3rd estimate 4th quarter GDP; February’s income and outlays, durable goods, & new home sales

The key economic reports released the past week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis; other widely watched releases included  the advance report on durable goods for February and the February report on new home sales, both from the Census bureau…we also had the release of the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, rose to which rose to +0.16 in February from –0.33 in January, which was revised from the -0.25 reported for January last month…however, the 3 month average of the CFNAI decreased to –0.21 in February from a revised –0.11 in January, which indicates that national economic activity has been below the historical trend over recent months…

This week also saw the release of two more regional Fed manufacturing surveys for March: 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 +2 in March from -2 in February, still a near zero reading, suggesting a stagnation in that region’s manufacturing, and the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to -17 in March, the lowest reading since April 2009, down from 5 in February and from -1 in January, suggesting the onset of a sharper contraction in that region’s manufacturing…

4th Quarter GDP Grew at a 2.1% Rate, Unchanged from Second Estimate

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 2.1% rate in the quarter, statistically unchanged from the 2.1% growth rate reported in the second estimate last month, as personal consumption expenditures were a bit greater than was previously estimated, while subtractions from investment were a bit more and additions to GDP from trade and defense spending were a bit less than was previously estimated….in current dollars, our fourth quarter GDP grew at a 3.5% annual rate, increasing from what would work out to be a $21,542.5 billion a year output rate in the 3rd quarter to a $21,729.1 billion annual rate in the 4th quarter, with the headline 2.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.3%, known in aggregate as the GDP deflator, was computed and applied to the current dollar change of each of the GDP components…

Remember that the GDP 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 of that what 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 can be accessed directly on the BEA’s GDP landing page, which also offers links to just the tables on Excel and other technical notes…specifically, we reference table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2016; 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; and table 4, which shows the change in the price indexes for each of the components…the pdf for the 4th quarter second estimate, which this estimate revises, is here

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from a growth rate of 1.7% to an overall 1.8% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 3.2% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 1.4% annual rate in the 4th quarter, which was revised from the 1.3% PCE inflation rate reported a month ago…real consumption of durable goods grew at a 2.8% annual rate, which was revised from the 2.6% growth rate shown in the 2nd estimate, and added 0.20 percentage points to GDP, as real consumption of motor vehicles and parts grew at a 5.4% rate and accounted for over 60% of the durable goods increase….however, real consumption of nondurable goods by individuals shrunk at a 0.6% annual rate, revised from the 0.3% contraction rate reported in the 2nd estimate, and subtracted 0.08 percentage points from the 4th quarter’s economic growth rate, as a 1.2% contraction in real consumption of food and beverages and a 2.1% contraction in real consumption of gasoline and other energy goods accounted for most of the shrinkage in non-durables….at the same time, consumption of services grew at a 2.4% annual rate, revised from the 2.2% growth rate reported last month, and added 1.12 percentage points to the final GDP tally, as real consumption of health care services grew at a 4.9% rate and accounted for more than half of the quarter’s growth in services…

Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 6.0% annual rate in the 4th quarter, unrevised from the contraction estimate reported last month, as real private fixed investment shrunk at a 0.6% rate, revised from the 0.5% contraction rate reported in the 2nd estimate, while inventory growth was bit greater than previously estimated…investment in non-residential structures was revised to show contraction at a 7.2% rate, not as deep as the 8.1% contraction rate previously reported, and real investment in equipment contracted at 4.3% rate, revised from the 4.4% contraction rate shown a month ago…meanwhile the quarter’s investment in intellectual property products was revised from growth at a 4.0% rate to growth at a 2.8% rate, while at the same time real residential investment was shown to be growing at a 6.5% annual rate, revised from 6.2% in the previous report….after those revisions, the decrease in investment in non-residential structures subtracted 0.21 percentage points from the 3rd quarter’s growth rate and the decrease in investment in equipment subtracted 0.25 percentage points from the quarter’s growth rate, while growth in investment in intellectual property added 0.13 percentage points to the growth rate of 4th quarter GDP and growth in residential investment added 0.24 percentage points to the growth rate of 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….

At the same time, growth of real private inventories was revised from the previously reported $13.1 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $13.0 billion rate….that came after inventories had grown at an inflation adjusted $69.4 billion rate in the 3rd quarter, and hence the (rounded) $56.4 billion negative change in real inventory growth from the 3rd to the 4th quarter subtracted 0.98 percentage points from the 4th quarter’s growth rate, same as the subtraction from GDP due to the slower inventory growth reported in the second  estimate….however, since a smaller growth of inventories indicates that less of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their decrease at a $56.4 billion rate conversely meant that real final sales of GDP were actually greater by that much, and hence real final sales of GDP grew at a 3.1% rate in the 4th quarter, same as was shown in the second estimate, in contrast to the real final sales growth rate of 2.1% in the 3rd quarter, when the lack of inventory growth meant that the quarter’s growth in real final sales was the same as that of the quarter’s GDP…..

