4th quarter GDP; December durable goods, new home sales, existing home sales

the key economic release of the past week was the 1st estimate of 4th quarter GDP from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for December and the December report on new home sales, both from the Census bureau, and the Existing Home Sales Report for December from the National Association of Realtors (NAR)…we also saw the release of the Chicago Fed National Activity Index (CFNAI) for December, a weighted composite index of 85 different economic metrics, which rose to +0.14 in December, up from –0.33 in November, which was revised from the -0.27 reported last month….that brought the 3 month average of the index to -0.07 in December, up from a revised  -0.21 in November, which still indicates that national economic activity has been slightly below the historical trend over the 4th quarter…in addition, the BLS also released the Regional and State Employment and Unemployment for December on Friday, which breaks down the establishment survey and household survey data from the monthly jobs report released three weeks earlier by region and by state..

  this week also saw the release of two more regional Fed manufacturing surveys for January: 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 rose to +12 in January from +8 in December, suggesting an ongoing expansion in that region’s manufacturing, and the Kansas City Fed manufacturing survey for January, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index remained unchanged at +9 in January, also indicating an ongoing expansion in that region’s manufacturing…

4th Quarter GDP Up at 1.9% Rate as Trade Deficit Cuts Growth Nearly in Half

the Advance Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 1.9% annual rate over the output of the 3rd quarter of 2016, when our real output grew at a 3.5% real rate, as our ballooning trade deficit subtracted 1.7 percentage points from 4th quarter growth…for the entire year, our economy grew at an anemic 1.6% rate, a full percent slower than the 2.6% growth we saw in 2015…in current dollars, our fourth quarter GDP grew at a 4.0% annual rate, increasing from what would work out to be a $18,675.3 billion a year output rate in the 3rd quarter to a $18,860.8 billion annual rate in the 4th quarter, with the headline 1.9% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, 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 December construction and inventory data have yet to be reported, and that the BEA assumed a small increase in nonresidential construction, a small decrease in residential construction, and a large increase in nondurable manufacturing inventories for December before they estimated 4th quarter output..

while we cover the details on the 4th quarter below, 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 that 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 calculate all percentage changes in this report from those 2009 dollar figures, which we think would be better thought of as representing quantity indexes…given the misunderstanding evoked by the press release, all the data that we’ll use in reporting here comes from the pdf for the advance estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA’s press release, where there are also links to just the tables on Excel and other technical notes…specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 4th quarter of 2012, table 2, which shows the contribution of each of the components to the GDP figures for those quarters 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 GDP 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 4.7% rate in current dollars in the 4th quarter, which became a 2.5% real growth rate of consumed goods and services for GDP purposes after an annualized PCE price index increase of 2.2% was used to adjust that consumer spending for inflation….consumer outlays for durable goods rose at a 7.9% rate while prices for those durable goods fell at a 4.1% rate, and thus the BEA found real growth in output of consumer durables rose at a 10.9% rate, as real consumption of recreational goods and vehicles grew at a 16.2% rate while real consumption of automobiles, furniture and other durable goods all increased as well…the BEA also found that real output of consumer non-durable goods grew at a 2.3% rate, after consumer spending for non-durables at a 7.1% rate was adjusted for non-durable goods prices that rose at a 4.7% rate, as growth in real consumption of food and other non-durable goods more than offset lower consumption of gasoline and other energy goods….meanwhile, the 3.5% nominal growth in consumer outlays for services was deflated by a 2.2% increase in prices for personal services to show real output of consumer services grew at a 1.3% annual rate, as a 2.0% decrease in the real growth rate for outlays for housing and utilities partially offset increased growth in all other services…as a result of these changes in growth from the 3rd to the 4th quarter, the increase in real outlays for durable goods added 0.79 percentage points to the GDP growth rate, increased consumption of non-durable goods added 0.32 percentage points, and increased consumption of services added 0.58 percentage points to the growth rate of the economy in the 4th quarter..

