August 26, 2016 01:45 CDT

Consensus Actual Previous
Quarter over Quarter 0.0% 0.0% 0.6%
Year over Year 1.4% 1.3%

Second quarter economic growth was unrevised at a flat 0.0 percent after a 0.7 percent rise in the previous period to put the annual output rate at 1.4 percent.

The GDP expenditures components still underline the softness of internal demand, with domestic final sales, revised up by a tick from the 0.0 percent of the initial estimate, contributing only 0.1 percentage points to the quarterly change in GDP. Thus, household consumption expenditures were stagnant, left unrevised at the 0.0 percent quarterly rate of the first estimate, though public sector expenditures posted an unrevised 0.4 percent gain. Gross fixed capital formation was down 0.2 percent on the quarter, and within it business investment was revised down to minus 0.4 percent from the initial estimate of minus 0.2 percent, while housing was revised down by 1 tick to minus 0.2 percent. And highlighting the strong government profile in the weak expenditures data, public administration was revised sharply upward in the second take, from a minus 1.7 percent to a plus 0.7 percent on the quarter.

Changes in inventories, meanwhile, made a much more significant negative contribution, subtracting 0.7 percentage points from the quarterly change, revised upward from the first estimate of a 0.4 percentage point subtraction.

The headline data would have been worse but for net foreign trade. With the second quarter change in exports revised to minus 0.1 percent from minus 0.3 percent, and imports revised to minus 2.0 percent from minus 1.3 percent, foreign trade added an upwardly revised 0.6 percentage points to the quarterly change in the GDP.

The second quarter results remain disappointing and domestic demand is clearly the problem, with falling capital investment not boding well for future output.

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.

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.