GDP looks at the value added produced within a country.

GDP represents the value of final goods and services produced within a country over a certain period. It can be broken down into consumption, investment, government spending, and net exports. Nominal GDP uses prices at the time, while real GDP adjusts for the effects of price changes to compare production flow.

Nominal amounts can increase even if only prices rise. Therefore, check whether it is real or nominal when looking at economic growth news. GDP is not a direct measure of stock prices, household assets, or happiness, and its scope is not the same as the total overseas business of U.S. companies.

An annualized rate of 4% does not mean it grew by 4% in one quarter.

The representative U.S. quarterly real GDP growth rate is expressed as a seasonally adjusted quarter-over-quarter change at an annualized rate. It is a figure converted as if the pace of that quarter were to continue for four quarters. It is not a forecast that the economy will actually grow by that much over the next 1 years.

If it hypothetically grew by 1% in one quarter, the annualized rate is (1.01 to the power of 4 − 1) × 100,, which is approximately 4.06%. Do not confuse this with the 4.06% year-over-year. When comparing growth rates between Korea and the U.S., you must first align the standards and units.

Look at what drove the growth.

Even with the same growth rate, the causes differ. The questions below are for interpreting the figures, and changes in each item do not necessarily mean buy or sell signals for stocks.

Do not misunderstand why imports are subtracted.

GDP measures domestic production. Since purchases of imported goods are already included in consumption and investment, imports are subtracted to remove foreign production. This does not mean that imports themselves ruin the economy.

If imports were pulled forward to build up inventory, multiple items may move together. Do not conclude that consumer demand has collapsed by looking only at the contribution of one item. You can also examine private final demand indicators, which are less affected by inventory and trade, as a supplement.

Advance, 2, and 3 estimates re-estimate the same quarter.

The BEA initially releases an advance estimate with less complete data, then publishes 2nd and 3rd estimates as additional data is reflected. Past figures can also change through subsequent annual revisions. Even if domestic news refers to the 3nd estimate as the "final figure," it is not a number that is fixed forever.

Since GDP covers the past quarter, more recent employment and consumption data may already be reflected in the market at the time of the announcement. The news value of the advance estimate and the revised estimate may differ, and you cannot determine the entire state of the economy based on the figures of just one or two quarters.

The two forces of growth and interest rates may collide.

Interpreting growth that exceeds expectations as a boost to corporate revenue and profits can be helpful for stocks. On the other hand, in a high-inflation environment, it is also possible to interpret strong demand as something that will delay interest rate cuts. Which force is greater depends on the conditions at the time.

The same applies to growth that falls below expectations. A moderate slowdown can reduce inflationary pressure, but a severe recession can damage corporate earnings even if interest rates fall. Do not create a fixed formula such as "GDP growth = Nasdaq growth" or vice versa.

Check what you have read.

• Have you distinguished between real and nominal?
• Have you checked the annualized and year-on-year standards?
• Have you looked at the contributions of consumption, inventory, and trade together?
• Have you checked whether it is an advance or revised announcement?

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