FR: GDP


Fri Sep 22 01:45:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.5% 0.5% 0.5%
Year over Year 1.7% 1.8% 1.7%

Highlights
The final look at second quarter real GDP showed no revision to the previously estimated 0.5 percent quarterly increase. However, annual growth was nudged a tick firmer to 1.8 percent.

As shown in the last report, household consumption expanded 0.3 percent on the quarter while gross fixed capital formation was up 0.9 percent (businesses 1.0 percent, households 1.2 percent). With government spending 0.4 percent firmer, final domestic demand added 0.5 percentage points to the change in total output. However, this contribution was offset by a 0.5 percentage point hit from reduced stock building, also unrevised from last month's estimate.

Exports (2.4 percent) and imports (0.3 percent) were both shaded a tick but still provided a net 0.6 percentage point boost.

There are no significant changes here from the August report which leaves a much better balanced shape to the recovery profile than at the start of the year. With inventories also pared back, third quarter economic growth should come in at much the same rate (0.5 percent).

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about four weeks earlier, the second report incorporates additional data to provide a more accurate reading. This is also revised in the final report, published in the third month after the reference quarter.

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.