Thu Mar 05 03:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.0% 0.0% 0.0%
Year over Year -0.3% -0.5% -0.3%

Real GDP was unchanged from its October-December level according to the first real look at the national accounts for last quarter. However, small revisions to earlier periods saw annual growth revised down from minus 0.3 percent to minus 0.5 percent.

For once, the GDP expenditure details were mildly positive with private consumption edging up 0.1 percent on the quarter and investment 0.2 percent higher as gains in machinery (0.2 percent) and transportation (0.7 percent) more than offset a fall in construction (0.6 percent). Government spending advanced 0.4 percent but overall domestic demand was hit by a sharp unwinding of business inventories which subtracted fully 0.6 percentage points from the quarterly change in total output.

As a result, real GDP would have contracted but for a 0.4 percentage point helping hand from net foreign trade. This came courtesy of a 1.6 percent quarterly increase in exports that easily eclipsed a 0.3 percent advance in imports.

The modest but broad-based increase in final domestic demand suggests that the economy may have turned the corner. The current quarter is unlikely to benefit from such a strong stimulus from net exports but the rundown in inventories should be supportive of output in the event of any future pick-up in aggregate demand. The economy will still struggle this year but growth should be positive for the first time since 2011.

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 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 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. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.