Fri Sep 01 03:00:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.4%
Year over Year 1.5% 1.5% 1.5%

Economic growth was unrevised in the second quarter. Total output is still shown expanding 0.4 percent on the quarter, matching the previous period's rate, and 1.5 percent on the year, up from 1.2 percent last time and the best outcome since 2011.

However, the first look at the GDP components showed a mixed composition. On the negative side, household spending rose just 0.2 percent on the quarter, a third of the previous period's rate and equalling the weakest outturn since the third quarter of 2014. Against that, fixed investment rebounded 0.7 percent after a 1.6 percent slump at the start of the year, mainly courtesy of an 8.2 percent surge in transport equipment. Government consumption dipped 0.1 percent.

Net foreign trade had little impact with a 0.6 percent quarterly increase in exports essentially offset by a 0.7 percent rise in imports. Both sides of the real external balance have been expanding since the first quarter of 2016.

Inflation developments were rather better with the GDP deflator advancing 0.3 percent on the quarter following a 0.6 percent fall in January-March. This returned annual inflation back to positive territory at also 0.3 percent after a minus 0.5 percent print previously.

There are few surprises in the national accounts which underline the restraining impact on overall economic growth of the persistently sluggish consumer sector. And with unemployment still in double digits (11.3 percent in July) and broadly trending sideways, this is unlikely to change any time soon.

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.