Thu Nov 23 01:00:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.8% 0.8% 0.6%
Year over Year 2.8% 2.8% 2.1%

Real GDP was unrevised in the second look at the third quarter. Total output expanded 0.8 percent versus the April-June period for workday adjusted annual growth of 2.8 percent, up from 2.3 percent in the second quarter. Unadjusted, the yearly rate was 2.3 percent, also unchanged from its flash estimate.

However, the solid quarterly increase masked a rather disappointing performance by the domestic GDP expenditure components. Hence, private consumption actually fell 0.1 percent, a sharp reversal from the 0.9 percent spurt seen in the second quarter. Gross capital investment (0.4 percent after 1.5 percent) also slowed significantly as growth of equipment construction (1.5 percent after 3.3 percent) more than halved and construction investment (minus 0.4 percent after 0.5 percent) turned negative. With government spending only flat, a 0.4 percentage point contribution from domestic demand was essentially simply attributable to stock building.

The other major plus factor was net external trade. Here, exports accelerated from a 1.0 percent to a 1.7 percent quarterly rate while imports decelerated from 2.4 percent to 0.9 percent. This made for a 0.4 percentage point boost to output growth, reversing an equivalent hit in the previous period.

Fortunately, the decline in household spending should prove only temporary as the sector's fundamentals are in very good shape. In addition, the rise in inventories follows a period of heavy destocking at the start of the year and may well reflect optimism about the future. Even so, the third quarter national accounts make less than impressive reading and could prompt some tempering of economic growth expectations for the current quarter.

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 two weeks earlier, the second report incorporates additional data to provide a more accurate reading. It also contains 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 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.