Tue Jun 02 20:30:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.7% 0.9% 0.5%
Year over Year 2.1% 2.3% 2.5%

First quarter gross domestic product grew at a faster rate than anticipated. GDP was up 0.9 percent on the quarter and 2.3 percent on the year. Expectations were for quarterly growth of 0.7 percent and the annual pace to be 2.1 percent. While the quarterly rate was faster than the fourth quarter, the annual rate was down from 2.5 percent. Net exports contributed 0.5 percentage points to GDP growth. Household final consumption expenditure and changes in inventories each contributed 0.3 percentage points. However, gross fixed capital formation subtracted 0.3 percentage points.

The GDP figures underscore some success for policymakers as the economy transitions in the wake of an export-to-China boom that's kept the economy humming without interruption for 23 years. The Australian dollar, which on Tuesday jumped 2.2 percent for its best session since November 2011, added another 0.4 percent after the report.

The Reserve Bank of Australia in February cut its growth forecast for this year from 2-3 percent to 2.25 percent. Last month it cited "weaker growth in China" as a reason below-trend growth could be prolonged. It said that mining investment will fall sharply over the next two years and predicted a pick-up in the non-mining sector but said it would occur "later than earlier envisaged."

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.