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

The key reports released this week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis….in addition, the week also saw the advance report on durable goods for February and the February report on new home sales, both from the Census bureau, and the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which rose to +0.05 in February from –0.54 in January.…despite that February increase, the more widely watched 3 month average of the CFNAI decreased to –0.18 in February from –0.11 in January, which indicates that national economic activity has been below the historical trend over recent months, as would any negative reading…

this week also saw the last three 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 fell from −5 in February to −11 in March, indicating that a larger plurality of that region’s manufactures saw deteriorating conditions than a month earlier….meanwhile, the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index came in at -7 in March, down from -4 in February, but up slightly from -9 in January, but also indicating that a larger plurality of that region’s manufactures saw deteriorating conditions than a month earlier……at the same time, the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas and adjacent counties in northwest Louisiana and southeast New Mexico, reported their general business activity composite index fell to -14.4 from last month’s –11.3, thus also indicating a more widespread deterioration of the Texas area economy than in February…

the week’s major private release was the widely watched Case-Shiller Home Price Index for January from S&P Case-Shiller, which indicated that home prices during November, December and January averaged 6.0% higher nationally than prices for the same homes that sold during the same 3 month period a year earlier, which was up from the 5.5% year over year increase that was reported a month ago for the months of October, November and December…note that Case-Shiller seasonally adjusts its indices, so the monthly change in the index doesn’t necessarily represent the actual monthly change in prices for homes..

4th Quarter GDP Grew at a 3.4% Rate, Revised from 3.2%, as PCE Services and Fixed investment were Revised Higher

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 3.4% rate in the quarter, revised from the 3.2% growth rate reported in the second estimate last month, as upward revisions to personal consumption expenditures for services and to fixed investment more than offset downward revisions to inventories and exports…in current dollars, our fourth quarter GDP grew at a 5.12% annual rate, increasing from what would work out to be a $27,610.1 billion a year rate in the 3rd quarter to a $27,957.0 annual rate in the 4th quarter, with the headline 3.4% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 1.6%, known in aggregate as the GDP deflator, were computed from the price changes of each of the GDP components and applied to their current dollar change…

Remember that the GDP press 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 2017, and then that all percentage changes in this report are calculated from those 2017 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 includes links to the tables on Excel and other technical notes about this release…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 2020; 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 3.0% to an overall 3.3% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating components of the 5.12% growth rate in the dollar amount of consumer spending with components of the PCE price index, which indicated inflation of goods and services bought by individuals increased at a 1.8% annual rate in the 4th quarter, which was unrevised from the PCE inflation rate reported a month ago….

Real consumption of durable goods grew at a 3.2% annual rate, statistically unrevised from growth rate shown in the advance report, and added 0.25 percentage points to GDP, as real consumption of recreational goods and vehicles grew at an 7.5% rate and accounted for more than 80% of the durable goods growth, and also offset a small decrease in real consumption of automobiles….at the same time, real consumption of nondurable goods by individuals grew at a 2.9% annual rate, revised from the 3.3% growth rate reported in the 2nd estimate, and added 0.41 percentage points to the 4th quarter’s economic growth rate, as growth in real consumption of groceries, clothing and footwear, and other non-durable goods contributed, offsetting a small decrease in real consumption of gasoline…..meanwhile, consumption of services grew at a 3.4% annual rate, revised from the 2.8% growth rate reported last month, and added 1.55 percentage points to the final GDP tally, as real health care services grew at a 7.8% rate and accounted for more than half of the 4th quarter services growth…

