Tue Dec 01 04:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.2% 0.2% 0.2%
Year over Year 0.9% 0.8% 0.9%

Quarterly economic growth in July-September was unrevised in the first look at the full national accounts for the period. Hence, total output was up a modest 0.2 percent versus the previous quarter when it expanded a marginally stronger 0.3 percent. However, annual growth was shaded a tick weaker to 0.8 percent.

The key household sector saw consumption expand at a 0.4 percent quarterly rate and government spending was not far behind at 0.3 percent. However, fixed investment shrank 0.4 percent with a 0.9 percent contraction in machinery more than offsetting a 0.4 percent increase in transportation. Construction was unchanged but inventory accumulation added 0.3 percentage points.

Headline growth would have been rather stronger but for a worsening in the real foreign trade balance. Hence, while exports declined 0.8 percent on the quarter, imports were up 0.5 percent. As a result, net exports subtracted 0.4 percentage points from the change in real GDP.

Final domestic demand contributed 0.2 percentage points to total output growth last quarter, consistent with a gentle recovery in economic activity. Early indications are that the current quarter will see a slightly stronger performance with net exports unlikely to be such a drag and rising consumer confidence set to bolster household spending. Even so, the economy has lost so much ground since the Great Recession that the emergence of any real inflation pressures is probably some way off yet.

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 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.