4th quarter GDP revision; February’s income and outlays, housing starts and new home sales; January’s trade deficit

The key economic releases from the Bureau of Economic Analysis this week included what they are still calling “the 3rd estimate” of 4th quarter GDP, even though the 1st estimate was cancelled, and the February report on Personal Income and Spending, which only includes spending data from January, since that data is dependent on delayed Census reports…meanwhile, delayed reports that were released this week included International Trade for January from the Commerce Dept, and February’s New Residential Construction and February’s New Home Sales from the Census Bureau…

The week also saw the release of the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which fell to –0.29 in February from –0.25 in January, after January’s index was revised up from the –0.43 reported last month…as a result, the 3 month average of that index fell to -0.18 in February, from a neutral reading of zero in January, which indicates that national economic activity has been somewhat below the historical trend over recent months…in addition, the Case-Shiller Home Price Index for January from S&P Case-Shiller reported that home prices during November, December and January averaged 4.3% higher nationally than prices for the same homes that sold during the same 3 month period a year earlier, down from 4.6% year over year increase in December, revised from the 4.7% increase reported in the December report last month…

This week also saw the release of the last three regional Fed manufacturing surveys for March: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index fell to +8.3 from last month’s +13.1, still suggesting a ongoing expansion in the Texas energy centered economy, while 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 +10 in March, down from +16 in February, but up from -2 in January, also suggesting a continuing modest expansion in that region’s manufacturing, and the Kansas City Fed manufacturing survey for February, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to 10 in March, up from 1 in February and 5 in January, likewise indicating a modest expansion among 10th District manufacturers…

4th Quarter GDP Revised to Indicate Growth at a 2.2% Rate

The Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.2% rate in the 4th quarter, revised from the 2.6% growth rate indicated by the initial estimate reported last month, as personal consumption expenditures, fixed investment and growth of government were smaller than was previously estimated, while the negative impact of the trade deficit was less than was previously estimated….in current dollars, our fourth quarter GDP grew at a 4.06% annual rate, increasing from what would work out to be a $20,658.2 billion a year output rate in the 3rd quarter to a $20,865.1 billion annual rate in the 4th quarter, with the headline 2.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.7%, aka the GDP deflator, was applied to the current dollar change…that GDP deflator had previously been reported at 1.8%..

As we review the revision details below, remember that this release 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 the change that actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 4th quarter GDP, which is linked to on the BEA’s GDP landing page, where you can also find links to just the tables on Excel and other technical notes about this release…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 2014, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters and years, table 3, which shows both the current dollar value and the inflation adjusted value in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components….the pdf for the 4th quarter initial estimate, which this estimate revises, is here

Seasonally adjusted real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 2.5% annual rate in the 4th quarter, rather than the 2.8% growth rate reported last month, as growth of consumer spending in dollars at a 4.0% annual rate was deflated with the PCE price index, which indicated consumer inflation grew at a 1.5% annual rate in the 4th quarter, unrevised from the initial estimate….real consumption of durable goods grew at a 3.6% annual rate, revised from 5.9% in the second estimate, and added 0.25 percentage points to GDP, as real output of motor vehicles grew at a 9.0% annual rate and accounted for four-fifths of that durable goods growth….real consumption of nondurable goods by individuals rose at a 2.1% annual rate, revised from the 2.8% increase reported in the initial estimate, and added 0.29 percentage points to 4th quarter growth, as all categories of non-durables saw their output grow in the quarter….at the same time, real consumption of services grew at a 2.4% annual rate, unrevised from last month, and added 1.12 percentage points to the final GDP tally, as consumption of household services accounted for nearly two-thirds of the 4th quarter increase in services…

