Tue Mar 03 18:30:00 CST 2015

Consensus Actual Previous Revised
Quarter over Quarter 0.7% 0.5% 0.3% 0.4%
Year over Year 2.6% 2.5% 2.7% 2.7%

Fourth quarter gross domestic product rose a disappointing 0.5 percent on the quarter and 2.5 percent compared to the same quarter a year ago. Expectations were for a 0.7 percent quarterly increase and a 2.6 percent annual increase.

On the expenditure side, the quarterly increase was driven by net exports (0.7 percentage points) and final consumption (0.6 percentage points). These increases were partially offset by a decrease in inventories (minus 0.6 percentage points).

On the year, the largest contributors to total trend growth were mining (0.5 percentage points), financial & insurance services (0.5 percentage points) and health care & social assistance (0.3 percentage points). The largest detractor was professional, scientific & technical services (down 0.5 percentage points).

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.