1st quarter GDP, March income and outlays, durable goods, new home sales, et al

the key reports this past week were the advance estimate of 1st quarter GDP from the Bureau of Economic Analysis, which was released on Thursday, and the March report on Personal Income and Spending, also from the BEA, which was released on Friday… other widely watched releases included the March advance report on durable goods and the March report on new home sales, both from the Census bureau, and the February Case-Shiller Home Price Index, which actually is a average of December, January and February relative home prices…Case Shiller reported that home prices nationally for those 3 months averaged 5.3% higher than prices for the same homes that sold during the same 3 month period a year earlier…the full pdf of the report from S&P is here: Home Price Increases Slow Down in February According to the S&P/Case-Shiller Home Price Indices or you can see Robert Oak’s post with excellent graphics at the Economic Populist: Case-Shiller Shows Still Strong Annual Housing Price Gains.

the week also saw the last three regional Fed manufacturing surveys for April: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity composite index was unchanged at -13.9, the sixteenth consecutive negative reading for that index, indicating an going recession in the Texas oil patch economy; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell to +14, following last month’s reading of +22, indicating a slightly less robust expansion in that region’s manufacturing,  while the Kansas City Fed manufacturing survey for April, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -4 in April, up from readings of -6 in March and -12 in February, but still indicating that the regional contraction, mostly in energy related industries, continues for the fourteenth month in a row…we also saw the widely followed private release of the Chicago Purchasing Managers Index (PMI) for April, which reported their Chicago Business Barometer decreased 3.2 points to 50.4 in April, in a manufacturing diffusion index where readings over 50 indicate that a plurality of area purchasing managers saw growth in various facets of their business…

1st Quarter Growth Slows to 0.5% Rate on First Pullback in Private Investment in 5 Years

our economy grew at a 0.5% rate in the 1st quarter, the slowest in 2 years, as personal consumption of motor vehicles slowed, exports fell, non-residential fixed investment contracted, and the increase in private inventories decreased, while both residential investment and state and local investment outlays increased…the Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 0.5% annual rate over the output of the 4th quarter of 2015, when our real output grew at a 1.4% real rate…in current dollars, our first quarter GDP grew at a 1.2% annual rate, increasing from what would work out to be a $18,164.8 billion a year output rate in the 4th quarter to a $18,221.1 billion annual rate in the 1st quarter of this year, with the headline 0.5% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 0.7%, aka the GDP deflator, was applied to the current dollar change… as usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate for the quarter is released, which will be two months from now…also note that March construction and inventory data have yet to be reported, and that the BEA assumed an increase in nonresidential construction, an increase in residential construction, a decrease in nondurable manufacturing inventories, and an increase in wholesale and retail inventories ex-autos for March before they estimated 1st quarter output..

remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of what actually occurred over the 3 month period, and that they only use the prefix “real” to indicate that the change has been adjusted for inflation using prices chained from 2009, and then they calculate all percentage changes in this report from those 2009 dollar figures, which we think would be better thought of as representing quantity indexes…however, since the press release is limited in its usefulness, all the data that we’ll use in reporting here comes from the pdf for the 1st estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes…specifically, we refer to table 1, which shows the real (inflation adjusted) percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts…

