Why the GDP announcement already seems like old news

November 13th, 2013

On the surface, an increase in the rate of real Gross Domestic Product (GDP) growth should be big enough news to move interest rates. However, the November 7 announcement that real GDP grew at a 2.8 percent rate in the third quarter probably won't make more than a few dollars' difference one way or another when you measure its impact on a mortgage calculator.  

Since dropping pretty steeply from mid-September to late October, mortgage rates have stabilized over the last couple weeks. Rates are awaiting the next big piece of economic news that will point to a new trend for interest rates. While an increase in real GDP growth rate from 2.5 percent to 2.8 percent in the third quarter represents progress for the economy, it is unlikely to be viewed as that next big piece of economic news.

Potential implications

Consumers can use various types of loan calculators to gauge the impact of changes in mortgage rates on their plans. The change that you might normally have to measure when GDP is accelerating is a rise in mortgage rates. A more robust economy would allow the Federal Reserve to back off from its intervention in the bond market, which has helped to lower mortgage rates. Also, stronger growth would pave the way for higher interest rates by raising demand for capital and potentially boosting inflation. However, circumstances this time around make the GDP announcement seem almost like old news.

Looking in the rear-view mirror

GDP announcements, while economically significant, always amount to looking in the rear-view mirror to some extent because the first estimate of a quarter's growth rate is made about a month after that quarter's end -- and then this estimate is subject to two revisions before being finalized.

In other words, before you know how the economy did last quarter, you are already well into the next quarter. That is especially true this time around since the GDP release was delayed by about a week due to October's federal government shutdown. Ironically, that same shutdown renders this GDP announcement even more out-of-date than usual. Since that shutdown began on the first date of the fourth quarter, it won't be apparent what impact it had until fourth quarter economic data starts to be released.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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