Sun Aug 16 18:50:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter -0.5% -0.4% 1.0%
Q/Q change - SAAR -1.8% -1.6% 3.9%
Year over Year 0.7% -1.0%

As expected, second quarter gross domestic product contracted 0.4 percent and at an annualized pace of 1.6 percent. However, when compared with the year ago quarter, GDP was up 0.7 percent for the first increase since the first quarter of 2014. On the quarter, the decline is the first since the third quarter of 2014. Japan's economy was hit by sluggish exports and consumption as well as a draw down of high inventories, which boosted growth in the January to March quarter.

Most components declined. Domestic demand's contribution subtracted 0.1 percentage point while the net export contribution subtracted 0.3 percentage point. Consumption subtracted 0.8 percentage point and Capex, 0.1 percentage point. However, private inventories contributed 0.1 percentage point, the same at public investment.

Personal consumption, which accounts for around 55 percent of GDP, slumped 0.8 percent on the quarter for the first drop in four quarters. Demand for durable goods declined sharply while the long rainy season dampened overall spending. Private-sector inventories, which pushed up first growth by a revised 0.5 percentage point, raised second quarter GDP by just 0.1 percentage point.

In its most recent statement, the Bank of Japan said Japan's economy "has continued to recover moderately". The central bank however downgraded its full-year growth forecast to 1.7 percent from 2 percent.

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

Gross domestic product is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

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. 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.