1st Quarter GDP revisions, April personal income and outlays, April durable goods, March home prices. et al

Our 1st Quarter GDP Falls at a 1.0% Rate on Worst Investment Slowdown since Early 2009

the major economic release this week was the Second Estimate of 1st quarter GDP from the Bureau of Economic Analysis, which showed that our economy actually shrank at a one percent rate in the first quarter, largely due to a contraction of private investment in inventories….in current dollars, our 1st quarter GDP would extrapolate to $17,101.3 billion annually, up from the $17,089.6 billion annualized figure of the 4th quarter…however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, it’s adjusted for inflation based on chained 2009 dollars, resulting in the reported 1.0% decrease in the output of goods and services produced by labor and property in the US….the inflation adjustment used in the first quarter, aka the “GDP deflator”, implies annual inflation at a 1.3% rate, unchanged from the 1st estimate for the quarter, and down from 1.6% GDP deflator applied in the 4th quarter…while we cover the details, recall that all quarter over quarter percentage changes in this report are all given at an annual rate, which means that they’re expressed as a rate of change a bit over 4 times the change that actually occurred over the 3 month period… 

even with the overall contraction in the quarter, which many are attributing to the aberrant weather over much of the country this winter, real personal consumption expenditures held up well and were even revised up, growing at a 3.1% rate rather than the 3.0% rate reported in the first estimate…in fact, taken alone, personal consumption expenditures would have implied an increase in first quarter GDP at a 2.09% rate…personal outlays for durable goods grew by an inflation adjusted $4.8 billion, a 1.4% annualized increase, up from the previously estimated 0.8% growth, even though current dollar spending on durables was down $3.5 billion during the quarter, as purchases of motor vehicles and recreational equipment increased while real outlays for furnishings and durable household equipment fell by an inflation adjusted $1.8 billion…personal spending for non-durable goods grew at a 0.4% rate, up from the initial estimate of 0.1%, increasing at an inflation adjusted $2.2 billion, even though food and beverage outlays were down $1.1 billion and clothing spending fell $3.6 billion, mostly on a $4.6 billion increase in “other” non-durables…real personal consumption of services increased at a 4.3% annual rate, a bit less than the advance estimate of a 4.4% growth rate, as inflation adjusted outlays for services increased by an inflation adjusted $75.7 billion…major components of that increase included the 9.1% or $39.9 billion real increase in health care services and the real $30.8 billion increase in outlays for housing services and utilities, mostly due to the colder than normal winter…the increase in real services alone added 1.93% to GDP, while the increase in durable goods added 0.11% and the increase in real non-durable goods consumption tacked on 0.06% to the first quarter growth rate…

with all those additions to growth from consumption, obviously other components of GDP had to have shrunk to arrive at a decrease in total output for the quarter….lower gross private domestic investment accounted for the lions share of that contraction, and as we noted, a smaller increase in inventories accounted for most of that, as inventories rose by just an inflation adjusted $49 billion in the first quarter, not the $87.4 billion previously reported….that was an inflation adjusted $62.7 billion less than the $111.7 billion increase in inventories in the 4th quarter, and in the oddity of this calculation which measures the change in the change, a decrease that subtracted 1.62% from the final GDP growth rate…most other fixed investment declined as well, subtracting 0.36% from GDP, as fixed investment fell by $14.6 billion, or at a 2.3% annual rate; investment in non-residential structures fell at a 7.5% rate, revised from the tiny 0.2% gain previously reported, investment in equipment fell at a 3.1% rate, revised from a 5.5% decrease, as investment in information processing equipment fell by an inflation adjusted $8.6 billion, while investment in intellectual property rose by an inflation adjusted $7.9 billion or 5.1%, revised from a 1.5% increase, as research and development spending was up $6.4 billion….on net, the reduced investment in non-residential structures subtracted 0.21% from GDP, lower equipment investment took off 0.18% the final figure, while the increase in intellectual property investment added 0.19%…meanwhile, the contraction in investment in residential structures was revised from 5.7% to 5.0% and subtracted 0.16% from the final rate of GDP change…

the real 1st quarter net trade figures were revised down as well, as we noted would occur when the March trade report was released a week after the 1st estimate….the BEA originally estimated that our 1st quarter exports had dropped at an inflation adjusted 7.6% annual rate while imports fell at a 1.4% rate, for an increase in the trade deficit over the 4th quarter that subtracted 0.83% from the 1st estimate of GDP….with the actual data for March, they now estimate that real exports of goods and services fell at a 6.0% rate, $31.6 inflation adjusted dollars less than the 4th quarter, while real imports increased by an inflation adjusted $4.6 billion, or at a 0.7% rate, instead of decreasing by $8.8 billion as originally reported…as you should recall, exports add to gross domestic product because they are products that are not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here…thus the increase in real imports subtracted 0.12% from GDP, rather than adding .24% as previously estimated, while the 6.0% decline in exports still subtracted 0.83%…hence, with the change in both exports and imports subtracting from GDP, the 1st quarter growth rate took a 0.95% hit from the increase in the trade deficit…

finally, although the revision to federal government consumption and investment in this second estimate was statistically insignificant, the state and local government investment contraction was greater than previously reported…despite falling at a 12.8% rate in the shutdown depressed 4th quarter, real federal government consumption and investment only grew from that at a 0.7% rate over the first quarter, as real federal spending for defense fell at a 2.4% rate and subtracted 0.11% from GDP, while all other federal consumption and investment rose at a 5.9% rate and added 0.16% to GDP…state and local consumption expenditures rose at an adjusted $2.5 billion rate, rather than the the $2.1 billion increase previously reported, but state and local investment outlays fell at a $10.1 billion rate, not by $7.7 billion as previously estimated; hence, while state and local consumption added 0.06% to GDP, the contraction in state and local investment outlays subtracted 0.20% from 1st quarter growth…

our FRED bar graph below, which can also be viewed as an interactive, has been updated with these latest GDP revisions…each color coded bar shows the change, in billions of chained 2009 dollars in one of the major components of GDP over each quarter since the beginning of 2012…in each quarterly grouping of seven bars on this graph below, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the change in imports are shown in green, the change in exports are shown in purple, while the change in state and local government spending and  investment is shown in pink, while the change in Federal government spending and investment is shown in grey…those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they’ll appear below the zero line…as you can clearly see in the far right group representing the first quarter, the lone large positive impact on GDP in the first quarter was from personal consumption expenditures, while the positive contribution from the increase in federal government is barely visible…meanwhile, the two investment categories in red and yellow were a major drag, and the worst contraction in investment since the 2nd quarter of 2009..

2nd estimate 1st qtr 2014 GDP

Real Personal Income Rises 0.1% in April as Real Personal Consumption Falls by the Most Since 2009

the other key monthly release this week, also from the Bureau of Economic Analysis, was on Personal Income and Outlays for April, which in addition to the important personal income data, also reports the monthly data on our personal consumption expenditures (PCE), which as we just saw is the major component of GDP…from that data, the BEA also computes personal savings and the national savings rate, as well as a price index for PCE, which is the inflation gauge the Fed supposedly targets and which is used in this report to adjust both personal income and consumption expenditures for inflation to arrive at ‘real’ figures….like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the actual monthly dollar changes, which are not reported, are thus on the order of one twelfth of the reported amounts… however, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, so it’s frequently misreported that way…

