August 30, 2017 – Gross Domestic Product (GDP) is the broadest measure of economic activity within a country and measures the market value of all final goods and services produced within a country over a certain period. There are four components GDP is created from: investment (including residential and nonresidential expenditures), consumption (including durable goods, non-durable goods, and services spending), government spending, and net exports.
The second estimate of real GDP increased at an annualized rate of 3.0% in the second quarter, above expectations of 2.8%. Consumer spending is up 3.3%, up 0.5% from last revision. Residential investment came in at a -6.5% rate from 11.1% in first quarter while net exports came in at -2.7%. Government expenditures came in lower at a 0.3% decrease from a 0.6% decrease in the first quarter.
GDP rose for the second quarter estimate to 3.0%, surpassing expectations. Consumer spending was the driving factor for the increase in GDP while residential investment lagged. High consumer spending numbers are beneficial because it makes up a large portion of GDP. High GDP indicates healthy economic growth which leads to higher business activity that yields larger corporate profits. As an investor, it is important to keep in mind that greater corporate profits benefit the stock market but lead to higher inflation and potentially drag in the bond market.