March 3, 2017 03:00 CST

Consensus Actual Previous
Quarter over Quarter 0.2% 0.2% 0.2%
Year over Year 1.1% 1.0% 1.1%

The economy expanded at an unrevised 0.2 percent quarterly rate at the end of last year. However, annual growth was shaded a tick softer to 1.0 percent.

The first look at the GDP expenditure components confirmed sluggish household spending which was up just 0.1 percent versus the previous period. However, fixed investment saw a 1.3 percent gain, mainly reflecting a 13.6 percent spike in transportation although machinery also advanced 0.4 percent. Construction increased 0.5 percent and government consumption was 0.6 percent firmer. In sum, final domestic demand added 0.4 percentage points to quarterly growth while inventories subtracted 0.2 percentage points.

Net external trade was somewhat disappointing with an otherwise respectable 1.9 percent quarterly rise in exports outpaced by a 2.2 percent bounce in imports. This made for a neutral impact on total output.

The rise in domestic demand is good news for the balance of the Italian economic recovery. However, the jump in investment looks unsustainable without a stronger performance by the household sector and there has been little evidence of that so far this quarter. For now at least, a continued sluggish growth trajectory remains the most likely scenario.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. A flash estimate, providing just quarterly and annual growth rates together with some limited qualitative information on sector output, is usually available 6-7 weeks 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.