Meanwhile, real gross private domestic investment grew at a 3.7% annual rate in the 4th quarter, revised from the 4.6% growth estimate made last month, as the growth rate of real private fixed investment was revised from a 3.9% rate to a 3.1% rate, while real inventory growth was a bit less than was previously estimated…investment in non-residential structures was revised from shrinking at a 4.2% rate to shrinking at a 3.9% rate, while real investment in equipment was revised to show growth at a 6.6% rate, revised from the 6.7% growth rate previously reported…in addition, the 4th quarter’s investment in intellectual property was revised from growth at a 13.1% rate to growth at a 10.7% rate, while the contraction rate of residential investment was revised from 3.5% to 4.7% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.12 percentage points from the economy’s growth rate, increased investment in equipment added 0.39 percentage points, our investment in intellectual property added 0.46 percentage points, while the slowdown in residential investment subtracted 0.18  percentage points from the change in the growth rate of 4th quarter GDP…

At the same time, the inflation adjusted growth of real private inventories was revised from the previously reported $97.1 billion to show inventories had grown at an $96.8 billion rate, which came after inventories had grown at an inflation adjusted $89.8 billion rate in the 3rd quarter, and hence the $7.0 billion positive change in real inventory growth from the 3rd quarter to the 4th added 0.11 percentage points to the 4th quarter’s growth rate, revised from the 0.13 percentage point addition to GDP due to inventory growth reported in the initial estimate….however, since 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 $7.3 billion in turn means real final sales of GDP were actually smaller by that amount, and hence real final sales of GDP grew at a 2.1% rate in the 4th quarter, which was still up from the real final sales growth rate of 1.0% in the 3rd quarter, when the much greater increase in inventory growth meant that the quarter’s growth in real final sales was considerably lower…

The previously reported increase in real exports was revised a bit higher with this estimate, while the reported increase in real imports was revised a bit lower, and hence our net trade was a smaller subtraction from GDP than was previously reported…our real exports grew at a 1.8% rate, rather than at the 1.6% rate reported in the initial estimate, and since exports are added to GDP because they are part of our production that was not consumed in or added to investment in our country, their growth added 0.22 percentage points to the 4th quarter’s growth rate, revised from the 0.19 percentage point addition from exports shown last month….meanwhile, the previously reported 2.7% rate of increase in our real imports was revised to an 2.0% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their growth subtracted 0.30 percentage points from 4th quarter GDP, revised from the 0.41 percentage point subtraction shown last month….thus, our weaker trade balance subtracted a net of 0.8 percentage points from 4th quarter GDP, revised from the 0.22 percentage point GDP subtraction resulting from foreign trade that was indicated in the initial estimate..

Finally, there was a reversal in real government consumption and investment in this estimate, as the entire government sector is now seen to have shrunk at a 0.4% rate, revised from the 0.4% growth rate reported a month ago…real federal government consumption and investment was seen to have grown at a 1.1% rate in this estimate, down from the 1.6% growth rate shown in the initial estimate, as real federal outlays for defense grew at a 6.4% rate and added 0.24 percentage points to 4th quarter GDP, revised from the 6.9% growth rate shown previously, while growth in all other federal consumption and investment was revised from contracting at a 5.6% rate to a contraction at a 6.1% rate, which thus subtracted 0.16 percentage points from 4th quarter GDP…meanwhile, real state and local consumption and investment was revised from shrinking at a 0.3% rate in the first estimate to shrinking at a 1.3% rate in this estimate, as state and local investment spending shrunk at an 8.8% rate and subtracted 0.18 percentage points from 4th quarter GDP, while state and local consumption spending grew at a 0.4% rate and added 0.03 percentage points to GDP….note that government outlays for social insurance are not included in this government 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…. 

Personal Income up 0.2% in February, Personal Spending up 0.1% in January, PCE Price Index down 0.1%

Since our personal consumption expenditures account for nearly 70% of GDP, they are usually the key metric for determining the ultimate trajectory of GDP each quarter, and hence the key monthly release that inputs into GDP each quarter is the report on Personal Income and Outlays from the Bureau of Economic Analysis…however, with Census reports on retail sales and some services surveys still running behind schedule because of the January government shutdown, this month’s report includes Personal Income for February and Personal Outlays for January, instead of the usual report encompassing all February data…so while this report gives us monthly data on our personal consumption expenditures (PCE) and the monthly PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated, that data, as well as the monthly savings rate, is all for January, while only the monthly personal income data and disposable personal income are new for February…

