2nd estimate 4th quarter GDP; January consumer prices, home sales, and durable goods; December Case-Shiller

in addition to the heavy schedule of reports that we normally see in the last week of a month, we also had the release of the Consumer Price Index for January on Thursday, a monthly report which we usually see earlier…the usual end of the month important report was the release of the 2nd estimate of 4th quarter GDP on Friday; other widely watched reports included the S&P/Case-Shiller House Price Index for December, the January report on existing home sales from the National Association of Realtors (NAR), the report on January new home sales from the Census Bureau, and the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for January, also from the Census Bureau..

in addition, this week also saw the Chicago Fed National Activity Index for January, a weighted composite index of 85 different economic metrics, which saw the headline index rise to +0.13 in January from -0.07 in December, where positive numbers indicate growth above the historical trend, and three regional Fed manufacturing indexes for February; the Texas Area Manufacturing Outlook Survey from the Dallas Fed showed contraction at -11.2, the lowest reading in nearly two years, not unexpected given the area’s dependence on the oil industry; the Fifth District Survey of Manufacturing Activity from the Richmond Fed, covering Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported stagnant conditions with their composite index at zero, and the February Kansas City Fed manufacturing survey, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which also indicated near stagnant activity at 1 in February, down from 3 in January and 8 in December… a private manufacturing diffusion index, the Chicago Purchasing Manager’s Index (PMI) for February from the Chicago ISM was down 13.6 to the lowest reading in five and a half years at 45.8, indicating that a plurality of Midwest purchasing execs saw contraction for the first time since 2009… remember that several paragraphs from all the reports of the past week, including the pdfs, can be viewed on one regular html webpage at the Research Economics page at OneWall.com

Growth Rate in 4th Quarter GDP Revised to 2.2% on Lower Inventories, Higher Imports

the Second Estimate of 4th Quarter GDP from the Bureau of Economic Analysis indicated that our economy grew at a 2.2% rate in the 4th quarter, revised from the 2.6% growth rate reported in the advance estimate last month, as real private fixed investment and imports (which subtract from GDP) were revised higher, and the change in private inventories was revised lower…in addition, the GDP deflator, which had been reported slightly negative, was revised to show inflation at a 0.1% rate, hence the change in current dollar GDP was only revised down by 0.2%, from 2.5% in the advance estimate to 2.3% in this estimate…(see table 4 in the full pdf report for the inflation adjustments for the various components of GDP)

as we pointed out last month, the press release for this report, the source of most reporting on this release, isn’t very useful in understanding the nature of this report, because it assumes to reader knows that the prefix “real” indicates inflation adjusted data, and assumes the reader knows that all figures reported as quarterly are really at an annual rate…rather than even cite that, we’d prefer to direct you to table 3 in the Full Release and Tables (pdf) so you can see how the change in 4th quarter GDP was arrived at…the right half of that table shows the current dollars amounts over several recent quarters for the various components of GDP; the left half of that table shows how they’ve adjusted those amounts for inflation based on prices chained from 2009…it is from those amounts in chained 2009 dollars that all changes in GDP are computed, a change that in effect no longer represents dollars, but rather indicates the annualized change in units of goods and services output of the economy…that change is what table 1 of the Full Release and Tables shows us for each component, and then table 2 in the Full Release and Tables shows us how much each of those components adds or subtracts from the final GDP figure…

overall real personal consumption expenditures, the largest component of GDP, were little changed, as they were revised to show growth at a 4.2% annual rate rather than the 4.3% growth rate reported last month, and hence they added 2.83% to the quarter’s growth rate, not the 2.87% addition reported in the advance estimate (pdf from last month)…but the change in the components of personal consumption were revised considerably; the real inflation adjusted change in consumption of durable goods was revised from the 7.4% growth reported in the first estimate to a 6.0% growth rate in this estimate, and the real change in nondurable goods consumption was revised from an increase of 4.4% to an increase of 3.8% with this estimate, while the real growth in consumption of services was revised from 3.7% to growth at a 4.1% annual rate…contributing significantly to the change in real personal consumption expenditures in this estimate was a revision of the PCE price index, which is the deflator for this GDP component, from a minus 0.5% to minus 0.4%, as the deflator for goods was revised from -5.3% to -4.9%, while the deflator for services was revised from 2.0% to 1.8%…current dollar spending for goods was actually $5.4 billion lower in the 4th quarter than in the 3rd…

