Mon Mar 26 01:45:00 CDT 2018

Consensus Actual Previous
Quarter over Quarter 0.6% 0.7% 0.6%
Year over Year 2.5% 2.5% 2.5%

The economy grew at a slightly stronger revised 0.7 percent quarterly rate in the final estimate for October-December. This matched its best performance since the first quarter of 2011. Annual growth was unrevised at 2.5 percent, up from 2.3 percent in the final data for the third quarter.

The positive fourth quarter adjustment was largely due to exports. These now show a quarterly rise of 2.5 percent and, combined with an unrevised 0.3 percent increase in imports, saw net foreign trade boost growth by fully 0.7 percentage points. Elsewhere, household consumption was still up just 0.2 percent while government final spending was also unrevised at 0.3 percent. However, gross fixed capital formation was shaded to a 1.1 percent advance, although this remained comfortably above the 0.9 percent rate posted in the third quarter. Meantime, business inventories subtracted 0.4 percentage points, in line with its previous estimate and following a 0.3 percentage point lift in July-September.

Today's results leave final domestic demand adding a respectable 0.5 percentage points to quarterly economic growth, down just a tick from the third quarter and broadly in line with the pattern seen earlier in the year. Destocking bodes well for output this quarter but it is very unlikely that net exports will come close to equalling their third quarter boost. Indeed, a negative impact is more probable. Still, overall the economy was in decent shape at the end of 2017 and rising investment suggests that business confidence was bullish. Much will depend upon the household sector where spending will need to pick up if the current solid upswing in GDP is to be sustained. To this end, recent developments here have been disappointing.

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 four weeks earlier, the second report incorporates additional data to provide a more accurate reading. This is also revised in the final report, published in the third month 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.