FR: GDP


Wed Dec 23 01:45:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.0%
Year over Year 1.2% 1.1% 1.1%

Highlights
Real GDP expanded at an unrevised 0.3 percent quarterly rate in the period just ended. However, annual growth was shaded a tick softer to 1.1 percent.

The main expenditure components also showed minimal, if any, change from their respective flash estimates. Hence, household spending was up a quarterly 0.3 percent and gross fixed capital formation was flat which, with government consumption 0.4 percent firmer, saw final domestic demand boost GDP growth by 0.3 percentage points, up from 0.1 percent in April-June. Destocking added an ominously large 0.7 percentage points but this was fully offset by a 0.7 percentage point hit from net exports.

There is no news of any real significance in today's revisions. Data already available suggest that the fourth quarter economy will slow and although impacted by a number of one-off factors, underlying momentum remains disappointingly slow.

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.