|Quarter over Quarter||0.2%||0.0%||0.6%|
|Year over Year||1.1%||1.0%||0.7%|
Growth stagnated in the second quarter and was well below forecasts as consumers trimmed spending sharply and industry output declined after a first quarter surge. GDP was unchanged on the quarter after upwardly revised growth of 0.7 percent in the first quarter. GDP was up 1.0 percent on the year.
The slowdown came as household consumption increased by only 0.1 percent, after a 0.9 percent jump in the first quarter. The first-quarter surge in spending was largely due to increased outlays for energy and a fallback was widely expected. However, business investment rose only by 0.2 percent after a 0.6 percent the quarter before. This was disappointing after surveys earlier in the year indicated that manufacturers planned to increased investment by 7 percent.
Industry output slipped 0.1 percent in the quarter, down from a 0.8 percent in the first quarter with manufacturing dropping 0.7 percent after increasing 1.3 percent the quarter before. Construction output dropped 1.1 percent, while services increased by 0.3 percent.
Government efforts to trim its spending and deficit also weighed on GDP in with spending up only 0.3 percent on the quarter.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The flash estimate, which will be released about 45 days after the quarter's end, is an effort to speed up delivery of key economic data. In contrast to most flash releases, the French version provides an early 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 anaemic 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.