FR: GDP


Wed Nov 29 01:45:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.5% 0.5% 0.5%
Year over Year 2.2% 2.2% 1.8%

Highlights
The second look at third quarter real GDP contained no significant revisions to the flash data. Total output grew 0.5 percent on the quarter and was 2.2 percent above its level a year ago; both outturns matching their respective values reported last month.

However, amongst the GDP expenditure components, quarterly household consumption growth and government spending were both nudged a tick firmer to 0.6 percent and 0.5 percent respectively while business investment was raised 0.2 percentage points to 1.1 percent. However, final domestic demand still added 0.6 percentage points to the quarterly change in GDP and the contribution from business inventory accumulation remains at 0.5 percentage points.

Exports were 0.4 percentage points firmer at a 1.1 percent quarterly rate but the improvement here was offset by stronger imports (2.8 percent from 2.5 percent). Consequently, net exports still subtracted 0.6 percentage points.

The minor compositional changes bode moderately well for future economic growth. True, the sizeable increase in stock building could be a problem but this followed an equivalent drop in the second quarter and may simply reflect rising business optimism. The fourth quarter economy looks to be in good shape.

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.