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 0.7% annual rate in the 4th quarter, revised down from the 0.9% growth estimate reported last month, as real private fixed investment grew at a 3.5% rate, revised up from the 2.5% growth rate reported in the second estimate, but inventory growth shrunk more than was previously estimated… Real investment in non-residential structures are now shown to have grown at a 10.9% rate, revised up from the 7.5% growth rate previously reported, while real investment in equipment shrunk at 1.1% rate, revised up from the 1.7% contraction rate shown a month ago…meanwhile, the quarter’s investment in intellectual property products was revised up from a 3.3% growth rate to a 3.4% rate, while at the same time real residential investment was shown to be growing at a 2.8% annual rate, down a bit from the 2.9% growth rate shown in the previous report….after those revisions, the increase in investment in non-residential structures added 0.32 percentage points to the 4th quarter’s growth rate, while the decrease in investment in equipment subtracted 0.05 percentage points from the quarter’s growth rate, and growth in investment in intellectual property added 0.23 percentage points to the growth rate of 4th quarter GDP, while the increase in residential investment added 0.11 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 in real private inventories was revised from the previously reported $66.3 billion in inflation adjusted growth to show that inventories grew at an inflation adjusted $54.9 billion rate…since that came after inventories had grown at an inflation adjusted $77.8 billion rate in the 3rd quarter, the change in real inventory growth from the 3rd to the 4th quarter was revised from a rounded $11.4 billion negative change to a $22.9 billion negative change, and hence subtracted 0.47 percentage points from the 4th quarter’s growth rate, revised from the 0.27 percentage point subtraction from GDP due inventory growth shrinkage reported in the second estimate…. however, since lower 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 $22.9 billion rate indicates that real final sales of GDP were actually greater by that amount, and hence real final sales of GDP grew at a 3.9% rate in the 4th quarter, revised from the real final sales 3.5% growth rate shown in the second estimate, and above the real final sales growth rate of 3.6% in the 3rd quarter, when higher inventory growth was a major factor the quarter’s overall 4.9% GDP growth rate…

The previously reported increase in real exports was revised lower with this estimate, while the previously reported increase in real imports was revised lower by somewhat less, and as a result our net trade improvement was a smaller addition to GDP growth than previously reported…our real exports grew at a 5.1% rate, revised from the 6.4% rate reported in the second 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 and hence not captured by another GDP metric, that increase in 4th quarter exports added 0.55 percentage points to the 4th quarter’s GDP growth rate, revised from the 0.69 percentage point addition to GDP due to higher exports shown in the 2nd estimate….meanwhile, the previously reported 2.7% increase in our real imports was revised to a 2.2% increase, and since imports are subtracted 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 domestically, their increase subtracted 0.30 percentage points from 4th quarter GDP, revised from the 0.37 percentage point subtraction shown last month… thus, our improving trade imbalance added a net 0.25 percentage points to 4th quarter GDP, revised from the 0.32 percentage point addition that had been indicated by the second estimate..

Finally, there were also upward revisions to government consumption and investment in this 3rd estimate, as the overall government sector grew at a 4.6% rate, revised from the 4.2% growth rate show a month ago….real federal government consumption and investment was seen to have grown at a 2.4% rate from the 4th quarter in this estimate, revised up from the 2.3% growth rate reported in the advance estimate, as real federal outlays for defense grew at a 0.5% rate, revised from the 0.4% growth rate shown previously, and added 0.02 percentage points to 4th quarter GDP, while all other federal consumption and investment grew at a 4.8% rate, revised from the 4.7% growth rate shown previously, and added 0.14 more percentage points to 4th quarter GDP growth….meanwhile, real state and local consumption and investment was revised from growing at a 5.4% rate in the second estimate to growing at a 6.0% rate in this estimate, as state and local investment spending grew at a 22.2% rate and added 0.42 percentage points to 4th quarter GDP, while state and local consumption spending grew at a 2.5% rate and added 0.22 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, thus indicating there had been an increase in the output of those goods or services…

Personal Income Rose 0.3% in February, Personal Spending Rose 0.8%, Savings Rate Fell to 3.6%, PCE Price Index Rose 0.3%

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 into 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….