Note that because this report feeds in to GDP and other national accounts data, the change reported for each of the metrics reported on is not the current monthly change; rather, the amounts are seasonally adjusted and at an annual rate; ie, it tells us what income and spending would be for a year if the month’s adjusted income and spending were extrapolated over an entire year….hence, when the opening line of the January summary for this report tell us “Personal income decreased $22.9 billion (-0.1 percent) in January“, that means that the annualized figure for all US personal income in January, $17,999.7 billion, was $22.9 billion, or a more than 0.1% less than the annualized personal income figure of $18,022.6 billion for December; the actual change in personal income from December to January is not given…similarly, annualized disposable personal income, which is income after taxes, fell by a bit more than 0.2%, from an annual rate of an annual rate of $15,948.3 billion in December to an annual rate of $15,913.4 billion in January…the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized…there, we see that the reason for the $22.9 billion annual rate of decrease in January personal income was a $107.0 billion drop in interest and dividend income, reversing December’s unusual gains; wages and salaries, meanwhile, saw a $30.2 billion increase…

In February, on the other hand, personal income increased at an annual rate of $42.0 billion, or by more than 0.2%, from an annualized $17,999.7 billion in January to an annualized $18,041.7 billion in February…at the same time, disposable personal income increased at a $31.3 billion annual rate, or by a bit less than 0.2%, from a $15,913.4 billion annual rate in January to a $15,944.7 billion annual rate in February…the major reason for the February increase in personal income was a $27.7 billion rate of increase in wages and salaries, while proprietor’s income also contributed, rising at a $11.8 billion rate..

For the January personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased by $8.6 billion, or by less than 0.1%, from a $14,157.4 billion annual rate in December to a $14,166.0 billion annual rate in January; at the same time, the December PCE figure was revised down from the originally reported $14,176.2 billion annually, a revision that was already incorporated into this week’s 4th quarter GDP estimate (this report, although usually released a business day later than the GDP release, is computed concurrently)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $6.3 billion to $14,725.1 billion annually in January, which left total personal savings, which is disposable personal income less total outlays, at a $1,188.3 billion annual rate in January, down from the revised $1,229.5 billion in annualized personal savings in December… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 7.5% in January from the December savings rate of 7.7%, which had been a three year high…

As you know, before January’s personal consumption expenditures are used in the 1st quarter GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is shown in Table 9 in the pdf for this report, which is a chained price index based on 2012  prices = 100….that PCE price index fell from 108.938 in December to 108.873 in January, giving us a month over month inflation rate of -0.05967%, which BEA rounds to a 0.1% decrease in reporting it in text and tables here….then, applying that -0.05967% inflation adjustment to the small increase in January PCE shows that real PCE rose by 0.12048% in January, which the BEA reports as a 0.1% increase…note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it gives us that month’s annualized real PCE in those same chained 2012 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to that of another….that result is shown in table 7 of the PDF, where we see that January’s chained dollar consumption total works out to 13,011.9 billion annually, 0.12% more than December’s 12,996.3 billion, statistically the same as the real PCE decrease we just computed..

However, to estimate the impact of the change in January PCE on the change in GDP, the change from December doesn’t help us much, since GDP is reported quarterly…thus we have to compare January’s real PCE to the the real PCE of the 3 months of the third quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 in this report, where we find that the annualized real PCE for the 4th quarter was represented by 13,032.3 billion in chained 2012 dollars..(ie, that’s the same as what’s shown in table 3 of the pdf for the 4th quarter GDP report)….when we compare January’s real PCE representation of 13,011.9 billion to the 4th quarter real PCE figure of 13,032.3 billion, we find that real PCE is shrinking at a 0.624% annual rate so far in the 1st quarter….that’s a rate that would mean that if January real PCE does not improve during February and March, growth in PCE would subtract 0.41 percentage points from the growth rate of 1st quarter GDP…