in April, total personal income increased at a seasonally adjusted and annualized $43.7 billion rate to $14,530.2 billion, which was 0.3% higher than in March, when personal income increased by 0.5% over February; disposable personal income (DPI), which is income after taxes, increased at an annualized rate of $44.6 billion to $12,822.6 billion, which was also a 0.3% increase over March, while March’s DPI was also up 0.5% over February…increases in private wages and salaries accounted for $16.9 billion of the April personal income gain, with the entirety of that increase seen in service industry payrolls, as goods producing payrolls fell at a $0.1 billion rate…increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.2 billion of April’s annualized increase, while employee contributions for government social insurance, which is subtracted from the personal income figure, increased at a $2.7 billion rate…meanwhile, proprietors’ income increased at a $5.4 billion rate in April, with $2.2 billion of that increase going to farm owners and $3.2 billion to individual proprietors of other types of business…rental income of individuals also increased at a $1.8 billion clip in April, and personal interest and dividend income increased at a $15.3 billion rate…in addition, increases in personal transfer payments from government programs, which have been a major factor in the personal income increases over the past three months, only increased by $2.6 billion in April, apparently as the influx of additions to Medicaid rolls waned…

however, seasonally adjusted personal consumption expenditures (PCE), which were the major positive factor in the 1st quarter GDP data we reviewed earlier, fell at a $8.1 billion annual clip to $11,884.1 billion in April, which was 0.1% lower than March and an ominous start to the 2nd quarter….personal outlays for services were down at a $4.9 billion rate to an annualized $7,903.4 billion, personal spending for durable goods fell at a $6.5 billion rate to $1,301.2 billion annually, while only personal consumption of non-durable goods increased, rising at a $3.4 billion annual rate to an annualized $2,679.5 billion……total personal outlays, which includes interest payments, and personal transfer payments in addition to PCE, fell by an annualized $9.1 billion in April to $12,301.4 billion, in contrast to the increase of $120.2 billion in March outlay…however, the decrease in outlays left personal savings, which is disposable personal income less total outlays, at $518.1 billion for the month, up from $464.4 billion in March…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.0% in March, up from 3.8% in February…

while personal consumption expenditures account for more than two-thirds of our GDP, before they can be included in the computation of real GDP they must first be adjusted for inflation; that’s done with the price index for personal consumption expenditures included here, which is based on chained 2009 prices = 100….that index rose to 108.413 in April from 108.202 in March, giving us a month over month inflation rate of 0.2% and a year over year PCE price index increase of 1.62%; thus, inflation adjusted or real personal consumption expenditures fell by 0.3% in April, and with the price index for non-durable goods up by 0.4%, while services prices rose 0.1% and durable prices were unchanged, all three components of the real PCE that will be included in 2nd quarter GDP declined for the month…in a similar manner, disposable personal income is deflated with the PCE price index to show that real disposable personal income, or the purchasing power of disposable income, rose by just 0.1% in April…also note that even with the increase in the PCE price index to 1.62% and the core PCE price index to 1.42%, both are still well below the 2.50% PCE inflation target the Fed has allegedly been trying to hit…..

our FRED graph below, which can also be viewed as an interactive, shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right…the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 19.5% over the span of this graph… 

April 2014 income and outlays

April Durable Goods Orders Rise 0.8% While Regional Manufacturing Surveys Show Continued Growth in May

there were also a few reports on the manufacturing sector this week, starting with two Fed regional manufacturing surveys…in the Fifth District May Survey of Manufacturing Activity (pdf), the Richmond Fed reported that their composite index for manufacturing activity held steady at a reading of 7, on a scale where positive readings indicate growth; that means they saw an ongoing mild expansion in their region, which includes the Virginias, Maryland, the Carolinas, and the District of Columbia…meanwhile, the Texas Manufacturing Outlook Survey for May from the Dallas Fed reported that growth in Texas area manufacturing slowed as the general business activity index slipped from 11.7 to 8 while their production index fell from 24.7 to 11, indicating output grew, but not strongly as in April….later in the week, the Institute for Supply Management – Chicago released their Chicago Business Barometer for May (pdf), in which their purchasing managers index increased to 65.5 in May from 63.0 in April, a robust reading on a scale where readings above 50 indicate a plurality of area manufacturing purchasing managers report growth in their business as better than the previous month…

