1st Quarter GDP revision, April Durable Goods, April New Home Sales

  the key economic release of the past week was the 2nd estimate of 1st quarter GDP from the Bureau of Economic Analysis, which was released on Friday…other widely watched releases included the April advance report on durable goods and the April report on new home sales, both from the Census bureau…the week also saw the release of two more regional Fed manufacturing surveys for May: 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 -1 in May from +14 in April, indicating that the expansion in that region’s manufacturing has stalled, 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 fell to -5 in May from -4 in April, indicating that the regional contraction, mostly in energy related industries, continues for the fifteenth month in a row…

1st Quarter GDP Revised to Show Growth at a 0.8% Rate

the Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 0.8% rate in the 1st quarter, revised up from the 0.5% growth rate reported in the advance estimate last month, as residential investment was revised higher, growth in private inventory investment decreased less than was previously estimated and exports were down less than had previously been reported…in current dollars, our first quarter GDP grew at a 1.4% 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 $18,229.5 billion annual rate in the 1st quarter of this year, with the headline 0.8% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 0.6%, aka the GDP deflator, was applied to the current dollar change…

remember that the press release for the 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 that which 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 calculate all percentage changes in this report from those artificial 2009 dollar figures, which we think would be better thought of as representing quantity indexes…given the misunderstanding evoked by the text of the press release, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 2nd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 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…the pdf for the 1st quarter advance estimate, which this estimate revises, is here

total real personal consumption expenditures (PCE), the largest component of GDP, were unrevised from the 1.9% growth rate reported last month…that growth figure was arrived at by deflating the 2.2% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 0.3% annual rate in the 1st quarter, which was also unrevised from a month ago…real consumption of durable goods fell at a 1.2% annual rate, which was revised from a 1.6% drop in the advance report, and subtracted 0.09 percentage points from GDP, as a drop in consumption of automobiles at a 11.5% rate more than offset an increase at a 9.3% rate of in real consumption of recreational goods and vehicles, while growth in consumption of other durable goods was down as well….real consumption of nondurable goods by individuals rose at a 1.3% annual rate, revised from the 1.0% increase reported in the 1st estimate, and added 0.18 percentage points to 1st quarter economic growth, as higher consumption of food and energy goods more than offset a small decrease in consumption of clothing….at the same time, consumption of services rose at a 2.6% annual rate, with all categories of services participating, revised from the 2.7% growth rate reported last month, and added 1.20 percentage points to the final GDP tally….

meanwhile, seasonally adjusted real gross private domestic investment contracted at a 2.6% annual rate in the 1st quarter, revised from the 3.5% shrinkage estimate reported last month, as real private fixed investment shrunk at a 1.5% rate, rather than at the 1.6% rate reported in the advance estimate, while the contraction in inventory growth was somewhat smaller than previously estimated…investment in non-residential structures was revised from shrinking at a rate of 10.7% to shrinking at a 8.9% rate, and real investment in equipment was revised to show contraction at a 9.0% rate, worse than the 8.6% contraction rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 1.7% rate to shrinking at a 0.1% rate…on the other hand, the growth rate of residential investment was revised higher, from 14.8% to 17.1% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.25 percentage points from the 1st quarter’s growth rate, the decrease in investment in equipment subtracted 0.56 percentage points from growth, lower investment in intellectual property was statistically insignificant, while growth in residential investment added 0.56 percentage points to 1st quarter GDP…

in addition, the growth in real private inventories was revised from the originally reported $60.9 billion adjusted dollars to show inventory grew at an inflation adjusted $69.6 billion rate…this came after inventories had grown at an inflation adjusted $78.3 billion rate in the 4th quarter, and hence the $8.8 billion smaller real inventory growth than in the 4th quarter subtracted 0.20 percentage points from the 1st quarter’s growth rate, in contrast to the 0.33 percentage point subtraction due to slower inventory growth shown in the advance estimate….since slower growth in inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf”, their decrease by $8.8 billion meant that real final sales of GDP were actually greater by that much, and therefore we find that real final sales of GDP grew at a 1.0% rate in the 1st quarter, revised from 0.9% in the advance estimate…

the previously reported decrease in real exports was revised smaller with this estimate, while the reported increase in real imports was revised to show a decrease, and as a result our net trade was a smaller subtraction from GDP rather than was previously reported…our real exports fell at a 2.0% rate rather than the 2.6% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their smaller shrinkage subtracted 0.25 percentage points from the 1st quarter’s growth rate, a bit less than the 0.31 percentage point subtraction shown in the previous report……meanwhile, the previously reported 0.2% increase in our real imports was revised to a 0.2% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their shrinkage added 0.03 percentage points to 4th quarter GDP….thus, our still weakening trade balance subtracted a net 0.21% (rounded) percentage points from 1st quarter GDP, rather than the 0.34% percentage point subtraction resulting from net negative foreign trade that was indicated in the advance estimate..

