GDP: Measuring the Economy

If you’ve been listening to the news over the past few years, you’ve probably heard a lot about gross domestic product (GDP) in relation to the Great Recession and the economic recovery. When GDP falls for an extended period, it may signal the beginning of tough economic times. Conversely, a rising GDP may indicate an improving economy and the potential for better times.

Gross domestic product is the total value of goods and services produced in the United States. This includes consumer spending, government spending, business capital investment, and net exports (the value of exported goods minus the value of imported goods). You might look at GDP as a speedometer that measures how fast the nation’s economic engine is running.

What GDP Tells Us

The total dollar value of GDP provides perspective on the size of a nation’s economy. The United States has the highest GDP in the world — about two and a half times greater than China’s, the second-largest national economy.¹

What matters more for investors, however, is GDP growth. When gross domestic product grows, it may help contribute to higher corporate earnings. Interestingly, research has failed to prove that stock market performance has a positive correlation with GDP growth.²

Gross domestic product may also affect interest rates. When GDP growth is slow, the Federal Reserve may keep interest rates low in an effort to stimulate the economy, as it has done since 2008. On the other hand, if GDP rises too quickly, the Fed typically becomes concerned with potential inflation and may raise interest rates in an effort to keep the economy from growing too fast.

Keeping an eye on GDP may be helpful in gauging the overall health of the economy. Yet it could be unwise to place too much emphasis on GDP when making investment decisions.

1) International Monetary Fund, 2011
2) Financial Times, January 12, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald.

Links to other sites are for your convenience in locating related information and services. This Agency, The Guardian Life Insurance Company of America (Guardian) and Park Avenue Securities, LLC (PAS) do not maintain these other sites and have no control over the organizations that maintain the sites or the information, products or services these organizations provide. Although this Agency, Guardian and PAS believe that the information from these organizations is reliable, we cannot guarantee its completeness or suitability for any purpose. Accordingly, this Agency, Guardian and PAS expressly disclaim any responsibility for the content the accuracy of the information or the quality of products or services provided by the organizations that maintain these sites. This Agency, Guardian and PAS do not recommend or endorse these organizations or their products or services in any way.

The information or opinions contained in this Internet site should not be constructed by any consumer and/or prospective client as an offer to sell or solicitation of an offer to buy any particular investment product. The information contained herein is directed solely to those individuals who reside in jurisdictions in which the representative is registered in the state where the consumer and/or prospective client reside. Any subsequent direct communication with a consumer and/or prospective client shall only be conducted by a representative that is registered in the state where the consumer and/or prospective client reside.

Annette Hammortree is insurance licensed and registered to offer products and services in: Alabama, Arkansas, Arizona, Florida, Georgia, Illinois, Kentucky, Michigan, Minnesota, Missouri, New jersey, New York, Ohio, Oregon, Pennsylvania, Texas, Wisconsin, Wyoming.

Annette Hammortree is securities licensed in: Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington, Wisconsin, and Wyoming and is strictly intended for individuals residing in those states. No offers may be made or accepted from any resident outside these specified states

Annette Hammortree is an IAR (Investment Advisor Representative) licensed in: Florida, Illinois,Massachusetts, Minnesota, New Jersey, New York, and Wisconsin and is strictly intended for individuals residing in those states. No offers may be made or accepted from any resident outside these specified states.

Annette Hammortree, Registered Representative & Financial Advisor of Park Avenue Securities LLC (PAS), 8010 Excelsior Dr, Suite 200, Madison, WI 53717 (608)828-9800. Securities products/services and advisory services offered through PAS a Registered Broker-Dealer and Investment Advisor. Annette Hammortree, Financial Representative of The Guardian Life Insurance Company of

America

(Guardian), New York, NY. PAS is an indirect wholly owned subsidiary of Guardian. Hammortree Financial Services is not an affiliate or subsidiary of PAS or Guardian.

Neither Park Avenue Securities, Guardian, nor their representatives render legal or tax advice. Please consult with your attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.