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, a report which provides nearly 24% of 2nd quarter GDP....other 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 Chicago Fed National Activity Index (CFNAI) for April, a weighted composite index of 85 different economic metrics, which rose +0.07 in April, up from –0.37 in March, in an index where any positive reading indicates economic activity has been above the historical trend ...despite the April increase, the widely watched 3 month average of the CFNAI slipped to -0.22 in April from -0.12 in March, which thus indicates that national economic activity has been below the historical average over the most recent months...
In addition to that national index, two more 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 fell to -15 in May from -10 in April, indicating that a larger plurality of Fifth District manufacturing firms reported deteriorating business conditions in May; while 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 -1 in May, up from -10 in April but down from 0 in March, indicating that just the smallest plurality of the region's manufacturing firms still reported an decrease in their activity this month...
1st Quarter GDP Revised to Show Our Economy Grew at a 1.3% Rate
The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 1.3% rate in the 1st quarter, revised from the 1.1% growth rate reported in the advance estimate last month, as upward revisions to growth of real personal consumption expenditures for services, inventories, exports and to growth of state and local governments more than offset a downward revision to growth of real personal consumption expenditures of durable goods and an upward revision to imports, which subtract from GDP.....in current dollars, our first quarter GDP grew at a 5.44% annual rate, increasing from what would work out to be a $26,138.0 billion a year output rate in the 4th quarter of last year to a $26,486.3 billion annual rate in the 1st quarter of this year, with the headline 1.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.0%, aka the GDP deflator, was computed from the price changes of the GDP components and applied to their current dollar changes...
As we review this month's revisions, 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 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 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 citing data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2019; 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....
Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 3.7% growth rate reported last month to indicate real PCE growth a 3.8% rate with this estimate…that growth rate figure was arrived at by deflating the 8.1% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 4.2% annual rate in the 1st quarter, which was unrevised from the PCE inflation rate published a month ago....real consumption of durable goods grew at a 16.4% annual rate, which was revised from the 16.9% growth rate shown in the advance report, and added 1.29 percentage points to GDP, as growth in real consumption of motor vehicles and parts at a 44.3% rate accounted for more than two-thirds of the quarter's growth in durable goods....at the same time, real consumption of nondurable goods by individuals grew at an 0.9% annual rate, unrevised from the 1st estimate, and added 0.12 percentage points to the1st quarter's economic growth, as greater real consumption of gasoline and "other" nondurable goods was partly offset by lower consumption of groceries and clothing…. meanwhile, consumption of services rose at a 2.5% annual rate, revised from the 2.3% growth rate reported last month, and added 1.11 percentage points to the final GDP tally, as real growth of health care at a 7.7% rate accounted for around three-fourths of the quarter's growth in services....
At the same time, seasonally adjusted real gross private domestic investment shrunk at a 11.5% annual rate in the 1st quarter, revised from the 12.5% contraction rate estimate reported last month, as real private fixed investment shrunk at a 0.2% rate, rather than at the 0.4% rate reported in the advance estimate, while inventory shrinkage was somewhat less than had been previously estimated....real investment in non-residential structures was revised from growing at a 11.2% rate to growing at a 11.0% rate, while real investment in equipment was revised to show it shrunk at a 7.0% rate, revised from the 7.3% contraction rate previously reported...at the same time, the first quarter's investment in intellectual property products was revised from real growth at a 3.8% rate to real growth at a 5.2% rate, while the decrease in real residential investment was revised from a 4.2% annual rate to contraction at a 5.4% rate….after those revisions, the increase in investment in non-residential structures added 0.28 percentage points to the 1st quarter's growth rate, while the decrease in investment in equipment subtracted 0.38 percentage points from the quarter's growth rate, and growth in investment in intellectual property added 0.26 percentage points to the growth rate of 1st quarter GDP, while the drop in residential investment subtracted 0.22 percentage points from the growth 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....
Meanwhile, real private inventories were revised from the originally reported $1.6 billion contraction in inflation adjusted dollars to show real inventories grew at an inflation adjusted $6.9 billion rate...however, this came after inventories had grown at an inflation adjusted $136.5 billion rate in the 4th quarter, and hence the $129.6 billion negative change in real inventories from those of the 4th quarter subtracted 2.10 percentage points from the 1st quarter's growth rate, revised from the 2.26 percentage point subtraction due to reduced 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 $129.6 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 grew at a 3.4% rate in the 1st quarter, unrevised from the 3.4% growth rate shown in the advance estimate, and were up from the real final sales growth rate of 1.1% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was smaller than that of the quarter's GDP..