The previously reported increase in real exports was revised a bit higher with this estimate, while the previously reported decrease in real imports was revised lower, and on net the change in our net trade was a slightly smaller addition to GDP rather than was previously reported…our real exports grew at a 2.1% rate rather than the 2.0% 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, that growth added 0.24 percentage points to the 4th quarter’s growth rate, statistically unrevised from the addition shown in the previous report….meanwhile, the previously reported 8.6% contraction in our real imports was revised to a 8.4% contraction, and since imports are subtracted from GDP because they represent either consumption or investment added to an other GDP component that was not produced here, their decrease conversely added 1.27 percentage points to 4th quarter GDP, rather than the 1.29 percentage point addition shown last month….thus, our improving trade balance added a net of 1.51 percentage points to 4th quarter GDP, rather than the rounded 1.53 percentage point addition that had been indicated by the second estimate..

Finally, there was also a downward revision to real government consumption and investment in this 3rd estimate, as the real growth rate for the entire government sector was revised from growth at a 2.6% rate to growth at a 2.5% rate…real federal government consumption and investment was seen to have grown at a 3.4% rate in this estimate, down from the 3.8% growth rate shown in the second estimate, as real federal outlays for defense grew at a 4.4% rate and added 0.17 percentage points to 4th quarter GDP, revised from the 5.3% growth rate shown previously, while all other federal consumption and investment was revised from a 1.7% growth rate to growth at a 1.9% rate, which added 0.05 percentage points to 4th quarter GDP….meanwhile, real state and local consumption and investment was revised from growth at a 1.9% rate in the second estimate to growth at a 2.0% rate in this estimate, as state and local investment spending grew at a 5.4% rate and added 0.11 percentage points to 4th quarter GDP, while state and local consumption spending grew at a 1.2% rate and also added 0.11 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 0.6% in February, Personal Spending up 0.2%, PCE Price Index up 0.1%

The February report on Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 1st quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and the PCE price index, the inflation gauge the Fed targets, and 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….this report also provides us with the nation’s personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics are not the current monthly change; rather, they’re seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase in a year if February’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from January to February…

Hence, when the opening line of the press release for this report tell us “Personal income increased $106.8 billion (0.6 percent) in February“, that means that the annualized figure for US personal income in February, $19,095.1 billion, was $106.8 billion, or somewhat less than 0.6% greater than the annualized personal income figure of $18,988.3 billion for January; the actual change in personal income from January to February is not given…similarly, annualized disposable personal income, which is income after taxes, rose by a bit more than 0.5%, from an annual rate of an annual rate of $16,765.1 billion in January to an annual rate of $16,853.8 billion in February…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…in February, the largest contributors to the $106.8 billion annual rate of increase in personal income were a $49.5 billion annualized increase in wages and salaries and a $47.4 billion annualized increase in business & farm proprietors’ income…

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased at a $27.7 billion annual rate, or by a tad less than 0.2 percent, as the annual rate of PCE rose from $14,881.2 billion in January to $14,908.8 in February, after the January PCE figure was revised up from the originally reported $14,870.7 billion annually…the current dollar increase in February spending resulted from a $41.0 billion annualized increase to $10,344.1 billion in annualized in spending for services, which was partially offset by a $13.3 billion decrease to $4,564.8 billion in spending for goods, a decrease which was evident in last week’s February retail sales report….total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $28.4 billion to $15,469.3 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,384.5 billion annual rate in February, up from the revised $1,324.3 billion in annualized personal savings in January… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to an 11 month high of 8.2% in February from January’s savings rate of 7.9%… 

Before personal consumption expenditures can be 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…the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report….that PCE price index rose from 110.685 in January to 110.784 in February, a month over month inflation rate that’s statistically 0.08944%, which BEA reports as an increase of 0.1 percent, following a PCE price index increase of 0.1% that was reported for January…then, applying that 0.0894% inflation adjustment to the increase in February PCE shows that real PCE rose by 0.09594% in February, which the BEA also reports as a 0.1% increase……notice 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 February’s chained dollar consumption total works out to 13,458.2 billion annually, 0.974% more than January’s 13,445.1 billion, statistically the same as the real PCE increase we just computed..

