May 30, 2017 01:45 CDT

Consensus Actual Previous
Quarter over Quarter 0.3% 0.4% 0.4%
Year over Year 0.8% 1.0% 1.1%

The economy outperformed original estimates at the start of the year. A 0.4 percent quarterly increase in total output was a tick higher than reported last month and enough to boost annual growth to 1.0 percent, up 0.2 percentage points from the flash print.

Final domestic demand added 0.4 percentage points to the quarterly rise in real GDP, down from 0.5 percentage points in October-December and largely reflecting a (stronger revised) 1.2 percent spurt in gross fixed capital formation. Within this, business investment was up a healthy 1.9 percent after a 0.9 percent advance in the fourth quarter while residential investment increased 1.0 percent. However, household consumption still shows a minimal 0.1 percent gain and government consumption was nudged down a tick to 0.3 percent. Ominously, business inventories contributed a hefty 0.7 percentage points.

Meantime, with exports falling 0.8 percent and imports rising 1.4 percent, net foreign trade subtracted fully 0.7 percentage points from quarterly growth, the second hit of this magnitude in the last three quarters.

The headline revisions leave intact a mixed economic picture last quarter. A strong performance by investment contrasts with a disappointingly soft period for household spending and inventory accumulation is a threat to output this quarter. The weakness of net exports will also add to doubts about French international competitiveness. That said, early indications on second quarter GDP have been cautiously promising.

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.