IT: GDP


Tue Sep 01 04:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.2% 0.3% 0.2%
Year over Year 0.5% 0.7% 0.5%

Highlights
Economic growth was slightly stronger than initially reported in the second quarter. The first full look at the national accounts revealed total output expanding 0.3 percent versus the January-March period, a tick more than previously measured, while the annual rate of expansion was raised 0.2 percentage points to 0.7 percent,

Household consumption did much of the work, rising a quarterly 0.4 percent. This was just as well as government final expenditure dropped 0.2 percent while gross fixed capital formation shrank 0.3 percent as investment in transport equipment slumped 2.7 percent and construction declined 0.8 percent. Final domestic demand added 0.2 percentage points to quarterly growth while inventories added a further 0.4 percentage points.

However, although exports (up 1.2 percent) also made a positive contribution their impact was more than offset by a 2.2 percent bounce in imports.

The revised second quarter data are cautiously promising but a sustainable and more meaningful recovery will need a much better balance to the GDP expenditure components.

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.