FR: GDP


Fri Mar 25 02:45:00 CDT 2016

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.3%
Year over Year 1.4% 1.4% 1.4%

Highlights
There were no revisions to headline growth in the final GDP report for the fourth quarter. Thus, total output expanded 0.3 percent on the quarter and 1.4 percent on the year.

Amongst the main GDP expenditure components household consumption was revised a tick strongest and now shows a quarterly decline of 0.1 percent while business capital investment was adjusted 0.1 percentage points weaker to 1.2 percent. Final domestic demand added 0.2 percentage points to economic growth, in line with the previous estimate, but the contribution of inventories was shaded from 0.7 percentage points to 0.6 percentage points.

Exports (1.1 percent) and imports (2.4 percent) were respectively marginally stronger and weaker than reported last time leading to a reduction in their negative impact by 0.1 percentage points to 0.4 percentage points.

There is nothing here of any real news. Consumer spending was hit by the fallout from the November terrorist attacks in Paris last quarter and this may be unwound this quarter. However, confidence in March dropped to its lowest level since August 2015 so a rebound is not assured. In any event, most surveys have signalled a continued sluggish economic recovery and a third consecutive 0.3 percent quarterly rise in real GDP would certainly not come as any surprise.

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.