Tue Jun 30 03:30:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.3%
Year over Year 2.5% 2.9% 2.4%

The economy expanded an upwardly revised 0.4 percent on the quarter in the January-March period. However, the modest adjustment, which matched market expectations, came as part of some significant changes to the way in which construction output is calculated which saw annual growth revised up fully 0.5 percentage points to 2.9 percent. Real GDP in the fourth quarter of 2014 is now estimated to have expanded a quarterly 0.8 percent, a couple of ticks more than previously indicated.

The new national accounts show household consumption up 0.9 percent on the quarter and gross fixed capital formation 2.0 percent firmer. General government consumption also increased 0.9 percent and total domestic expenditure was 1.0 percent to the good. However, with exports gaining only 0.4 percent and imports 2.3 percent higher, net exports had a sizeable negative impact on growth.

Indeed, the first quarter current account deficit was put at some 5.8 percent of GDP and, after revision, at 5.9 percent in 2014, the largest on record and a timely reminder of why policymakers and industry alike would like to see a weaker pound.

Today's updated figures suggest that domestic demand was in very good shape at the start of the year. However, the recovery remains uncomfortably lopsided and the imbalance on net external trade an increasing worry. As such, some shift in the composition of demand will most likely be vital over coming quarters if the current upswing is to culminate in anything like a soft landing.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first, or provisional, estimate will only include a breakdown in terms of the main output sectors. Subsequent estimates will provide details of the key 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 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.

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. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)