June 1, 2017 03:00 CDT

Consensus Actual Previous
Quarter over Quarter 0.2% 0.4% 0.2%
Year over Year 0.8% 1.2% 0.8%

Economic growth was significantly stronger than originally reported in the first full look at the first quarter national accounts. Following a larger revised 0.3 percent quarterly gain at the end of last year, real GDP expanded a revised 0.4 percent or double its flash estimate. This was the best performance since the recovery began back in early 2013. Annual growth accelerated from 1.1 percent to 1.2 percent.

Crucially, consumption picked up to a 0.5 percent quarterly rate and was supported by a similar increase in government spending. Investment was mixed with a 2.2 percent fall in machinery and a 0.8 percent contraction in transportation contrasting with a 0.6 percent advance in construction. However, it was inventories that did most of the work, adding 0.4 percentage points to the quarterly change in total output. This more than offset the negative impact of net foreign trade which, with exports rising 0.7 percent and imports up 1.6 percent, subtracted 0.2 percentage points.

The headline data are clearly stronger than previously reported and the acceleration in consumption is very welcome. However, too much of the increase in output ended up in inventories and with consumer confidence having weakened in recent months, a question-mark hangs over the outlook for household demand. Second quarter GDP growth may struggle to match the first quarter outturn.

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.