the change in other components of the change in GDP is computed by the BEA in the same manner that we have just shown for computing PCE; ie, the actual annualized increase in current dollar spending for the quarter is adjusted with an annualized 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 shrunk in the first two quarters of 2016 and grew at a modest 3.0% annual rate in the 3rd quarter, grew at a 10.7% annual rate from those levels in the 4th quarter…real growth in fixed investments grew at a 4.2% annual rate in the 4th quarter, after growing at a 0.1% rate in the 3rd quarter…among those fixed investments, real non-residential fixed investment grew at a 2.4% rate even though real investment in non-residential structures contracted at a 5.0% rate and subtracted 0.14 percentage points from 4th quarter GDP, as real investment in equipment grew at a 3.1% rate and added 0.18 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 6.4% rate and added 0.26 percentage points to GDP, while real residential investment grew at 10.2% rate and added 0.37 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

meanwhile, real private inventories grew by an inflation adjusted $48.7 billion in the 4th quarter, after growing at an inflation adjusted $7.1 billion in the 3rd quarter and as a result the $41.6 billion positive change in real inventory growth added 1.00 percentage points to the 4th quarter’s growth rate, after $16.5 billion in real inventory growth in the 3rd quarter had added 0.49% to that quarter’s GDP….however, since greater growth in inventories indicates that more of the goods produced during the quarter were left in storage or “sitting on the shelf”, their increase by $41.6 billion in turn means real final sales of GDP were actually smaller by that amount, and hence real final sales of GDP only rose at a 0.9% rate in the 4th quarter, down from the real final sales growth rate of 3.0% in the 3rd quarter, when the smaller increase in inventory growth meant growth in real final sales was reduced by less…

after an adjustment for a 2.2% growth rate in export prices and a 1.6% growth rate in import prices, our real exports of goods and services fell at a 4.3% rate in the third quarter, partially reversing their 10.0% 3rd quarter growth rate, as our exports of goods decreased at a 6.9% rate, while our real imports grew at a 8.3% rate in the 4th quarter after rising at a 2.2% rate in the 3rd quarter….as you’ll recall, 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 elsewhere in this GDP calculation), while 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….thus the 4th quarter decrease in real exports subtracted 0.53 percentage points from 4th quarter GDP, while the higher 4th quarter imports subtracted 1.17 percentage points from 3rd quarter GDP, and thus our deteriorating trade balance subtracted a total of 1.70 percentage points from our 4th quarter GDP, after our improved trade deficit had added 0.85 percentage points in the third quarter..

finally, real consumption and investment by government increased at a 1.2% annual rate in the 4th quarter, after growing at a 0.8% rate in the 3rd quarter, as federal government consumption and investment shrunk at a 1.2% rate, while state and local consumption and investment grew at a 2.6% rate….inflation adjusted federal spending for defense contracted at a 3.6% rate and subtracted 0.14 percentage points from 4th quarter GDP growth, while real non-defense federal consumption and investment rose at a 2.3% rate and added 0.06 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 grew at a 2.6% annual rate and added 0.28 percentage points to the growth of 4th quarter GDP, as real growth in state and local consumption expenditures added 0.02 percentage points while real state and local investment grew at a 14.8% annual rate and added 0.26 percentage points…

we’ll again include our FRED GDP graph, so you can get a picture of how these GDP components all come together…in our FRED bar graph below, each color coded bar shows the real 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 (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…it’s clear that the drop in exports and the surge in imports were the major negatives in the 4th quarter, and that with increases in investment and inventories, the 4th quarter could have topped the third had our trade deficit merely remained flat..

4th quarter 2016 advance GDP

December Durable Goods: New Orders Down 0.4%, Shipments Up 1.2%, Inventories Unchanged

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $1.0 billion or 0.4 percent to $227.0 billion in December, after November’s new orders were revised from the  $227.0 billion reported last month to $228.0 billion, now 4.8% less than October’s new orders…for the year, 2016 new orders were 0.3% below those of 2015, identical to the year over year change we saw in this report last month….the volatile monthly new orders for transportation equipment were responsible for the drop, as new transportation equipment orders fell $1.7 billion or 2.2 percent to $73.7 billion, on a 63.9% decrease to $2,745 million in new orders for defense aircraft….excluding orders for transportation equipment, new orders rose 0.5%, while excluding just new orders for defense equipment, new orders rose 1.7%…. at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $521 million or 0.8% to $64,493 million…