personal consumption expenditures (PCE), which accounts for over 68% of GDP, grew at a 2.15% rate in current dollars in the 1st quarter, which became a 1.9% real growth rate of consumed goods and services after an annualized 0.3% PCE price index increase was used to adjust that spending for inflation….consumer outlays for durable goods fell at a 2.7% rate while prices of those durable goods averaged 1.1% lower, and thus the BEA found real growth in output of consumer durables fell at a 1.6% rate, as a drop in consumption of automobiles at a 13.4% rate more than offset an increase at a 11.3% rate of in real consumption of recreational goods and vehicles…the BEA also found that real output of consumer non-durable goods grew at a 1.0% rate after lower consumer spending for non-durables at a 4.6% rate was adjusted for lower prices at a 5.6% rate, with a 5.9% growth rate of real consumption of food at home offsetting a 2.1% decrease rate for clothing outlays…meanwhile, the 5.2% nominal growth in consumer outlays for services was deflated by a 2.4% increase in prices for services to show real output of consumer services grew at a 2.7% annual rate, led by a 10.8% real growth rate in health care services and a 10.5% growth rate in real outlays for housing and utilities, following a 4th quarter when utility usage shrunk due to mild weather…as a result of these changes in growth from the 4th to the 1st quarter, the decrease in outlays for durable goods subtracted 0.12 percentage points from GDP, largely on a 0.33 percentage point hit from automobiles, while increased consumption of non-durable goods added 0.15 percentage points to the growth of GDP, and increased consumption of services added 1.24 percentage points to the growth rate of the 1st quarter economy..

the change in other components of the change in GDP are computed by the BEA in the same manner as PCE; ie, the actual annualized increase in current dollar spending for the quarter is adjusted with an inflation factor for that component, yielding the change in real units of goods or services produced in the quarter at an annual rate…thus, real gross private domestic investment, which had already shrunk at a 1.0% annual rate in the 4th quarter of 2015, shrunk at a 3.5% annual rate from there in the 1st quarter…real growth in fixed investment shrunk at a 1.6% annual rate in the 1st quarter, after growing at an anemic 0.4% rate in the 4th quarter…for fixed investments, real non-residential fixed investment fell at a 5.9% rate, as real investment in non-residential structures fell at a 10.7% rate and subtracted 0.30 percentage points from 1st quarter GDP and real investment in equipment fell at a 8.6% rate and subtracted 0.53 percentage points from GDP, while real investment in intellectual property grew at 1.7% rate and added 0.07 percentage points to GDP…meanwhile, real residential investment grew at a 14.8% rate in the 4th quarter, up from the 10.1% growth rate it saw in the 4th quarter, and added 0.49 percentage points to GDP…for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3

in addition, slower growth in inventories also reduced investment and hence GDP, as real private inventories grew by an inflation adjusted $60.9 billion in the quarter, down from the $78.3 billion of inflation adjusted inventory growth we saw in the 4th quarter, and as a result the $17.5 billion slower real inventory growth subtracted 0.33% from the 1st quarter’s growth rate, after $7.2 billion slower real inventory growth in the 4th quarter subtracted 0.22% from that quarter’s GDP….however, since slower growth in inventories indicates that less of the goods produced during the quarter were left in storage or “sitting on the shelf”, their decrease by $17.5 billion in turn means real final sales of GDP were actually greater by that much, and hence real final sales of GDP rose at a 0.9% rate in the quarter, after real final sales increased at a 1.5% rate in the 4th quarter, when the change in inventories was smaller…

the value of both exports and imports in current dollars fell in the 1st quarter, but after large inflation adjustments due to lower prices for both, mostly for traded commodities, the BEA found that real imports inched up while real exports had really shrunk…after adjusting for a 5.6% annualized decrease in export prices, our real exports of goods and services fell at a 2.6% rate in the 1st quarter, after falling at a 2.0% rate in the 4th quarter of 2015, while our real imports, adjusted for lower prices at a 7.5% rate, rose at a 0.2% rate in the 1st quarter, after falling at a 0.7% rate in the 4th quarter…as you’ll recall, real increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), so hence the decrease in 1st quarter exports subtracted .31 percentage points from 1st quarter GDP…on the other hand, real increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been, because it was not produced here and hence not part of our national product…thus the 1st quarter 0.2% increase in real imports also subtracted 0.02 percentage points from GDP, a reverse of the 0.11 percentage points that a decrease in imports had added in the 4th quarter…thus, after rounding, our worse trade balance subtracted a net 0.34% percentage points from 1st quarter GDP, after the increase in our trade deficit had subtracted 0.14% percentage points in the fourth quarter of last year…