Hence, when the opening line of the press release for this report tell us “Personal income increased $66.5 billion (0.3 percent at a monthly rate) in February“, they mean that the annualized figure for US personal income in February, $23,694.3 billion, was a rounded $66.5 billion, or nearly 0.3% greater than the annualized personal income figure of $23,627.9 for January; the actual change in personal income from January to February is not provided…similarly, annualized disposable personal income, which is income after taxes, rose by more than 0.2%, from an annual rate of an annual rate of $20,658.9 billion in January to an annual rate of $20,709.3 billion in February…the components of the monthly increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures…in February, the main contributors to the net $66.5 billion annualized increase in personal income were a $92.0 billion annual rate of increase in income from wages and salaries, and a $39.2 billion annualized increase in government social benefits to individuals, which were partly offset by a $77.7 billion annualized decrease in interest and dividend income…

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, the BEA reports that they increased at a $145.5 billion annual rate, or by almost 0.8 percent, rising from an annual rate of $19,043.6 billion in January to an annual rate of $19,189.0 in February, after the January PCE rate was revised down from the originally reported $19,054.2 annually…the current dollar increase in February spending resulted from a $111.8 billion annualized increase to $12,973.1 billion in annualized in spending for services, and a $33.7 billion increase to $6,216.0 billion in spending for goods….total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $149.9 billion to $19,963.5 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $745.7 billion annual rate in February, down from the revised $845.3 billion in annualized personal savings in January… as a result, the personal savings rate, which is personal savings as a percentage of disposable personal income, fell to 3.6% in February from January’s savings rate of 4.1%, and was the lowest personal savings rate since December 2022…

Before personal consumption expenditures are used in the 1st quarter GDP computation, they are first 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 2017 prices = 100, which is included in Table 5 in the pdf for this report….that PCE price index rose from 121.906 in January to 122.312 in February, a month over month inflation rate that’s statistically 0.33304%, which BEA reports as an increase of 0.3 percent, following the PCE price index increase of 0.4% that they reported for January…then, applying that 0.33304% inflation adjustment to the nominal increase in February PCE shows that real PCE rose by 0.42904% in February, which the BEA reports as a 0.4% 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 chained 2017 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 4 of the PDF, where we see that February’s chained dollar consumption total works out to 15,621.6 billion annually, 0.42953% less than January’s 15,688.7 billion, or a change that’s statistically equivalent to the real PCE decrease we just computed from the index values…

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 3 of the pdf for the 4th quarter GDP report, where we find that the annualized real PCE for the 3 months of the 4th quarter was represented by 15,586.7 billion in chained 2017 dollars…then, by averaging the annualized chained 2017 dollar PCE figures for January and February, 14,382.9 billion and 14,367.2 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 1st quarter 2017 dollar PCE average of 15,655.15 to the 4th quarter chained dollar PCE of 15,586.7, we find that 1st quarter real PCE has grown at a 1.77% annual rate for the two months of the 1st quarter that are included in this report (note the math to get that annual rate: (((15,688.7 + 15,621.6) / 2) / 15,586.7) ^ 4 = 1.01768231.…2 months growth at that rate means that if March real PCE does not improve from the average of January and February, growth in PCE would still add 1.22 percentage points to the growth rate of the 1st quarter…

February Durable Goods: New Orders Up 1.4%, Shipments Up 1.2%, Inventories Up 0.3%

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 $3.7 billion or by 1.4 percent to $277.9 billion in February, the first increase since November, after the value of January’s new orders was revised from the $276.7 billion reported last month to $274.2 billion, now a 6.9% decrease from December’s new orders, revised from the 6.1% decrease reported a month ago…even with January’s big decrease, however, year to date new orders were still 1.8% higher than those of the first two months of 2022…

