FR: GDP


Wed Jun 24 01:45:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.6% 0.6% 0.1%
Year over Year 0.7% 0.8% 0.2%

Highlights
The real economy expanded an unrevised 0.6 percent on the quarter in the January-March period. However, changes to the earlier data saw annual growth revised a tick higher to 0.8 percent.

As previously indicated, the main impetus behind the first quarter advance was household consumption which was up 0.9 percent versus October-December, a tick more than estimated last month. Gross fixed capital formation (minus 0.1 percent) was also fractionally stronger than originally thought as a 1.4 percent drop in residential investment more than offset a 0.3 percent increase in business spending. With government expenditure up 0.5 percent, final domestic demand added 0.6 percentage points to the quarterly change in total output.

Elsewhere in the national accounts net exports subtracted an unrevised 0.5 percentage points from quarterly growth, exactly offsetting a sizeable 0.5 percentage point boost from business inventories.

There is little fresh news in today's updated first quarter figures. Second quarter GDP will probably reflect an unwanted accumulation of stocks at the start of the year but net exports should provide a small boost. Domestic demand will probably struggle to match its first quarter pace but should still help to ensure overall economic growth of around 0.3 percent.

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

Description
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.