meanwhile, the seasonally adjusted value of December shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $3.3 billion or 1.2 percent to $238.0 billion, after the value of November shipments was revised from from $234.2 billion to $234.75 billion, now up 0.3% from October…shipments of transportation equipment were up $2.0 billion or 2.5 percent to $82.3 billion on a 2.3% increase in shipments of motor vehicles and a 6.7% increase in shipments of commercial aircraft….at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 5th time in the past 6 months, but only increased by $2 million to $384.351 billion, after November inventories were revised from $384.0 billion to $384.349 billion, statistically unchanged from October….a $0.4 billion or 0.5 percent increase to $66.4 billion in inventories of machinery was the largest inventory increase, while a $0.5 billion or 0.4 percent decrease to $123.5 billion in inventories of transportation equipment was the largest decrease…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the sixth time in 7 months, falling by $7.2 billion or 0.6 percent to $1,119.4 billion, following a November decrease of 0.3%, which was revised from the previously reported 0.2% decrease…a $8.6 billion or 1.1 percent drop to $759.8 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders were up $1,485 million or 0.4% to $359,523 million…compared to the end of 2015, the unfilled order book for durable goods is 1.7% below the level of last December, with unfilled orders for transportation equipment now 3.4% below their year ago level, mostly on a 6.9% decrease in the backlog of orders for motor vehicles…   

December New Home Sales Reported Lower

the Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 536,000 homes annually, which was 10.4 percent (±12.2%)* below the revised November annual rate of 598,000 new single family home sales and 0.4 percent (±11.7%)* below the estimated annual rate that new homes were selling at in December of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, or even from December sales of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….with this report; sales new single family homes in November were revised from the annual rate of 592,000 reported last month to an annual rate of 598,000, while home sales in October, initially reported at an annual rate of 563,000 and unrevised last month, were revised to a 571,000 a year rate with this report, and while September’s annualized home sale rate, initially reported at an annual rate of 593,000 and revised from the initially revised 574,000 a year rate to a 571,000 a year rate last month, were further revised down to a 568,000 rate with this release…

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 38,000 new single family homes sold in December, down from the estimated 42,000 new homes that sold in November and the 46,000 that sold in October…..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $322,500, up from the median sale price of $309,200 in November and up from the median sales price of $299,000 in December a year ago, while the average December new home sales price was $384,000, up from the $365,200 average sales price in November, and up from the average sales price of $358,100 in December a year ago….a seasonally adjusted estimate of 259,000 new single family houses remained for sale at the end of December, which represents a 5.8 month supply at the December sales rate, up from the reported 5.1 months of new home supply in November…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 536,000 Annual Rate in December and A few Comments on December New Home Sales… 

December Existing Home Down 2.8% After November Sales Revised Up

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell by 2.8% from November to December, projecting that 5.49 million existing homes would sell over an entire year if the December home sales pace were extrapolated over that year, a pace that was just 0.7% above the annual sales rate projected in December of a year ago…November sales are now shown at a 5.65 million annual rate, revised up from the 5.61 million annual rate indicated by last month’s report, and total existing home sales for 2016 added up to 5.45 million…the NAR also reported that the median sales price for all existing-home types was $232,200 in December, down from $234,400 in November, but 4.0% higher than in December a year earlier, which they report as “the 58th consecutive month of year-over-year gains”…..the NAR press release, which is titled “Existing-Home Sales Slide in December; 2016 Sales Best Since 2006“, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf) to see what actually transpired during the month…this unadjusted data indicates that roughly 437,000 homes sold in December, up by 4.5% from the 418,000 homes that sold in November, and up by only 0.2% from the 438,000 homes that sold in December of last year, so we can see that it was a seasonal adjustment that caused the annualized published figures to show a month over month decrease….that same pdf indicates that the median home selling price for all housing types fell 0.9%, from a revised $234,400 in November to $232,200 in December, while the average home sales price was $274,000, down 0.9% from the $276,600 average sales price in November, but up 3.0% from the $266,100 average home sales price of December a year ago…for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: “Existing-Home Sales Slide in December; 2016 Sales Best Since 2006” and A Few Comments on December Existing Home Sales


(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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