Gross Domestic Product (GDP) is the the broadest measure of economicactivity. Annualized quarterly percent changes in GDP reflect the growth rate oftotal economic output. The figures can be quite volatile from quarter toquarter. Inventory and net export swings in particular can produce significantvolatility in GDP. The final sales figure, which excludes inventories, cansometimes be helpful in identifying underlying growth trends as inventoriesrepresent unsold goods, and a large inventory increase will boost GDP but mightbe indicative of weakness rather than strength. The broad components of GDPare: consumption, investment, net exports, government purchases, andinventories. Consumption is by far the largest component, totalling roughly2/3rds of GDP.

In addition to the GDP figures, there are GDP deflators, which measure thechange in prices in total GDP and for each component. Though the consumer priceindex is a more closely watched inflation indicator, the GDP deflator is anotherkey inflation measure. Unlike CPI, it has the advantage of not being a fixedbasket of goods and services, so that changes in consumption patterns or theintroduction of new goods and services will be reflected in the deflator.

With both GDP and the deflator, the market tends to focus on thequarter/quarter change. Year/year changes are also cited frequently, thoughthey do not provide the most timely indications of economic activity orinflation. The bond market often reacts to GDP, though the price moves aretypically small, as much of the GDP data is easily predicted using monthlyeconomic releases such as personal consumption, durable goods shipments,construction spending, international trade, and inventories.

Quarterly GDP reports are broken down into three announcements: advance,preliminary, and final. After the final revision, GDP is not revised again untilthe annual benchmark revisions each July. These revisions can be quite largeand usually affect the past five years of data.