The key economic releases of the past week were the second estimate of 1st quarter GDP from the Bureau of Economic Analysis and the April report on Personal Income and Spending, also from the BEA, which provides 23% of 2nd quarter GDP....other widely watched reports that were released this week included the April advance report on durable goods and the April report on new home sales, both from the Census bureau, and the March Case-Shiller Home Price Index from S&P Case-Shiller, which is a relative average of January, February & March home sales prices compared to home sales prices of previous 3 month periods; the Case Shiller index indicated that home prices nationally for those 3 months averaged 4.4% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 4.2% year over year increase reported for the February index a month ago.....
This week also saw the release of Chicago Fed National Activity Index (CFNAI) for April, a weighted composite index of 85 different economic metrics, which fell to –16.74 in April, down from –4.97 in March, after the March index was revised down from the –4.19 reported last month, in an index wherein readings below –0.70 have historically been associated with a recession...after accounting for the March revision, the 3 month average of the CFNAI fell to –7.22 in April, down from –1.69 in March, which indicates that national economic activity has been at a historical low over the most recent months...
In addition to that, the last three regional Fed manufacturing surveys for May were also released this week: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported that its broadest composite index rose to −27 in May from a record low of −53 in April, still indicating the worst regional contraction since 2009; similarly, the Kansas City Fed manufacturing survey for May, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -19 in May from the record low of -30 in April, but was still down from the -17 reading in March, indicating an ongoing recession among that region's manufacturers, while the Dallas Fed released the Texas Manufacturing Outlook Survey, which indicated its general business activity index rose to -49.2 in May from a record low of -74.0 in April, still indicating a depression like contraction of the Texas economy...
1st Quarter GDP Revised to Show Our Economy Shrunk at a 5.0% Rate
The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 5.0% annual rate in the 1st quarter, revised from the 4.8% contraction rate reported in the advance estimate last month, as inventories were revised much lower, more than offsetting moderating upward revisions to the quarter's shrinkage of personal consumption expenditures and nonresidential fixed investment....in current dollars, our first quarter GDP fell at a 3.53% annual rate, decreasing from what would work out to be a $21,729.1 billion a year output rate in the 4th quarter of last year to a $21,534.9 billion annual rate in the 1st quarter of this year, with the headline 5.0% annualized rate of decrease in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was computed and applied to the current dollar change...
As we review this month's revisions, 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 of that what actually occurred from one 3 month period to the next, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now 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 Full Release & Tables for the second estimate of 1st quarter GDP, which is linked to on the BEA's main GDP page...specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2016; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and 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 full pdf for the 1st quarter advance estimate, which this estimate revises, is here...
The decrease of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 7.6% contraction rate reported last month to indicate PCE shrunk at a 6.8% rate with this month’s estimate…that contraction figure was arrived at by deflating the 5.6% contraction rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 1.3% annual rate in the 1st quarter, unrevised from the PCE inflation rate published a month ago...real consumption of durable goods fell at a 13.2% annual rate, which was revised from the 16.1% drop shown in the advance report, and subtracted 0.98 percentage points from GDP, as a drop in real consumption of automobiles at a 29.1% rate accounted for nearly three-fourths the pullback in durable goods.....however, real consumption of nondurable goods by individuals rose at a 7.7% annual rate, revised from the 6.9% increase reported in the 1st estimate, and added 1.04 percentage points to 1st quarter economic growth, as a 29.6% real increase in consumption of food and beverages at home more than offset real decreases in consumption of clothing and energy goods….at the same time, consumption of services shrunk at a 9.7% annual rate, revised from the 10.2% contraction rate reported last month, and subtracted 4.57 percentage points from the final GDP figure, as an annualized 17.3% contraction in health care services accounted for 40% of the decrease in services...
At the same time, seasonally adjusted real gross private domestic investment shrunk at a 10.5% annual rate in the 1st quarter, revised from the 5.6% contraction estimate reported last month, as real private fixed investment fell at a 2.4% rate, rather than at the 2.6% rate reported in the advance estimate, while business and farm inventories fell by more than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 9.7% rate to shrinking at a 3.9% rate, while real investment in equipment was revised to show it contracted at a 16.7% rate, revised from the 15.2% contraction rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from real growth at a 0.4% rate to real growth at a 1.0% rate...meanwhile, growth in real residential investment was revised from a 21.0% annual rate to growth at a 18.5% rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.11 percentage points from the increase in 1st quarter GDP and the decrease in investment in equipment subtracted 1.00 percentage points from the quarter's growth, while the increase in investment in intellectual property added 0.05 percentage points and the increase in residential investment added 0.66 percentage points to the 1st quarter's growth rate...
Meanwhile, the drop in real private inventories was revised from the originally reported $16.2 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $67.2 billion rate...this came after inventories had grown at an inflation adjusted $13.1 billion rate in the 4th quarter, and hence the $80.2 billion negative change in real inventories from those of the 4th quarter subtracted 1.43 percentage points from the 1st quarter's growth rate, revised from the 0.53 percentage point subtraction due to inventory growth shown in the advance estimate....however, since shrinking inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by $80.2 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA found that real final sales of GDP only fell at a 3.7% rate in the 1st quarter, revised from the 4.3% rate of decrease shown in the advance estimate...