Trade Deficit Fell 14.6% in January, Led by Lower Imports of Capital Goods, Oil

Our trade deficit fell 14.6% in January, almost reversing the 18.8% increase in December, as the value of our exports increased and the value of our imports decreased…the Commerce Dept report on our international trade in goods and services for January indicated that our seasonally adjusted goods and services trade deficit rose by $8.8 billion to $51.1 billion in January, from a December deficit which was revised from $59.8 billion to $59.9 billion….the value of our January exports rose by a rounded $1.9 billion to $207.3 billion on a $1.8 billion increase to $137.4 billion in our exports of goods and an increase of $0.2 billion to $70.0 billion in our exports of services, while our imports fell by $6.8 billion to $258.5 billion on a $6.5 billion decrease to $210.7 billion in our imports of goods and a $0.3 billion decrease to $47.8 billion in our imports of services…export prices averaged 0.6% higher in January, so real exports were smaller than their nominal value by that percentage, while import prices were also 0.6% higher, meaning that the contraction in real imports was greater than the nominal decrease reported here by that percentage….

The increase in our January exports of goods was mostly due to higher exports of soybeans and of automotive vehicles, which were partially offset by a decrease in our exports of civilian aircraft…referencing the Full Release and Tables for January (pdf), in Exhibit 7, we find that our exports of foods, feeds and beverages rose by $1,253 million to $10,849 million on a $910 million increase in our exports of soybeans, and that our exports of automotive vehicles, parts and engines rose by $1,218 million to $13,529 million on a $726 million increase in our exports of passenger cars and a $299 million increase in our exports of trucks, buses, and special purpose vehicles…in addition, our exports of consumer goods increased by $669 million to $17,765 million on a $325 million increase in our exports of gem diamonds and a $283 million increase in our exports of jewelry…partially offsetting the increases in those end use categories, our exports of capital goods fell by $778 million to $45,922 million on a $1,277 million decrease in our exports of civilian aircraft and a $270 million decrease in our exports of industrial engines, partly offset by a $385 million increase in our exports of computer accessories and a $213 million increase in our exports of medicinal equipment…in addition, our exports of industrial supplies and materials fell by $299 million to $43,397 million on a $264 million decrease in our exports of organic chemicals and a $238 million decrease in our exports of fuel oil, and our exports of other goods not categorized by end use fell by $277 million to $5,382 million…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our January goods imports and shows that our imports in all end use categories decreased in January, led by lower imports of capital goods and of industrial supplies and materials…our imports of capital goods fell by $2,962 million to $57,017 million on a $946 million decrease in our imports of computer accessories, a $723 million decrease in our imports of semiconductors, a $704 million decrease in our imports of civilian aircraft, a $473 million decrease in our imports of telecommunications equipment, a $385 million decrease in our imports of generators and accessories, and a $299 million decrease in our imports of industrial machines other than those itemized separately, while at the same time our imports of drilling & oilfield equipment rose by $308 million, our imports of civilian aircraft parts rose by $307 million, and our imports of computers rose by $295 million…meanwhile, our imports our imports of industrial supplies and materials fell by $2,323 million to $43,756 million as the value of our imports of crude oil fell by $1,359 million, our imports of nonmonetary gold fell by $253 million, and our imports of other precious metals fell by $219 million, and our imports of consumer goods fell by $334 million to $55,160 million as a $667 million decrease in our imports of furniture and a million decrease in our imports of appliances were partially offset by a $494 million increase in our imports of cellphones and a $223 million increase in our imports of toys, games, and sporting goods…in addition, our imports of foods, feeds, and beverages fell by $318 million to $12,264 million on a $218 million decrease in our imports of fish and shellfish, our imports of automotive vehicles, parts and engines fell by $172 million to $31,936 million, and our imports of other goods not categorized by end use fell by $330 million to $8,851 million…

