Fri Sep 29 03:30:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.3%
Year over Year 1.7% 1.5% 1.7%

The final look at the second quarter national accounts showed no revision to last month's quarterly growth estimate which remains at 0.3 percent. However, changes to the back data left real GDP expanding a downwardly revised 1.5 percent on the year while first quarter total output was revised up to a 0.3 percent quarterly rate.

On a bright note, business investment was adjusted stronger last quarter and now shows a 0.5 percent rise versus the start of the year. Household consumption (0.2 percent) was similarly nudged a little firmer although this was still only half the first quarter rate and easily its worst performance in more than two years. Inventories subtracted significantly such that gross fixed capital formation knocked 0.3 percentage points off the quarterly change in total output. However, the drag here was offset by a more positive real trade balance which, with exports marked up to 1.7 percent and imports shaded to 0.2 percent, added a tidy 0.4 percentage points. This suggests that the fall in the value of the pound since last year's Brexit vote may have had a larger positive impact than first thought.

Today's report paints a slightly brighter, if still quite subdued, picture of the UK economy last quarter. However, it is too historic to be of much interest to the BoE MPC. Just this morning Governor Carney was dropping more hints about a near-term hike in Bank Rate. Focus remains firmly on the next policy setting meeting on 2nd November.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first, or provisional, estimate will only include a breakdown in terms of the main output sectors. Subsequent estimates will provide details of the key GDP expenditure components and full national accounts.

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 a treasure-trove of 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, and price (inflation) indexes 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. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)