finally, real consumption and investment by branches of government increased at a 1.2% annual rate in the 1st quarter, after increasing at a 0.1% rate in the 4th quarter, as federal government consumption and investment fell at a 1.6% rate, while state and local consumption and investment grew at a 2.9% rate…..inflation adjusted federal spending for defense fell at a 3.6% rate and subtracted 0.15 percentage points from 1st quarter GDP growth, while real non-defense federal consumption and investment rose at a 1.5% rate and added 0.04 percentage points to GDP…note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services….meanwhile, state and local government investment and consumption expenditures rose at a 2.9% annual rate and added 0.31 percentage points to the quarter’s growth rate, as real growth in state and local consumption expenditures added 0.07 percentage points and growth in real state and local investment added 0.24 percentage points…

we’ll again include our FRED GDP graph, so you can picture how these GDP components all come together…in our FRED bar graph below, each color coded bar shows the real 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, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and  investment is shown in pink, and the real 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…you can clearly see that the only significant positive contribution to GDP growth in the 1st quarter came as a result of increased real personal consumption, with just a bit of help from increased state and local government consumption and investment… 1st quarter private fixed investment, in red, was down for the first time since the first quarter of 2011, so long ago it doesn’t even show on this graph…meanwhile, other major negatives were slower inventory growth (yellow), lower exports (purple), and lower Federal investment (grey)…

1st quarter 2016 advance GDP

March Personal Income Up 0.4%, Spending Up 0.1%

while our personal consumption expenditures (PCE) for March, which were included in the GDP report we just reviewed, are probably the most important metric we get from the monthly report on Personal Income and Outlays from the BEA, this report also gives us personal income data, disposable personal income, which is income after taxes, our monthly savings rate and the PCE price index, the inflation gauge the Fed targets….remember, though, that although this report gives us the percentage change of each of those metrics from February to March, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate, just like the GDP report and other releases included in our National Income and Product Accounts…that means, therefore, that the monthly seasonally adjusted dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts..

ie, when the opening line of the press release for this report tell us “Personal income increased $57.4 billion, or 0.4 percent, and disposable personal income (DPI) increased $50.4 billion, or 0.4 percent, in March“, they mean that the annualized figure for personal income in March, which was $15,734.1 billion, was $57.4 billion, or a bit less than 0.4% greater than the annualized  personal income figure of $15,676.8 billion for February; the actual change in personal income from February to March is not given…similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.4%, from an annual rate of $13,668.9 billion in February to an annual rate of $13,719.3 billion in March…likewise, the contributors to the increase in personal income, listed under “Compensation” in the press release, are also annualized amounts, all of which can better be seen in the Full Release & Tables (PDF) for this release…so when the press release says, “Wages and salaries increased $29.2 billion in March, in contrast to a decrease of $4.6 billion in February” that really means wages and salaries would increase by $29.2 billion over an entire year if the March seasonally adjusted increase were extrapolated over that year, just as interest and dividend income, which also fell in February, rose at a $12.5 billion annual rate in March…

personal consumption expenditures (PCE) are reported in the same manner, ie, they rose at an annual rate of $12.8 billion to $12,983.8 billion annually in March, or were about 0.1% higher than the annual rate of $12,972.6 billion of PCE for February…however, when they’re included in the GDP report, the monthly personal consumption expenditures are adjusted with the price index for PCE, the BEA’s chained type price index based on 2009 prices equal to 100, to give us “real” PCE, and hence the change in the output of goods and services produced for consumers….in table 9 of the pdf for this report we see that that price index rose to 109.914 in March, from 109.855 in February, an increase of 0.054%, which the BEA rounds to 0.1% when reporting it…hence, we find that real personal consumption expenditures, or PCE after the inflation adjustment, rose by 0.0326% for the month, which the BEA rounds to 0.0%, or unchanged….using the same PCE price index, disposable personal income is adjusted to show that real disposable personal income, or the purchasing power of disposable income, rose by 0.3% in March, after an increase of 0.2% in February, when the inflation adjustment was negative and hence boosted the real figures..