To gauge the impact of January trade on 1st quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2012  dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that the amounts are not annualized here….from that table, we can figure that 4th quarter real exports of goods averaged 148,107.7 million monthly in chained 2012 dollars, while inflation adjusted January goods exports were at 149,741 million in that same 2012 dollar quantity index representation… annualizing the change between the two figures, we find that January’s real exports of goods are thus running at a 4.48% annual rate above those of the 4th quarter, or at a pace that would add about 0.37 percentage points to 1st quarter GDP growth if continued through February and March…in a similar manner, we find that our 4th quarter real imports of goods averaged 235,498 million monthly in chained 2012 dollars, while inflation adjusted goods imports in January were at 233,558 million…that would indicate that so far in the 1st quarter, we have seen our real imports of goods decrease at a 3.25% annual rate from those of the 4th quarter…since an increase in imports would subtract from GDP because it would represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their decrease at a 3.25% rate would conversely add another 0.39 percentage points to 1st quarter GDP….hence, if our January trade in goods deficit is maintained at the same level throughout the 1st quarter, our improving balance of trade in goods would add about 0.76 percentage points to the growth of our 1st quarter GDP….note, however, that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don’t have easy access to the details on all their price changes… 

Housing Starts, Permits Reported Lower in February

The February report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in February was at a seasonally adjusted annual rate of 1,162,000, which was 8.7 percent (±10.3 percent)* below the revised estimated January annual rate of 1,273,000, and was 9.9 percent (±11.5 percent)* below last February’s rate of 1,290,000 housing starts a year…the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell during the month or even over the past year, with the figures in parenthesis the most likely range of the change indicated; in other words, February housing starts could have been up by 1.6% or down by as much as 19.0% from those of January, with revisions of a greater magnitude in either direction still possible…in this report, the annual rate for January housing starts was revised from the 1,230,000 reported earlier this month to 1,273,000, while December starts, which were first reported at a 1,078,000 annual rate, were revised from last month’s initial revised figure of 1,037,000 annually to a 1,140,000 annual rate with this report….

these annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 81.300 housing units were started in February, down from the 85,100 units that were started in January but up from the 76,000 units that were started in December…of those housing units started in February, an estimated 55,700 were single family homes and 25,200 were units in structures with more than 5 units, down from the revised 63,700 single family starts in January but up from the 20,100 units started in structures with more than 5 units in January…

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in February, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,296,000, which was 1.6 percent (±1.2 percent) below the revised January annual rate of 1,317,000 permits, and was 2.0 percent (±1.7 percent) below the rate of building permit issuance in February a year earlier…the annual rate for housing permits issued in January was revised down from the originally reported 1,345,000….again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 90,200 housing units were issued in February, down from the revised estimate of 94,400 new permits issued in January, with single family permits down from 58,100 to 57,700 and permits for units in structures of more than 5 units down from 33,300 to 30,000….for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts Decreased to 1.162 Million Annual Rate in February and Comments on February Housing Starts

February New Home Sales Reported Higher

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 667,000 homes annually during the month, which was 4.9 percent (±14.4 percent)* above the revised January annual sales rate of 636,000, and 0.6 percent (±13.1 percent)* above the estimated annual rate that new homes were selling at in February of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether February new home sales rose or fell from those of January, or even from February sales of a year ago, with the figures in parenthesis representing the 90% confidence range for the 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 of new single family homes in January were revised from the annual rate of 607,000 reported last month to an annual rate of 636,000, and new home sales in December, initially reported at an annual rate of 621,000 and revised to a 652,000 rate earlier this month, were revised down to a 588,000 a year rate with this report, while November’s annualized new home sales rate, initially reported at an annual rate of 657,000 and revised from a 599,000 rate to a 628,000 annual rate two weeks ago, were revised back down to a 612,000 annual 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 56,000 new single family homes sold in February, up from the estimated 49,000 new homes that sold in January and up from the 41,000 that sold in December, and up from the 54,000 that sold in February a year ago…the raw estimates from Census field agents further indicated that the median sales price of new houses sold in February was $315,300, up from the median sale price of $303,900 in January but down from the median sales price of $ 327,200 in February a year ago, while the average February new home sales price was $379,600, up from the $358,000 average sales price in January, and up from the average sales price of $373,600 in February a year ago….a seasonally adjusted estimate of 340,000 new single family houses remained for sale at the end of February, which represents a 6.1 month supply at the February sales rate, down from the revised 6.5 months months of new home supply in January…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increased to 667,000 Annual Rate in February and A few Comments on February New 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 picked from the aforementioned GGO posts, contact me…)      

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