meanwhile, the growth of all the components of 4th quarter fixed private investment were revised higher, except for residential construction, which was revised from the originally reported growth rate of 4.1% to growth at a 3.4% rate…the real growth in fixed private investment was revised from the originally reported 2.3% to 4.5% and non-residential investment was revised from the previously reported 1.9% growth rate to growth at a 4.8% rate as growth in real investment in non-residential structures was revised from a 2.6% rate to a 5.0% rate, real investment in equipment was revised from the previous reported drop at a 1.9% rate to an increase at a 0.9% rate, and growth in real investment in intellectual property was revised from growth at a 7.1% rate to growth at a 10.9% rate…these increases came despite the fact that deflator was larger than previously estimated, as growth in the price index for fixed private investment was revised from 0.9% to 1.1% (see table 4 of the Full Release and Tables (pdf) for components)…as a result, fixed private investment contributed 0.71% to 4th quarter GDP, rather than the 0.37% addition reported last month…

in addition, real private inventories were revised to show growth at an inflation adjusted $88.4 billion in the 4th quarter after they grew by $82.2 billion in the 3rd quarter, and hence the $6.2 billion greater inventory growth only added 0.12% to the 4th quarter’s growth rate, in contrast to the 0.82% addition from inventory growth reported in the advance estimate…since inventories indicate that some of the goods produced goods during the quarter are still sitting on the shelf, their increase by $6.2 billion means real final sales of GDP were lower by that much, hence increasing at a 2.1% annual rate, revised up from the real final sales increase of 1.8% reported last month…

meanwhile, both real imports and real exports were revised higher with this release, but it was the large increase in imports that did the damage…real imports had originally been reported as growing at a 8.9% rate in the quarter, and that has been revised to growth at a 10.1% rate on an 11.1% increase in imports of goods; meanwhile, our real exports grew at a 3.2% rate rather than the 2.8% rate reported in the advance estimate…as you’ll recall, exports add to gross domestic product because they represent that part of our production that was 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 large increase in imports subtracted 1.58% from 4th quarter GDP while the comparatively smaller increase in our already smaller exports only added 0.42%, and as a result the increase in our trade deficit subtracted a total of 1.15 from 4th quarter GDP…

finally, there were also revisions to real government consumption and investment in this 2nd estimate…real federal government consumption and investment shrunk at a 7.5% rate vis a vis the 3rd quarter, which was unrevised, but real federal spending for defense was revised to show contraction at a 12.4% rate rather than the 12.5% contraction previously reported, while all other federal consumption and investment grew at a 1.4% rate, down from the 1.7% growth rate reported last month…real state and local outlays, on the other hand, were revised higher, from the 1.3% growth rate previously reported to growth at a 2.0% rate…thus, while the shrinking in Federal consumption and investment subtracted 0.54% from GDP, the increase in real state and local consumption and investment added 0.22% to the revised 4th quarter GDP growth figure..

January Consumer Prices Down 0.7% on Lower Gasoline

there wasn’t much about the Consumer Price Index Summary for January that was a surprise…the seasonally adjusted index fell 0.7% for the month, the largest monthly drop since December 2008, and since it has now fallen for 7 months in a row, the year over year change has turned negative, indicating overall prices are now 0.1% lower than last January…the reason for the drop was, as it had been in the last half of 2014, a drop in the energy index mostly due to lower prices for gasoline…with the gasoline index down 18.7% in January, the energy index, which accounts for 8.03% of the CPI, was down 9.7%, dragging the overall index lower…without energy, other prices were up 0.1%, and since food prices were statistically unchanged, the core CPI, or the index for all items except for food and energy, was 0.2% higher in January than in December…

we’re going to refer you to the press release for the Consumer Price Index Summary, which is a very readable overview, to get a better sense of how the price index and subindexes have changed in January than any few paragraphs we could write…if you scroll down to the bottom on that report, past the details about revisions, sampling errors and other technical information, you’ll find links to 7 tables, and to an html version of the entire release…and if you open the following three tables from that list, you’ll discover more about prices over the past few months and year over year than you’ll ever want to know…

note that in table 1, we have a listing showing that the index for commodities less food and energy commodities was down 0.1% in January…that index would be suitable to use to deflate January retail sales, excluding the sales by gas stations, at groceries, and by restaurants, to determine the actual change in the amount of products sold, which is what the GDP report considers…since we already figured retail sales excluding gas station sales fell less than 0.1%, that suggests real retail sales ex-food and energy were close to unchanged in January…the BEA would, of course, deflate retail sales item by item, an exercise which we’ve attempted in the past, but since we dont have access to their program to automate the process, we’ll forgo that effort this time, especially since the income and outlays report will be out early next week…

Table 2 gives us the line item change in price of every commodity and service that went into making up each sub-index and the CPI itself…the “relative importance” column shows us the percentage of the CPI that each of those commodities accounts for, and the column at the far right shows the price changes for this month…thus we can see that prices for the rice, pasta, and cornmeal group of cereal products were up 3.4% in January and their contribution to the CPI change was 0.126%, or roughly an eighth of a percent…and if you scroll down 2/3rds of that table to the section on prices of services, you’ll see that rent of shelter, the lions share of which is owner’s equivalent rent, accounted for 32.336% of the CPI and was up 0.3% in January; take away shelter, and other prices were down 1.1% for the month….the second column on that table, headed Jan.2014-Jan.2015, shows the year over year price change in each item in the index…thus scrolling back to the foods, we can see that although prices for meats, poultry, fish, and eggs fell 0.1% in January, prices for many cuts of beef are still up more than 20% from a year ago…