The previously reported increase in real exports was revised higher with this estimate, but the previously reported increase in real imports was revised higher by more, and as a result the previously reported modest GDP boost from our net trade was virtually eliminated...our real exports of goods and services grew at a 5.2% rate in the 1st quarter, revised from the 4.8% growth shown in first estimate, and since exports are an addition to GDP because they are that part of our production that was not previously added to consumption or investment in our country, their increase added 0.58 percentage points to the 1st quarter's growth rate, up from the 0.54 percentage point export addition due to rising exports shown last month...on the other hand, the previously reported 3.7% increase in our real imports was revised to a 4.8% increase, and since imports subtract from GDP because they represent either consumption or investment that was added to GDP with those figures but was not produced in the US, their increase subtracted 0.57 percentage points from 1st quarter GDP, revised from the 0.43 percentage point subtraction shown a month ago....thus, our improving trade balance that accompanied the unwinding of Covid policies had no statistically significant impact on first quarter GDP after rounding, revised from the 0.11 percentage point boost to GDP resulting from an improving foreign trade balance that was indicated in the advance estimate..
Finally, there was also a net upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown to have grown at a 5.2% rate, revised from the 4.7% growth rate for government indicated by the 1st estimate....however, real federal government consumption and investment is now seen to have grown at a 7.6% rate from that of the 4th quarter in this estimate, which was revised from the 7.8% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 5.7% rate, revised from the 5.5% growth rate shown previously, and added 0.08 percentage points to 4th quarter GDP, while all other federal consumption and investment grew at a 10.0% rate, revised from the 10.3% growth rate shown previously, and added 0.29 more percentage points to 4th quarter GDP growth....meanwhile, real state and local consumption and investment grew at a 3.8% rate in the quarter, revised from the 2.9% growth shown in the 1st estimate, and added 0.41 percentage points to 1st quarter GDP, which was revised from the 0.31 addition shown in the advance estimate, as state and local investment grew at a 7.0% rate and accounted for the entirety of the upward revision....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 0.4%, Personal Spending Up 0.8%, PCE Prices Up 0.4%, Savings Rate at 4.1%
Friday's release of the April report on Personal Income and Outlays from the Bureau of Economic Analysis included the month's data for our personal consumption expenditures (PCE), which accounts for almost 71% 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 reported our national personal income totals, disposable personal income, which is income after taxes, and our national 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 reporting seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if April's change in seasonally adjusted income and spending were extrapolated over an entire year.....
Hence, when the opening line of the news release for this report tell us "Personal income increased $80.1 billion (0.4 percent) in April", that means that the annualized figure for seasonally adjusted national personal income in April, $22,639.1 billion, was $80.1 billion, or a rounded 0.4% more than the annualized personal income figure of $22,559.0 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, also rose by 0.4%, from an annual rate of $19,663.2 billion in March to an annual rate of $19,742.6 billion in April....the reasons for the annualized $80.1 billion increase in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and primarily reflected a $54.6 billion annual rate of increase in income from wages and salaries and an $34.7 billion annualized increase in interest and dividend income, even as government social benefits to persons fell at a $17 billion annual rate...
For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, the BEA reports that they rose at a $151.7 billion annual rate, or by more than 0.8%, as the annual rate of national PCE increased from $18,116.0 billion in March to $18,267.7 in April....March PCE was revised from $18,104.2 billion annually to $18,116.0 billion, while February PCE was revised from $18,096.0 billion annually to $18,101.5 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, rose by an annualized $156.0 billion to a rate of $18,940.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $802.1 billion annual rate in April, down by $76.6 billion from the revised $878.8 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, fell to 4.1% in April, down from a revised 4.5% savings rate in March, and the lowest personal savings rate since January....
As you know, before those personal consumption expenditures can be 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 from the components by the BEA and included in Table 9 in the pdf for this report....that index rose from 126.402 in March to 126.862 in April, a month over month inflation rate that's statistically 0.36392%, which BEA reports as an increase of 0.4 percent, following the rounded 0.1% increase in the PCE price index reported for March...applying that 0.364% April inflation adjustment to the ~0.8% nominal change in PCE left real PCE up by 0.47175% in April, which the BEA reports as a 0.5% increase in their press release and in the tables, after being virtually unchanged in March....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 14,403.6 billion annually, 0.472% more than March's 14,335.9 billion, again an increase that the BEA reports as +0.5%...
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 real PCE of all 3 months of the first quarter....while this release reports PCE for all those amounts on a monthly basis, 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 14,346.6 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 chained dollar PCE of 14,403.6 billion to the 1st quarter real PCE of 14,346.6 billion on an annual basis, we find that April's real PCE has risen at a 1.60% annual rate from that of the 1st quarter....that would mean that even if real PCE does not appreciate during May and June from the April level, growth in real PCE would add 1.13 percentage points to the growth rate of 2nd quarter GDP...