The previously reported decrease in real exports was little changed with this estimate, while the previously reported decrease in real imports was revised lower, and as a result our net trade was a somewhat larger addition to GDP rather than was previously reported...our real exports of goods and services shrunk at a 8.7% rate in the 1st quarter, same as was shown in first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their decrease conversely subtracted 1.02 percentage points from the 1st quarter's growth rate, same as was shown last month...meanwhile, the previously reported 15.3% decrease in our real imports was revised to a 15.5% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their decrease conversely added 2.34 percentage points to 1st quarter GDP, revised from the 2.32 percentage point addition shown a month ago....thus, the improving trade balance that accompanied the collapse in trade added a rounded 1.32 percentage points to 1st quarter GDP, up from the 1.30 percentage point addition resulting from an improving foreign trade balance that was indicated by the advance estimate..
Finally, there was also a small upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown growing at a 0.8% rate, revised from the 0.7% growth rate for government indicated by the 1st estimate....real federal government consumption and investment was seen to have grown at a 1.9% rate from that of the 4th quarter in this estimate, which was revised from the 1.7% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 1.0% rate, revised from the previously reported 0.8% growth and added 0.04 percentage points to 1st quarter GDP, while all other federal consumption and investment grew at an unrevised 3.1% rate and added 0.08 percentage points to GDP...meanwhile, real state and local consumption and investment grew at a 0.2% rate in the quarter, revised from the 0.1% growth shown in the 1st estimate, and added 0.03 percentage points to 1st quarter GDP, which was revised from the 0.02 addition shown in the advance estimate...note that 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, thereby indicating an increase in the output of those goods or services...
April Personal Income Up a Record 10.5%, Personal Spending Down a Record 13.6%, Savings Rate Up a Record 33.0%
The April report on Personal Income and Outlays from the Bureau of Economic Analysis appears to have record setting data for just about every metric it tracks except for prices, which still tumbled by the most in five years...as you'll recall, this report includes the month's data for our personal consumption expenditures (PCE), which accounts for more than 69% of the month's GDP, and with it 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...in addition, this release reports national 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 is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if April's change in seasonally 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 March to April..
Thus, when the opening line of the press release for the April report tell us "Personal income increased $1.97 trillion (10.5 percent) in April", that means that the annualized figure for seasonally adjusted national personal income in April, $20,674.5 billion, was $1.966 trillion, or a record 10.5% greater than the annualized personal income figure of $18,708.6 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by a record 12.9%, from an annual rate of an annual rate of $16,532.5 billion in March to an annual rate of $18,660.2 billion in April....the contributors to the annualized $1.966 trillion increase in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as record-setting annualized amounts, and were led by a $2,999.1 billion increase to $6,347.1 billion in personal current transfer receipts from government programs, more than offsetting a $740.2 billion decrease to $8,482.0 billion in wages and salaries, a $197.6 billion decrease to $1,424.5 billion in farm and small business proprietor's income, and a $138.4 billion decrease to $1,995.9 billion in supplements to wages and salaries, such as employer contributions for employee pension and insurance funds...again, remember those are all annualized figures...
For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they fell at a $1.89 trillion annual rate, or by a bit more than 13.6%, as the annual rate of national PCE decreased from $13,906.8 billion in March to $12,013.3 in April....March PCE was revised from $13,813.2 billion annually to $13,906.8 billion, while February PCE was revised from $14,940.5 billion annually to $14,938.4 billion, revisions that were already included in this week’s GDP report....total personal outlays for April, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $1,914.1 billion to $12,511.2 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $6,149.0 billion annual rate in April, up from the revised $2,107.2 billion in annualized personal savings in March...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 33.0% in April, after the previously reported 13.1% March savings rate was revised to 12.7%...
As you know, before those personal consumption expenditures are used in the 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 a chained price index based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report....that index fell from 110.510 in March to 109.990 in April, a month over month deflation rate that's statistically -0.4705%, which BEA reports as a decrease of 0.5 percent, following the 0.2% decrease in the PCE price index reported for March...applying that -0.47% April inflation adjustment to the -13.6% nominal change in PCE left real PCE down by a rounded 13.2% in April, after the March real PCE change was revised to a decrease of 6.7%...note that when those PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar chained 2012 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another....that result is shown in table 7 of the PDF, where we see that April's chained dollar consumption total works out to 10,922.9 billion annually, 13.2077% less than March's 12,585.1 billion, a decrease that the BEA reports as -13.2%...