in addition, the Census Bureau released the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf), which estimated that the widely watched new orders for durable goods rose a seasonally adjusted $1.9 billion or 0.8% to $239.9 billion, after increases of 2.6% and 3.6% in February and March…new orders for transportation equipment, up 2.3% to $76,942 million, drove the increase, which in turn was driven by a 13.1% increase in new orders for defense aircraft and parts…excluding the transport sector, new orders were up just 0.1% in April and 3.1% over the last twelve months, as the important new orders for nondefense capital goods fell 1.0% as new orders for machinery fell 2.9% to $36,674 million…meanwhile, seasonally adjusted April shipments of durable goods, which will be reflected in 2nd quarter GDP, fell by $0.6 billion or 0.2% to $237.2 billion…again, it was 1.0% lower shipments in the transportation sector that drove the decrease, with shipments of motor vehicles off 1.1% and shipments of commercial aircraft down 2.3%, but even shipments of nondefense capital goods fell 0.6% to $76,532 million as shipments of machinery fell 1.4% to $35,788 million…seasonally adjusted inventories of durable goods, which have been up 12 out of the last 13 months, eked out another 0.1% increase of $0.3 billion to $393.3 billion, another record high…again, inventories of transportation equipment, up 0.3%, was the major factor, as inventories of motor vehicles and commercial aircraft both increased by 0.6%…finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were up $10.4 billion or 1.0% to $1,081.0 billion, also a new record…unfilled orders for transportation equipment, up $7.5 billion or 1.1% to $671,652 million, were again a major factor, as the $501,349 million order backlog for non-defense aircraft is always the largest line item….but except for declines of 1.6% in unfilled orders for computers and 0.2% for defense aircraft, increases in the unfilled order book in April were seen across the board by all type of durable manufacturers…

FHFA and Case-Shiller Show Home Prices Up in March

as it was the last week of the month, Tuesday saw the release of two price indexes covering home prices in the first quarter of this year; the Federal Housing Finance Agency’s House Price Index for March and the first quarter of 2014 showed that seasonally adjusted U.S. house purchase prices rose 1.3% during the first quarter of 2014, with 42 states and the District of Columbia showing price increases, led by a 2.1% increase in home prices in the Pacific Census region, while prices in the Mid-Atlantic eked out a 0.1% increase; for the year, FHFA saw home prices rise 6.6% nationally, with prices in the Pacific region 13.2% ahead of a year earlier, with the Mid Atlantic region up 2.3% again showing the smallest annual increase…meanwhile, the Case-Shiller home price indices for March, covering the same three months of January through March, showed both the 10-City and 20-City Composite Indices gained 0.8% and 0.9% respectively over the 3 month period of December to February, their  first monthly increase in 4 months, with “nineteen of the 20 cities showing positive returns in March”, as only the New York metro area saw home prices fall…on a year over year basis, prices for the original ten cities were up 12.6%, while the 20-City Composite Index rose 12.4%, with Las Vegas metro area prices rising the most at 21.2%, while prices in the Cleveland area lagged the most, rising just 3.9%…the S&P/Case-Shiller quarterly U.S. National Index, also released with this report, showed that 1st quarter home prices rose 0.2% nationally over the prices realized in the 4th quarter, and were 10.3% higher than the 1st quarter of 2013…

we’ll again include below pictures of the pair of interactive FRED graphs we created to show the historical track of home price indexes for each of the cities in the 20 city index, all based on 2000 home prices equal to 100.0… in our first FRED graph, we show the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red… for the larger interactive view of this graph at FRED, click here; there you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below, just as we have included the index values of them for March in our screenshot…

March 2014 Case Shiller A-L

our second FRED graph of the Case-Shiller city indices shows the the historical price track of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…the S&P Case-Shiller index is not seasonally adjusted, but notice that the seasonal home price swings have become more pronounced since the housing bust…again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and  the index values for each  viewed over time with their interactive tool…

March 2014 Case Shiller M-Z

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

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