Order Backlog for Durable Goods Falls Second Month in a Row

in the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for January (pdf), the Census Bureau estimated that new orders for manufactured durable goods rose by a seasonally adjusted $6.5 billion, or 2.8%, to $236.1 billion, following the revised December new orders decrease of 3.7%….new orders for transportation equipment were again the story here, as they rose 9.1% on a 128.5% increase in new orders for commercial aircraft; excluding transportation equipment, new orders fro durable goods were up just 0.3%, while the widely watched new orders for capital goods less aircraft were 0.6% higher…

January’s seasonally adjusted shipments of durable goods decreased $2.7 billion or 1.1% to $245.1 billion, falling for the third time in the last 4 months…nominally half the decrease in shipments was in lower shipments of transportation equipment, which fell 1.7% on 3.0% lower automotive equipment shipments; excluding transportation equipment, however, shipments were still down 0.8% as shipments of capital goods less aircraft were down 0.3%….meanwhile, inventories of durable goods, up 21 out of the last 22 months, rose 0.4% again, after rising by 0.5% in each of the previous three months…inventories of primary metals, up 1.7% in January, saw the largest increase…but unfilled orders for durable goods, the metric we watch, were down for the second month in a row, falling 0.2% after falling 0.9% in December; nonetheless, unfilled orders were still 9.7% higher than a year earlier, with every industry except for defense aircraft showing more unfilled orders than a year ago…the order backlog for commercial aircraft was also down 0.2% in January, and at over half of the durable goods order book nationally, has a disproportionate influence on this metric…

Existing Home Sales Fall 4.9%, New Home Sales Flat

the National Association of Realtors (NAR) reported that existing home sales fell 4.9%, to their lower seasonally adjusted annual rate in nine months, as they project 4.82 million homes would sell over a year if January sales were extrapolated over an entire year… the NAR press release, which is titled Existing-Home Sales Cool in January As Available Inventory Remains Subdued, is written in plain English for reporters, so it’s likely easier reading than any summary we could put together…since the report is entirely seasonally adjusted and at a meaningless annual rate, we typically want to also look at the raw data overview (pdf), which shows that sales of existing homes really fell to 282,000 in January from 413,000 in December, an actual sales decrease of 31.7%…the same pdf  indicates that the median home selling price for all housing types was $199,600 in January, down 4.1% from $208,200 in December, but 6.2% higher than the $187,900 median home sales price in January of last year, while the average home sales price was $248,100, down 2.6% from the $254,800 average in December, but up 4.9% from the $236,500 average sales price of January a year ago…for additional coverage of this report, Bill McBride has two posts, both with multiple graphs: Existing Home Sales in January: 4.82 million SAAR, Inventory down slightly Year-over-year and A Few Comments on January Existing Home Sales

the Census report on January’s New Residential Sales estimated that new single family homes were sold at a seasonally adjusted annual rate of 481,000, 0.2 percent (±22.2%)* below the revised December rate of 482,000, but 5.3 percent (±22.1%)* above the sales rate of January of last year….as you know, the asterisks after the reported figures indicate that based on their small sampling, Census could not be certain whether January’s new home sales rose or fell from those of December or even from those of a year ago, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error of any census construction series…the unadjusted data from Census field reps estimated that 36,000 homes sold in January, up from 34,000 in December, and indicated that the median sales price of new houses sold was $294,300 while the average sales price was $348,300….for more details and graphics, see Bill McBride’s two posts, New Home Sales at 481,000 Annual Rate in January, Highest January since 2008 and Comments on New Home Sales; also see New Home Sales Stay At High Levels But Median Price Increases by Robert Oak at the Economic Populist, one of the few bloggers who even recognizes the large margin of error and likelihood of major revisions of this report..
….

for the S&P/Case-Shiller House Price Index for December, i’ll direct you to Robert Oak’s coverage titled Case-Shiller Shows Home Prices Still on the Rise and Not Affordable, and as usual with all housing reports, Bill McBride also has two posts, titled Case-Shiller: National House Price Index increased 4.6% year-over-year in December and A Comment on House Prices: Real Prices and Price-to-Rent Ratio in December…in addition, the Wall Street Journal has A Look at Case-Shiller by Metro Area with an interactive table…just remember that all the month over month figures for this report are comparing October, November and December prices to those of September, October and November, and hence the month over month change is equal to 1/3rd the difference between October prices and December prices…the pdf for the full report is here

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was 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, most from the aforementioned GGO posts, contact me…)

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