At the core of economic data sets, Gross Domestic Product (GDP) captures the total economic output of a country. It’s the measure economists and investors use to assess the health of a country’s economy.
However, GDP isn’t perfect. It’s a lagging indicator—it takes a while to even get preliminary GDP data, and GDP growth can be volatile. To get a better read on the economy, it’s important to look at other data releases—namely, two other prominent indicators, the Personal Consumption Expenditures (PCE) and the Automatic Data Processing (ADP) Employment Report. The data from the GDP, PCE, and ADP often do a dance, where the results predict the GDP will be revised. This ‘dance’ is known as the GDP PCE ADP Waltz.
What exactly is the GDP PCE ADP Waltz? When the releases of the three indicators are in sync with one another, the GDP is usually revised upwards. The PCE and the ADP act as leading indicators, which can give economists and investors a challenge guess on where the GDP growth is headed. For investors, this means that they can get a better view of future revised GDP data and plan their investment decisions accordingly.
For example, the PCE may indicate higher consumer spending than initially reported, while the ADP may hint at an increase in job creation. As a result, the GDP data is revised upward. That’s the ‘dance’ of the GDP PCE ADP Waltz.
When the three indicators are not consistent with one another, the GDP growth is usually revised lower. This can be a sign that the growth rate is slower than expected. For investors, paying attention to these indicators, and how they move in relation to each other, is key for anticipating macroeconomic changes in the US economy.
The GDP PCE ADP Waltz is an important indicator of the economic health of the US. Knowing how the deep divisions in economic data—from 3 crucial yet different sources—are behaving in relation to each other, is key to being able to spot subtle trends of economic success or failure in advance. Paying attention to these three indicators can help investors to make the best decisions for their portfolios.
