDP number is even more intimidating when you realize that most forecasts are for a lower first quarter GDP number for 2009.  The outlook for the second quarter is expected to be higher. One of the most significant issues surrounding this is that if consumer confidence increased during the first quarter 2009 – the results of the fourth quarter 2008 are likely to impact the second quarter 2009 numbers again resulting in lower expectations.
Business Results

The unfortunate result of this is that it is more than likely that businesses will continue to cut back their expenses.  This is likely to result in additional job losses.  This of course will lead to additional lack of confidence on the part of the consumer.

Business cutbacks will include less investment in equipment, software and other capital expenditures.  Wages are likely to drop lower for newly hired employees and more companies are likely to offer buy out packages to eliminate higher paying jobs.

Business showed the largest decrease in investments since 1975.  Originally estimated to be about 19.1 percent, they actually fell 21.1 percent during the fourth quarter.

Consumer Reaction to GDP

The cycle of elimination of jobs will result in the continuing decay of consumer confidence. Consumers will feel that rather than spend money on items such as clothing, furniture and larger ticket items such as homes and cars they will have to save money in the event that their job is cut.

Consumer spending is already at a very low point. With consumer spending dropping 4.3 percent – a low since the second quarter of 1980, it is unlikely that this significant component of GDP is going to be increasing any time soon.

Summary

Ultimately, the GDP is a result of the spending on goods.  If the everyday consumer is not confident in the fact that they are going to be able to keep their job, they are far less likely to spend money.

With the stock market tumbling almost daily, investors are less likely to invest in companies that are already cash strapped.  This will ultimately result in decreasing investments by those companies, fewer jobs and potentially even more layoffs.

The economic outlook is grim.  Unless something can be done in a relatively short period of time to boost consumer confidence, get people spending money, and encourage business spending the cycle could get worse before it gets better.

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About the Author -

Doreen has more than 20 years in financial service industry and currently an active writer and commentator on Online Forex Trading.

4 Responses to “US Gross Domestic Product Q4”

  1. Allen Taylor

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

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