Fri Dec 22 03:30:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.4%
Year over Year 1.5% 1.7% 1.5%

The final estimate of third quarter economic growth showed an unchanged 0.4 percent quarterly rate but a stronger revised 1.7 percent annual rate, reflecting some positive adjustments to the back data.

The quarterly rise in household spending was shaded a tick to 5 percent, but this was still a marked improvement on the previous period's 0.2 percent rate. By contrast, gross fixed capital formation was nudged 0.1 percentage points stronger to 0.3 percent with business investment adjusted a couple of ticks higher to 0.5 percent. However, the main change within domestic demand was to government final consumption which is now seen declining 0.2 percent versus the 0.3 percent gain previously reported.

There was also a substantial revision to exports (0.8 percent from minus 0.7 percent) and, to a lesser extent, imports (0.9 from 1.1 percent). This made for a neutral contribution from net external trade although the data here remain less than reliable at best.

Today's revisions have few implications for the near-term growth outlook. By and large the UK economy still seems to have held up rather better than generally expected in the wake of the Brexit vote although there has clearly been some loss of momentum. With the fourth quarter probably on course for also a 0.4 percent, if not 0.5 percent, quarterly growth rate, the government cannot be too unhappy and the BoE MPC will probably feel justified in its decision to tighten last month.

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.)