April Durable Goods: New Orders Up 1.1%, Shipments Down 0.7%, Inventories Up 1.0%
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 rose by $3.1 billion or 1.1 percent to $283.0 billion in April, the second increase in four months, after durable goods orders for March were revised to show a 3.3% increase to $279.9 billion, revised from the 3.2% increase to $276.4 billion that was reported a month ago...note that over and above the usual monthly revisions to the underlying data, this month's report also reflects the May 12th re-benchmarking of shipments and inventories data to the 2021 and 2020 Annual Survey of Manufactures data, revised back to 2012, and then the adjustment of the orders data to be consistent with the re-benchmarked data...while this resulted in modest revisions over the span of the data, we will only document the revisions to March....
As is often the case, the volatile monthly change in April's new orders for transportation equipment was responsible this month's headline change, as April transportation equipment orders rose $3.5 billion or 3.7 percent to $97.6 billion, on a 32.7% increase to $7,746 million in new orders for defense aircraft....excluding new orders for transportation equipment, other new orders were down 0.2% in April, while excluding new orders for defense equipment, new orders were down 0.6%....meanwhile, new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment orders, were up 1.4% to $74,038 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 second time in three months, decreasing by $2.0 billion or 0.7 percent to $277.7 billion, after March shipments were revised from an increase of 1.1% to $277.0 billion to an increase of 0.7% to $279.9 billion, after re-benchmarking...lower shipments of transportation equipment led the April decrease, falling $1.6 billion or 1.8 percent to $87.5 billion on a 15.8% decrease in value of shipments of commercial aircraft…excluding that, the value of other shipments of durable goods fell 0.2%, but are still 4.3% higher year to date than a year ago....meanwhile, shipments of nondefense capital goods excluding aircraft, important in figuring equipment investment, rose 0.5% to $73,860 million in April after falling a revised 0.2% in March...
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the fourth time in five months, increasing by $5.2 billion or 1.0 percent to $521.9 billion, after the value of end of March inventories was revised from $488.8 billion to $516.7 billion, now shown as a 1.0% decrease from February, after re-benchmarking....a $5.0 billion or 3.2 percent increase to to $164.1 billion in the value of inventories of transportation equipment led the April inventory increase, while excluding inventories of transportation equipment, other inventories were statistically unchanged..
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the fourth time in five months, increasing by $10.5 billion or 0.8 percent to $1,291.5 billion, following a March increase which was revised from the 0.4% increase to $1,160.2 billion reported last month to a 0.4% increase to $1,281.0 billion, obviously after re-benchmarking....a $10.2 billion or 1.3 percent increase to $792.2 billion in unfilled orders for transportation equipment led the April increase, as unfilled orders for defense aircraft rose 4.1% to $70,861 million and unfilled orders for commercial aircraft and parts rose 0.9% to $539,255 million.... compared to a year ago, the unfilled order book for durable goods is now 5.2% higher than the level of last April, with unfilled orders for transportation equipment 8.7% above their year ago level, on a 13.6% increase in the backlog of orders for defense aircraft and a 9.5% increase in the order book for commercial aircraft...
New Home Sales Reported Higher in April on Lower Prices
The Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted annual pace of 683,000 homes during the month, which was 4.1 percent (±11.8 percent)* above the revised March annual rate of 656,000 new home sales, and 11.8 percent (±15.1 percent)* above the estimated annual rate that new homes were selling at in April of last year... the figures in parenthesis represent 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 2018; and with that, sales of new single family homes in March were revised from the annual rate of 683,000 reported last month to an annual rate of 656,000, and sales in February, initially reported at an annual rate of 640,000 and revised to a 623,000 rate last month, were revised to an annual rate of 631,000, while new home sales in January, initially reported at an annual rate of 670,000 and revised from a 633,000 rate to a 648,000 rate last month, were revised to a 649,000 a year rate with this release...
The annual rates of sales reported here are seasonally adjusted and extrapolated from the rough estimates of canvassing Census field reps, which indicated that approximately 62,000 new single family homes sold in April, down from the estimated 64,000 new homes that sold in March but up from the 58,000 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 fell to $420,900, down from the median sales price of $455,800 in March and down from the median sales price of $458,200 in April a year ago, while the average new home sales price was at $501,000, down from the $559,200 average sales price in March, and down from the average sales price of $562,400 in April a year ago....a seasonally adjusted estimate of 433,000 new single family houses remained for sale at the end of April, which represents a 7.6 month supply at the April sales rate, down from the revised 7.9 months of new home supply now being reported for March...
For graphs and commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales at 683,000 Annual Rate in April and New Home Sales at 683,000 Annual Rate in April; Median New Home Price is Down 15.3% from the Peak which links to his detailed Real Estate Newsletter post on the same subject....
(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…)
