GDP as guide to market movement from trader perspective
A succinct write up about how a trader will perceive market movement using GDP as an indicator.
GDP= C+L+G+(X-M)
C= personal consumption
I= gross private domestic investment
G= government consumption expenditures and gross investment
(X-M)= Net export value of goods and services
GDP gives information about the country’s economy. Market reacts different to the figures when they are announced, especially if there had been differences in the expected value and the actual. The expected values will be the forecasts by experts and analyst. The GDP gives people an idea how the market is movement albeit a laggard indicator.
About personal consumption:
Weakening consumption indicates lower spending by the populace and pronounced decline indicates impending recession. Possible mitigating factors are unemployment, excessive inflation)
About private domestic investment:
Investment in equipments is good predictor of future economy. It indicates whether corporate profitability is accelerating or slowing. Possible mitigating factors are weak economy. This indicator should precede personal consumption.
About government spending:
This is not a very significant indicator in recent times. We should envisage higher government spending when weakening in private domestic investments occurs.
About Net export
Deficit occurs when export exceeds import. Deficit is not necessarily a bad thing depending on the nature and spending pattern of the country.
