What Do GDP Numbers Really Mean?
The September S&P
futures (SPU and ESU) opened Wednesday’s session with a -1.00 point
gap to the downside, after a very tight overnight range. The overnight range was
just a prelude of things to come during the session. With no economic reports
or rumors to shake the trees, the contract proceeded to churn through its
tightest daily range of the year, and really couldn’t show any follow-through in
either direction. There’s not a whole lot I can say based on today’s action,
aside from “congrats” to those who had the discipline to sit on their hands or
get out and do something else besides watching their screens all day.
The September S&P 500 futures closed Wednesday’s
session with a gain of +0.25 points, and finished in the middle 1/3 of its daily
range. Volume in the September ES was estimated at a dismal 306,000 contracts,
which was less than 1/2 of Tuesday’s pace and 1/2 the daily average. On a daily
basis, the contract posted an inside day with a higher close, and really didn’t
confirm Tuesday’s key reversal up. A break of last Friday’s high of 1012 or of
Monday’s low of 982.50 is needed to clear up the near-term direction (see
chart). Normally, I would expect some range expansion on Thursday, but as we
head later into the week, volume will continue to be a problem. The Banking
Index (BKX) continues to show relative weakness, posting an inside day and still
resting on the neckline of its head-and-shoulders pattern.
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On Thursday morning at 8:30 am ET, we have the
Preliminary GDP report for Q2 (see below), which is expected to come in at 2.9%,
and Weekly Jobless Claims, with a consensus of 390,000. I wouldn’t be surprised
to see a higher claims number for the past week due to those who couldn’t file
their claim because of the power blackout 2 weeks ago.
What Those GDP Numbers Really
Mean
The pundits love to talk about the Gross Domestic
Product. When GDP is growing quickly, the economy is strong. When it is
growing slowly, or contracting, it’s a sign of weakness. But just what is this
statistic? It was created nearly 70 years ago, and it measures how much
“stuff,” from cars to kitchen appliances, the economy produces every year, and
how many services, from legal advice to medical treatment, it creates. Getting
an accurate measure on the economy is pretty hard to do, so this is why the
statistic is volatile and often revised. The focus really isn’t on the overall
number, but more on how fast it is growing. If GDP grows by about 3% per year
or more, then that is considered to be a healthy rate of growth. If it grows by
less than 3%, then it generally isn’t enough to produce new jobs. And if it
contracts, it can be a sign of recession. Q1 GDP grew at an annualized rate of
1.4%, which was enough to keep our head above water, but not enough to create
new jobs.
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Please feel free to email me with any questions
you might have, and good luck with your trading on Thursday!
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