Finally, to estimate the impact of the change in PCE on the change in GDP, we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter….while this report shows PCE for all those months on a monthly basis, the BEA also provides the annualized chained dollar PCE on a quarterly basis in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3 months of the 4th quarter was represented by 13,413.8 billion in chained 2012 dollars…(note that’s the same figure shown in table 3 of the pdf for the 4th quarter GDP report)….then, by averaging the annualized chained 2012 dollar PCE figures for January and February, 13,445.1 billion and 13,458.2 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have the data for so far….when we compare that average of 13,451.6 to the 4th quarter chained dollar PCE of 13,413.8, we find that 1st quarter real PCE has grown at a 1.334% annual rate for the two months of the 1st quarter included in this report (note the math to get that annual rate: (((13,445.1 + 13,458.2 ) / 2 ) / 13,413.8 ) ^ 4 = 1.006096…that growth rate means that if March real PCE does not improve from the average of January and February, which now seems likely, growth in PCE would add just 0.93 percentage points to the growth rate of the 1st quarter…

February Durable Goods: New Orders Up 1.2%, Shipments Up 0.0%, Inventories Flat

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $2.9 billion or 1.2 percent to $249.4 billion in February, after January’s new orders were revised from the $246.2 billion reported last month to $246.54 billion, now a 0.1% increase from December’s new orders…however, year to date new orders are only up by 0.4% from those of 2019…the volatile monthly new orders for transportation equipment were responsible for February’s increase, as new transportation equipment orders rose $3.8 billion or 4.6 percent to $87.0 billion, despite a 14.9% decrease to $3,812 million in new orders for defense aircraft….excluding orders for transportation equipment, new orders fell 0.6%, while excluding just new orders for defense equipment, new orders rose 0.1%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were fairly weak, falling by $553 million or 0.8% to $68,775 million…

Over the same period, the seasonally adjusted value of February’s shipments of durable goods, which will ultimately be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, rose for the first time in eight months, increasing by $2.1 billion or 0.8 percent to $252.3 billion, after the value of January shipments was revised from $250.1 billion to $250.2 billion, now down 0.1% from December….higher shipments of transportation equipment were also responsible for the February shipments increase, as they increased by $2.4 billion or 2.9 percent to $85.0 billion…meanwhile, shipments of nondefense capital goods less aircraft fell 0.7% to $68,922 million, after January’s capital goods shipments were revised 0.3% lower…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $0.1 billion to $434.9 billion, an increase which is considered statistically unchanged, after January inventories were revised from $435.4 billion to $434.768 billion, now down 0.1% from December….inventories of transportation equipment rose $0.6 billion or 0.4 percent to $151.7 billion, while inventories of computers and electronic products fell $0.3 billion or 0.7% to $43.38 billion…

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but very volatile new orders, rose for the fourth time in five months, increasing by $1.4 billion or 0.1 percent to $1,158.6 billion, following a statistically insignificant January increase to $1,157.28 billion, which was revised from the previously reported $1,157.0 billion….a $1.9 billion or 0.2 percent increase to $791.3 billion in unfilled orders for transportation equipment was responsible for the increase, while unfilled orders excluding transportation equipment orders were down 0.2% to $367,363 million…the unfilled order book for durable goods is now 0.6% below the level of last February, with unfilled orders for transportation equipment 2.0% below their year ago level, mostly due to a 4.7% decrease in the backlog of orders for commercial aircraft and parts…

February New Home Sales Reported Lower

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 765,000 homes annually during the month, which was 4.4 percent (±14.8 percent)* below the revised January annual sales rate of 800,000 new home sales, but 14.3 percent (±17.5 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 the February sales rate 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 764,000 reported last month to an annual rate of 800,000, and new home sales in December, initially reported at an annual rate of 694,000 and revised up to a 708,000 rate last month, were revised up to a 724,000 a year rate with this report, while November’s annualized new home sales rate, initially reported at an annual rate of 719,000 and revised from a 697,000 rate to a 692,000 a year rate last month, were revised back up to a 700,000 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 68,000 new single family homes sold in February, up from the estimated 62,000 new homes that sold in January and up from the 49,000 that sold in December, and up from 57,000 in February a year ago…the raw numbers from Census field agents further estimated that the median sales price of new houses sold in February was $345,900, up from the median sale price of $325,300 in January and up from the median sales price of $320,800 in February a year ago, while the average February new home sales price was $403,800, up from the $384,000 average sales price in January, and up from the average sales price of $383,600 in February a year ago….a seasonally adjusted estimate of 319,000 new single family houses remained for sale at the end of February, which represents a 5.0 month supply at the February sales rate, up from the revised 4.8 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 at 765,000 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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