finally, there were few revisions to real government consumption and investment in this 2nd estimate, as the real growth rate for the entire government sector was unrevised at a 1.2% rate…real federal government consumption and investment was seen to have shrunk at a 1.6% rate from the 4th quarter in this estimate, which was on net unrevised from the 1st estimate…real federal outlays for defense were revised to show shrinkage at a 3.6% rate, same as previously reported, still subtracting 0.15% percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 1.6% rate, rather than the 1.5% growth rate previously reported, and added 0.04 percentage points to GDP, just as before…..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 those goods or services…meanwhile, real state and local consumption and investment grew at a 2.9% rate in the quarter, which was also unrevised from the 1st estimate, and added 0.31 percentage points to 1st quarter GDP…

our FRED bar graph below, which can also be viewed as an interactive at the FRED site, has been updated with these latest GDP revisions…each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013…in each quarterly grouping of seven bars on this graph, the quarterly changes in real 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 real 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 did in the recent quarter, they’ll appear below the zero line…it’s fairly clear from this graph that our personal consumption expenditures have underpinned GDP growth over this period, including in the quarter just ended, while imports have been the major subtraction from that…

1st quarter 2016 GDP 2nd estimate

April Durable Goods: New Orders Up 3.4%, Shipments Up 0.6%, Inventories Down 0.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods unexpectedly rose by $7.7 billion or 3.4% to $230.7 billion in April, following a revised increase of 3.1% in March new orders, which had been originally reported as a 0.8% increase…as a result, year to date new orders are now 0.8% higher than they were a year ago, as February new orders had been down by 3.3%…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the April headline change, as those transportation equipment orders rose $7.1 billion or 8.9 percent to $87.1 billion, on a 64.9% increase to $16,865 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were still up 0.4% in April; however, the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.8% at $62,350 million…

the seasonally adjusted value of April’s shipments of durable goods, which will be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose by $1.5 billion or 0.6  percent to $232.5 billion, after March shipments were revised from a decrease of 0.5% to a decrease of 0.8%…again, greater shipments of transportation equipment drove the change, as they rose $1.0 billion or 1.3 percent to $80.9 billion, as the value of shipments of motor vehicles rose 3.3% to $56,141 million; excluding that volatile sector, the value of other shipments of durable goods rose 0.3%, but are still 2.0% lower year to date than a year ago….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 9th time in 10 months, decreasing by $0.7 billion or 0.2 percent to $384.4 billion, after March inventories were revised from statistically unchanged to a 0.2% decrease…the 0.1% decrease in inventories of transportation equipment was not the major factor, however, as inventories of machinery fell $0.5 billion or 0.7 percent to $66.1 billion, leading inventories of nondefense capital goods excluding aircraft to a 0.3% decline…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the third time in four months, increasing by $6.3 billion or 0.6 percent to $1,137.0 billion, following a March report which was revised from a 0.1% decrease to unchanged…a $6.1 billion or 0.8% increase to $787.3 billion in unfilled orders for transportation equipment was responsible for most of the increase, as unfilled orders excluding transportation equipment barely rose 0.1% to $353,965 million….compared to a year ago, the unfilled order book for durable goods is still 1.7% below the level of last April, with unfilled orders for transportation equipment 2.2% below their year ago level, on a 6.8% decrease in the backlog of orders for motor vehicles.

New Home Sales Increase in April

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 usually aren’t very reliable on a monthly basis…however, the Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 619,000 new homes a year, which was 16.6 percent (±15.4%) above the revised estimated March rate of 531,000 new single family homes a year, and 23.8 percent (±22.8%) above the estimated annual rate that new homes were selling at in April of last year….the figures in parenthesis represent the 90% confidence range for the reported data in this release, which in this case are all positive for both month over month and year over year, suggesting that there really was a statistically significant increase in new homes sold for the month…in addition, this release indicated previously reported sales of new single family homes for March were revised from the annual rate of 512,000 reported last month to a 531,000 a year rate, while the annual rate of February’s sales were revised from the previously revised 519,000 annually to an annual rate of 538,000…a seasonally adjusted estimate of 243,000 new single family houses remained for sale at the end of April, which represents a 4.7 month supply at the April sales rate, down from the 5.8 month supply reported in March …for more details and graphs on this report, see the following 3 posts on it from Bill McBride at Calculated Risk: New Home Sales increased sharply to 619,000 Annual Rate in April, Comments on April New Home Sales, and New Home Prices….

(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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