GDP Does Not Matter, So Stop Watching | Exploring Markets

GDP Does Not Matter, So Stop Watching

"Unfortunately, the saying about laws and sausages also applies to the GDP accounts: as we learn more about how they are made, our appetite declines in equal proportion." - Columbia Management

There are several economists and money managers who disagree with the publics overwhelming dependence on GDP. At the core of their disdain for GDP is the amount and size of GDP revisions that take place quarter-over-quarter and even year-over-year. The data is subject to change and volatility.

Zach Pandl, a senior interest rate strategist at Columbia Management, makes 3 suggestions for avoiding GDP:
  1. Exclude the noise. One fix is to focus on GDP excluding trade and inventories. This line item is called "domestic final sales"
  2. Keep track of GDI and not GDP. Data shows that GDI is more accurate measure of the economy's growth rate in real-time.
  3. Use alternative summaries: Make your own basket of indicators and measure them over time. You might find that this will be more helpful than following GDP.
Over at iShares, CFA Russ Koesterich, feels similar to Zach above. He made this infographic on the overrated and underrated indicators. Check out the indicator that he leads with: