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Why The GDP Matters To You

Why The GDP Matters To You

Why The GDP Matters To You

As an investor, it is important for you to monitor how our Gross Domestic Product (GDP) is doing. The GDP tracks the health of the U.S. economy. Simply put, the GDP is the actual monetary value of all goods and services produced within U.S. borders. The GDP is a determining factor of whether the economy is growing or recessing. So, what does that mean to you, the investor? A sluggish economy would mean lower earnings and lower stock prices.

Some quick history: Prior to the 2007-2008 financial crisis (remember when bank after bank filed for bankruptcy?), the growth of the GDP had averaged about 3.5 percent from 1950 on. Since the crisis, the GDP growth has averaged 2.1 percent. Big government debt and the funds needed to service it have contributed greatly to this decrease in GDP growth.

Here is what that means for you as an investor:  Faster economic growth in a country suggests faster sales growth for companies, potentially fueling the stock market upward. So, keeping an eye on the GDP is one of many ways for you to participate in the strength of your own portfolio.

After we released our JCN First Quarter Newsletter, the final report on fourth quarter 2018 GDP was released, in the last week of March. The GDP came in at an expected but lower revised annual growth rate of 2.2%, down from the earlier reported 2.6%. Still, the fourth quarter was solid, and leading the strength was, (despite a very weak December for retail sales), consumer spending that rose at an annual 2.5% rate,  and showed favorable and steady balance between services and goods. It is important to note that 70 percent of the GDP is directly related to consumer spending.

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