Tue Aug 25 01:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.3%
Year over Year 1.6% 1.6% 1.0%

Second quarter economic growth was unrevised from its flash estimate. Hence, real GDP expanded 0.4 percent versus the first quarter and stood a workday adjusted 1.6 percent above its year ago level. An unadjusted annual rise of also 1.6 percent similarly matched its preliminary print.

Disappointingly, the minor quarterly acceleration in total output masked a slowdown in both private consumption and gross capital expenditure. The former was up just 0.2 percent, or half the rate achieved at the start of the year, while the latter fell 0.4 percent, its first decline since the third quarter of 2014. Construction investment grew only 0.1 percent after a 1.9 percent spurt and construction spending slumped 1.2 percent following a 1.8 percent gain last time.

As a result, with government expenditure edging 0.2 percent firmer, overall domestic demand subtracted a surprisingly large 0.3 percentage points from the quarterly change in total output having added a cumulative 1.4 percentage points in the previous two periods.

Inventory accumulation hit growth by 0.4 percentage points, possibly reflecting caution about the economic outlook, and effectively means that the economy would not have expanded at all but for a jump in sales overseas. Thus, exports rose fully 2.2 percent or nearly double their 1.2 percent first quarter pace. Accordingly, with imports up only 0.8 percent, net exports boosted headline growth by some 0.7 percentage points and so more than reversed their cumulative minus 0.5 percentage point contribution from the fourth and first quarters.

As such, the second quarter national accounts make rather worrying reading. The Eurozone's largest economy is clearly benefitting from the weakness of the euro but domestic demand has lost significant momentum which cannot be good news for prospects for the region as a whole. Moreover, with consumer confidence, at least for now, having apparently peaked, the third quarter may not look much better. A larger contribution from the smaller member states will probably be required if the Eurozone economic recovery is to gain any additional traction over the second half of 2015.

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.