The volatile monthly new orders for transportation equipment led February’s new orders increase, as the value of new transportation equipment orders rose $2.9 billion or 3.3 percent to $90.4 billion, on an 24.6% increase to $15,200 million in the value of new orders for commercial aircraft, and a 9.8% increase to $4,646 million in the value of new orders for defense aircraft, while the value of new orders for motor vehicles and parts also rose 1.8% to $61,742 million…excluding orders for transportation equipment, the value of other new orders was still 0.5% higher, while excluding just new orders for defense equipment, new orders rose 2.2%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were up by $547 million or 0.7% to $73,872 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, also rose for the first time since November, increasing by $3.5 billion or 1.2 percent to $282.7 billion, after the value of January’s shipments was revised from $279.0 billion to $279.2 billion, now down 0.8% from December, rather than the 0.9% decrease reported a month ago….higher shipments of transportation equipment drove the February shipments increase, rising by $3.4 billion or 4.0 percent to $89.8 billion, on a 1.5% increase in the value of shipments of motor vehicles and parts, and a 22.8% increase in the value of shipments of commercial aircraft….on the other hand, the value of shipments of nondefense capital goods less aircraft fell by 0.4% to $75,336 million, after January’s capital goods shipments were revised up from $73,720 million to $74,723 million, now an 0.8% increase from December…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $1.7 billion or 0.3 percent to $528.7 billion, the seventh consecutive increase, after the value of January inventories was revised from $527.6 billion to $527.0 billion, now up just 0.1% from December….the value of inventories of transportation equipment rose $1.2 billion or 0.7 percent to $170.2 billion, on 0.6% higher inventories of commercial aircraft and 0.7% higher inventories of motor vehicles and parts..

Finally, the value of unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often very volatile new orders, rose for the eleventh time in 12 months, increasing by a statistically insignificant $0.1 billion to $1,392.9 billion, following a statistically insignificant January decrease to $1,392,8 billion, which was revised from the previously reported 0.2% increase to $1,395.5 billion….a $0.6 billion or a 0.1 percent increase to $898.1 billion in unfilled orders for transportation equipment was the reason for the February increase, while unfilled orders excluding transportation equipment orders were down 0.1% to $495.3 billion…the unfilled order book for durable goods is still 8.9% above the level of last February, with unfilled orders for transportation equipment 15.1% above their year ago level, mostly due to a 22.3% increase in the backlog of orders for commercial aircraft…

February New Home Sales Little Changed, Average Sales Price 7.3% Lower than January

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 662,000 home sales per year during the month, which was 0.3 percent (±16.2 percent)* below the revised January annual sales rate of 664,000 new home sales, but was 5.9 percent (±14.3 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’s new home sales rose or fell from January, or even from February of last year, 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 661,000 reported last month to an annual rate of 664,000, while new home sales in December, initially reported at an annual rate of 664,000 and revised up to a 651,000 rate last month, were revised to a 652,000 a year rate with this report, and November’s annualized new home sales rate, initially reported at an annual rate of 580,000 and revised from a 615,000 rate to a 607,000 a year rate last month, were revised up to a 609,000 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 60,000 new single family homes sold in February, up from the estimated 57,000 new homes that sold in January and up from the 49,000 that sold in December, and also up from the 58,000 new homes sold in February a year ago…the raw figures from Census field agents further estimated that the median sales price of new houses sold in February was $400,500, down 3.5% from the median sale price of $414,900 in January, and down from the median sales price of $433,300 in February a year ago, while the average February new home sales price was $485,000, down 7.3% from the $523,400 average sales price in January, and down from the average sales price of $499,100 in February a year ago….a seasonally adjusted estimate of 463,000 new single family houses remained for sale at the end of February, which represents a 8.4 month supply at the February sales rate, up from the revised 8.3 months months of new home supply in January….for graphs and additional commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales at 662,000 Annual Rate in February and New Home Sales at 662,000 Annual Rate in February; Median New Home Price is Down 19% from the Peak, which in turn links to his in-depth real estate newsletter article on this report…

  

(the above is the synopsis that accompanied my regular sunday morning news 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 of which are picked from the aforementioned GGO posts, contact me…)