Fri May 22 01:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.7%
Year over Year 1.0% 1.0% 1.4%

There were no changes to first quarter real GDP in the revised data which still show a 0.3 percent increase versus the fourth quarter and annual workday adjusted growth of 1.0 percent, down from 1.4 percent at the end of 2014. Unadjusted the yearly rise in total output was 1.1 percent.

The quarterly expansion was led by private consumption which followed a gain of 0.7 percent in the fourth quarter with a 0.6 percent increase this time. However, the first quarter was also a good period for investment with spending on equipment up 1.5 percent after a 0.4 percent advance in October-December and construction investment rising 1.7 percent following a 1.3 percent gain. With government expenditure 0.7 percent firmer, final domestic demand added fully 0.8 percentage points to the quarterly change in GDP.

Accordingly, overall economic growth would have been rather stronger but for a 0.3 percentage point hit from inventory accumulation and a second successive negative contribution from net exports. Exports rose a respectable enough 0.8 percent on the quarter but with imports climbing 1.5 percent, net foreign trade subtracted 0.2 percentage points having already reduced growth by 0.3 percentage points in the fourth quarter.

The national accounts duly paint a rather more upbeat picture of first quarter economic growth than the headline data might suggest. In particular, the buoyancy of private sector domestic demand is reassuring and the rest of the Eurozone can hardly complain about what amounts to a 3.4 percent cumulative increase in German imports since the third quarter of 2014. That said, economic activity looks to have lost some momentum this quarter and slowing orders is a worry. There is certainly no room for complacency.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The second estimate follows the release of the flash report and provides the first look at the GDP expenditure components.

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.