November 29, 2016 01:45 CST

Consensus Actual Previous
Quarter over Quarter 0.2% 0.2% -0.1%
Year over Year 1.1% 1.1% 1.3%

There were no revisions to either quarterly or annual GDP economic growth in the second look at the national accounts for July-September. Total output remains just 0.2 percent above its second quarter level (when it contracted 0.1 percent) and 1.1 percent higher on the year (1.3 percent).

As previously indicated, household consumption (0.0 percent after 0.0 percent) was again a major restraining factor and gross fixed capital formation (0.2 percent after 0.0 percent) was little better. Indeed, business investment (minus 0.4 percent) fell at twice the second quarter rate although at least residential investment (0.6 percent after 0.4 percent) continued to recover. With government spending up 0.3 percent, final domestic demand added just 0.1 percentage points to quarterly growth.

Meantime, the external trade position deteriorated sharply as exports dropped 0.5 percent and imports climbed 2.5 percent. This made for a 0.7 percentage point hit on the quarterly change in total output so headline growth would have been much weaker but for an offsetting 0.7 percentage point contribution from inventory accumulation. However, the gain here almost certainly leaves stock levels higher than desired and so will probably act as a brake on the economy this quarter.

In sum, the third quarter GDP data leave the impression of an economy still struggling to achieve any real traction. Stronger domestic demand this quarter is vital if the upswing is not to peter out altogether.

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.