However, to estimate the impact of the change in PCE on the change in GDP, that month over month PCE change doesn't help us much, since GDP is computed & reported quarterly... thus we have to compare April's real PCE to the the real PCE of all 3 months of the first quarter....while this release reports PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 13,180.8 billion in chained 2012 dollars..(note that's the same as is shown in table 3 of the pdf for the 1st quarter GDP report)....when we compare April's adjusted PCE of 10,922.9 billion to the 1st quarter real PCE of 13,180.8 billion on an annual basis, we find that April real PCE has fallen at a 52.83% annual rate from that of the 1st quarter....that would means that if April real PCE does not appreciate during May and June, the drop in PCE would subtract 36.70 percentage points from the growth rate of the 2nd quarter...
April Durable Goods: New Orders Down 17.2%, Shipments Down 17.7%, Inventories Up 0.2%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell by $35.4 billion or 17.2 percent to $170.0 billion in April, the third decrease in four months, after durable goods orders for March were revised to show a 16.6% decrease to $205.3 billion, revised from the 14.4% decrease to $213.2 billion that was reported a month ago...note that other than the usual monthly revisions to the underlying data, this month's report also reflects the May 15th re-benchmarking of shipments and inventories data to the 2017 Economic Census data, and then adjusting the new orders data to be consistent with the re-benchmarked data...
As is usually the case, the volatile monthly change in April's new orders for transportation equipment led this month's headline change, as April transportation equipment orders fell $23.9 billion or 47.3 percent to $26.6 billion, on a $8.5 billion cancellation in orders for commercial aircraft and a 52.8% decrease to $22.6 billion in new orders for motor vehicles and parts....excluding new orders for transportation equipment, other new orders were down 7.4% in April, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 5.8% to $61,944 million...
The seasonally adjusted value of April's shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, fell for the third time in four months, decreasing by $41.5 billion or 17.7 percent to $192.3 billion, after March shipments were revised from a decrease of 4.5% to $240.7 billion to a decrease of 5.5% to $233.8 billion...again, reduced shipments of transportation equipment led the April change, as they fell $31.4 billion or 42.7 percent to $42.1 billion, as the value of shipments of motor vehicles fell 52.9% to $22,624 million…excluding that volatile sector, the value of other shipments of durable goods still fell 6.3%, and are now 1.7% lower year to date than a year ago....meanwhile, shipments of nondefense capital goods excluding aircraft, important in figuring equipment investment, fell 5.4% in April after falling a revised 1.2% in March...
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for a 2nd month in a row, increasing by $0.7 billion or 0.2 percent to $425.6 billion, after the value of end of March inventories was revised from $437.4 billion to $424.9 billion, still shown as a 0.6% increase from February...a $0.4 billion or 0.3% increase to $143.0 billion in the value of inventories of transportation equipment accounted for more than half of the April inventory increase..
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the second consecutive month, decreasing by $17.5 billion or 1.6 percent to $1,107.8 billion, following a March drop which was revised from the 2.0% decrease to $1,135.2 billion reported last month to a 2.1% decrease to $1,125.3 billion...a $15.5 billion or 2.0% decrease to $759.9 billion in unfilled orders for transportation equipment was a major factor in the aggregate decrease, but unfilled orders other than transportation equipment also fell 0.6% to $347,949 million....compared to a year ago, the unfilled order book for durable goods is now 4.7% lower than the level of last April, with unfilled orders for transportation equipment 6.4% below their year ago level, on a 3.6% decrease in the backlog of orders for motor vehicles and a 11.0% decrease in the order book for commercial aircraft...
New Home Sales Reported Higher in April After Prior Months’ Sales were Revised Lower
The Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 623,000 homes annually during the month, which was 0.6 percent (±14.9 percent)* above the revised March annual rate of 619,000 new home sales, but still 6.2 percent (±17.1 percent)* below the estimated annual rate that new homes were selling at in April of last year....the asterisks indicate that based on their small sampling, Census could not tell whether April new home sales rose or fell from those in March or from those in April 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; seasonally adjusted estimates of housing units sold, housing units for sale, and the months' supply of new housing have been revised back to January 2015; as a result, sales of new single family homes in March were revised from the annual rate of 627,000 reported last month to an annual rate of 619,000, and sales in February, initially reported at an annual rate of 765,000 and revised to a 741,000 rate last month, were revised down to an annual rate of 717,000, while new home sales in January, initially reported at an annual rate of 764,000 and revised from a 800,000 rate to a 777,000 rate last month, were revised to a 774,000 a year rate with this release...
The annual rates of sales reported here are seasonally adjusted and extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 59,000 new single family homes sold in April, down from the estimated 60,000 new homes that sold in March and down from the 64,000 new homes that sold in February....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in April was $309,900, down from the median sales price of $326,900 in March and down from the median sales price of $339,000 in April a year ago, while the average new home sales price was at $364,500, down from the $377,400 average sales price in March, and down from the average sales price of $385,400 in April a year ago....a seasonally adjusted estimate of 325,000 new single family houses remained for sale at the end of April, which represents a 6.3 month supply at the April sales rate, down from the revised 6.4 months of new home supply now being reported for March...
For graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales at 623,000 Annual Rate in April and A few Comments on April 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…)