with disposable personal income up by 0.4% and personal consumption expenditures only up by 0.1%, it only goes to reason that our personal savings for March would have increased….to arrive at the figures for that, the BEA takes total personal outlays, which is the sum of PCE, personal interest payments, and personal current transfer payments, and subtracts that from disposable personal income, to show personal savings at a $735.5 billion annual rate in March, up from the $696.4 billion that we would have ‘saved”’ over a year had February savings been extrapolated for a year…this brought the personal savings rate, or personal savings as a percentage of disposable personal income, to 5.4% in March, up  from the savings rate of 5.1% in February…

March Durable Goods: New Orders Up 0.8%, Shipments Down 0.5%, Inventories Unchanged

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods rose by $1.8 billion or 0.8% to $230.7 billion in March, following a revised decrease of 3.1% in February new orders, which had been originally reported as a 2.8% decrease…despite that, year to date orders are now 1.4% higher than they were a year ago, as January new orders had been up by 4.3%…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the March headline change, as those transportation equipment orders rose $2.2 billion or 2.9 percent to $76.0 billion, on a 67.5% increase to $6,116 million in new orders for defense aircraft….excluding new orders for transportation equipment, other new orders fell by 0.2% in March, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were virtually unchanged at $66,877 million..

the seasonally adjusted value of March shipments of durable goods, which were inputs into various components of 1st quarter GDP after adjusting for changes in prices, fell by $1.1 billion or 0.5 percent to $$237.0 billion, after February’s shipments were revised from a decrease of 0.9% to a decrease of 1.0%…again, lower shipments of transportation equipment drove the change, as they fell $1.4 billion or 1.8 percent to $77.5 billion, as the value of shipments of motor vehicles fell 3.0% to $52,198 million; excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, but are still 1.1% lower year to date than a year ago….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the first time in 3 months, albeit by just $0.1 billion, or an amount considered statistically unchanged, following a 0.3% decrease in February…inventories excluding transportation equipment were up 0.1% in March, as inventories of transportation equipment fell 0.2% to $48.5 billion on a 6.1% decrease in inventories of defense aircraft…

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, fell for the third time in four months, decreasing by $1.3 billion or 0.1% to $1,182.5 billion, following a 0.4% decrease in February…a 0.2% decrease to $787.3 billion in unfilled orders for transportation equipment was responsible for the drop, as unfilled orders excluding transportation equipment rose 0.1% to $395,246 million….compared to a year ago, the unfilled order book for durable goods is now 1.8% below the level of last March, with unfilled orders for transportation equipment 2.2% below their year ago level, on a 3.9% decrease in the backlog of orders for motor vehicles…..

New Homes Continue to Sell at a Half Million a Year Rate in March

the widely followed Census report on new home sales is extrapolated from a small sampling of data and hence has the largest margin of error and subject to the largest revisions of any census construction series, so these reports aren’t very reliable on a monthly basis…the Census report on New Residential Sales for March (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 512,000 new homes a year in February, which was 1.5 percent (±15.0%)* below the revised February rate of 519,000 new single family homes a year, but still 5.4 percent (±16.0%)* above the estimated annual rate that new homes were selling at in March of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether March new home sales rose or fell from those of February or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report…with this release, previously reported sales of new single family homes for February were revised from the annual rate of 512,000 reported last month to a 519,000 a year rate, while the annual rate of January’s sales were revised from the previously revised 502,000 annually to an annual rate of 521,000…a seasonally adjusted estimate of 246,000 new single family houses remained for sale at the end of March, which represents a 5.8 month supply at the March sales rate, up from a 5.6 month supply in February …for more details and graphs on this report, see New Home Sales decreased to 511,000 Annual Rate in March and Comments on March New Home Sales from Bill McBride at Calculated Risk…

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my blog post for this week 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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