Tue Dec 01 07:30:00 CST 2015

Consensus Actual Previous Revised
Quarter over Quarter 0.6% 0.6% -0.1%
Annualized 2.4% 2.3% -0.5% -0.3%
Year over Year 1.2% 1.0% 1.1%

As expected, the economy pulled itself out of recession last quarter but growth was still quite sluggish and would have been still weaker but for a decent hand-off in June. Indeed, while a 0.6 percent increase in total output versus April-June was in line with expectations, it still masked a surprisingly sharp 0.5 percent monthly contraction in September.

In fact, the third quarter expansion came largely courtesy of a 2.3 percent surge in exports which, combined with a 0.7 percent decline in imports, saw net foreign trade add nearly a full percentage point to quarterly growth. Elsewhere, household consumption rose 0.4 percent, down from a 0.6 percent gain last time, but gross fixed capital formation fell 0.7 percent, compounding a 1.5 percent drop in the second quarter. Within this, business investment in non-residential structures, machinery and equipment shrank 1.5 percent and easily more than offset a 0.6 percent rise in residential structures.

With government sector final consumption slipping 0.4 percent and investment off 0.5 percent, total real final domestic demand was only flat. At the same time, inventories subtracted 0.3 percentage points.

In the aggregate, the third quarter economy performed broadly in line with the 2.5 percent (saar) growth call made by the BoC in late October. However, the monthly profile over the quarter was horribly front-loaded and provides no kind of springboard for the current quarter. Weak investment is also a mounting issue. Not that it was needed but this should help to cement the market's conviction the central bank will leave key interest rates on hold tomorrow and, most probably, through much of 2016 too.

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

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 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. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.

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.

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.

Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.