Report on GDP to offer insight

WASHINGTON --- Today's report on gross domestic product will offer more clues on where things stand in the U.S. economy. Many analysts predict that the economy shrank at an annual rate of 1.5 percent from April through June. If they are right, it would mark a vast improvement from the 5.9 percent average annualized drop from the prior six months -- the weakest performance in 50 years.


Here are some answers about what to look for in the gross domestic product, or GDP, report.

Q: What does a drop in GDP actually mean?

A: It means that the total value of all goods produced within the U.S. went down. In other words, the economy got smaller.

Q: So what is the size of the economy right now?

A: If you adjust for inflation, it's $11.4 trillion. If you don't, it is $14 trillion. Either way, the U.S. has the world's largest economy.

Q: If Wall Street forecasters are right about the annualized 1.5 percent drop, does it mean the recession ended in the spring?

A: No. The economy would still be considered in a recession, but the smaller drop in GDP would signal that the downturn lessened, bolstering hopes for a recovery.

Q: It's still just an abstract number to me. Why should I care?

A: The GDP report provides the most comprehensive snapshot of the country's economic standing.

Businesses, Wall Street investors, policymakers such as Federal Reserve Chairman Ben Bernanke and politicians such as President Obama watch it closely. Their reaction to the figures can affect your pocketbook -- and your job.

For instance, if today's report were to show that the economy was much weaker than many anticipated during the second quarter -- let's say an annualized drop of more than 3 percent -- it could force companies to make additional cuts to production, jobs and wages. If Wall Street gets spooked by the results, your investments take a fresh hit. Credit could become even harder to get. All that can affect your behavior, too, making you and other consumers even more cautious spenders.

If the report were much better than expected -- if GDP were flat, say -- companies might feel like the time is right to boost production, cut fewer workers or maybe hire some back. So if you're looking for a job, you might have a little more luck finding one. Also, Wall Street might rally, helping your investments.

Q: Is there anything else I should hone in on in the report?

A: Yes, business inventories -- which could be the key swing number in today's report.

If businesses slash the amount of stockpiles on their shelves more deeply than expected, the GDP report could show the economy suffering from an unexpectedly big contraction. There's a silver lining to the scenario of rock-bottom inventories, though. That's likely to mean that the economy will do better in the third quarter because businesses will have to boost production to satisfy customer demand.

Q: How is the economy expected to perform in the third quarter?

A: Many analysts believe the economy will start to grow again -- perhaps at about a 1.5 percent pace. That would be feeble growth, but it would signal that the recession has ended.

Q: Would that mean that companies will ramp up hiring?

A: No. Unemployment -- now at a 26-year high of 9.5 percent -- will keep rising. The Fed says it will top 10 percent at the end of this year. Businesses will not beef up hiring until they are certain the recovery has staying power.