Sunday, March 29, 2015

3rd estimate 4th quarter GDP; February consumer prices, durable goods, new and existing home sales, et al

the major economic releases of this past week were the Consumer Price Index for February, released by the BLS on Tuesday, and the 3rd estimate of 4th quarter GDP, released by the BEA on Friday; other widely watched reports included the February advance report on durable goods, and the two monthly reports on housing sales; the February report on existing home sales from the National Association of Realtors (NAR) and the the Census Bureau report on new home sales for February...other reports we saw this week included the Regional and State Employment and Unemployment Summary for February, and the Chicago Fed National Activity Index for February, a weighted composite index of 85 different economic metrics which fell to −0.11 in February, down from −0.10 in January, while the index for January was revised from +0.13 to -0.10...that index is constructed so a zero value indicates economic growth at the historical trend rate, so the negative readings for January and February indicate growth below trend...the week also saw the results of two regional Fed manufacturing surveys for March; the Fifth District Survey of Manufacturing Activity from the Richmond Fed, covering Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported their composite index fell to −8 in March from a reading of 0 in February on a collapse of shipments and new orders, while the March Kansas City Fed manufacturing survey, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, saw its broadest composite index fall from +1 in February to -4 in March, the lowest since January 2013, with the negative reading indicating slight contraction...

4th Quarter Growth Unchanged in 3rd Estimate

the 3rd estimate of 4th quarter GDP indicated that our output of goods and services in the last three months of the year grew at a 2.2% annual rate from the 3rd quarter, which was unchanged from the 2nd estimate...that means our economic output grew at a 2.4% rate over the whole of 2014, a bit better than the 2.2% growth we saw in 2013 or the 2.3% growth we saw in 2012...our growth rate in current dollars in the 4th quarter was revised up from 2.3% in the 2nd estimate to 2.4% in this estimate as the inflation adjustment, aka the GDP deflator, which had initially been reported negative, was revised from 0.1% to 0.2% with this estimate...even while overall growth was unrevised for the quarter, our exports,  imports, and all of the components of personal consumption expenditures were revised higher, while inventories and several components of fixed private investment were revised lower...since the press release for this report isn't very useful in understanding what transpired, as it assumes to reader knows that the prefix "real" indicates inflation adjusted data, and because it assumes the reader knows that all figures reported as quarterly are really at an annual rate, we'll refer you to the Full Release & Tables (pdf) and specifically the first 4 tables therein, in explaining what changed...

in the GDP pdf, Table 1 shows the real (inflation adjusted) percentage change in output for each component of GDP year over year and quarter over quarter since 2011; Table 2 shows how much the real change in each of those components of GDP added to or subtracted from the final GDP reading for each of those quarterly and annual periods going back to 2011; Table 3 is in 3 sections; the left body of that table, headed "billions of dollars" is the current dollar value of each of the GDP components listed; the remaining two sections are in chained 2009 dollars, from which all the annual change figures are computed; the 4th quarter of 2013 and each quarter of 2014 are shown, seasonally adjusted and at an annual rate...then the last 3 columns show the change from the preceding period in fictional 2009 dollars for each item; note those are not real dollar amounts; they're used for computational purposes only...finally, Table 4 shows the percentage change from the preceding period in the price index for each of those components...this percentage change is applied to the change in current dollars to give the real, inflation adjusted change in output for each component shown...

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 4.4% annual rate rather than the 4.2% growth rate reported last month, making it the greatest quarterly growth in real PCE since the first quarter of 2006 and the largest chained dollar increase in PCE since the 3rd quarter of 2003...consumption of durable goods rose at a 6.2% annual rate, revised from the 6.0% rate reported last month, and added 0.45% to GDP; consumption of nondurable goods rose at a 4.1% annual rate, revised from the 3.8% growth rate reported in the second estimate, and added 0.61% to 4th quarter growth, and consumption of services rose at a 4.3% annual rate, revised from the 4.1% rate reported last month, and added 1.98% to the final GDP tally...all types of consumer services made a positive contribution, with an increase in the amount of health care delivered accounting for more than 40% of the growth in services; increases in output all types of consumer durable goods also added to 4th quarter growth, with outlays for recreational goods and vehicles accounting for over 40% of the durable goods growth, and only a 0.3% decrease in consumption of food subtracted from the overall non-durables increase...

seasonally adjusted real gross private domestic investment grew at a 3.7% annual rate in the 4th quarter, revised from the 5.1% estimate of last month, while the growth rate of private fixed investment was unchanged at 4.5% and added .72% to the 4th quarter's growth rate...real non-residential fixed investment grew at a 4.7% rate, rather than the 4.8% previously estimated, as investment in non-residential structures was revised up from a growth rate of 5.0% to a 5.9% growth rate, investment in equipment grew at a 0.6% rate, not the 0.9% rate previously reported, and the quarter's investment in intellectual property products was revised down, from growth at a 10.9% rate to growth at a 10.3% rate, while growth in residential investment was revised from 3.4% to 3.8%…after these revisions, investment in non-residential structures added 0.17% to the GDP's growth rate, investment in equipment added 0.04%, investment in intellectual property added 0.39%, while growth in residential investment added 0.12% to 4th quarter GDP...

meanwhile, a decrease in the quarter over quarter change in the growth of inventories subtracted from investment and hence from GDP, as the increase in real private inventories was revised from the $88.4 billion reported last month to show real inventory growth at an inflation adjusted $80.0 billion in the 4th quarter, after they grew by $82.2 billion in the 3rd quarter, and hence the $2.2 billion smaller inventory growth subtracted 0.10% from the 4th quarter's growth rate, in contrast to the 0.12% addition from inventory growth reported in the second estimate...since inventories indicate that some of the goods produced goods during the quarter are still 'sitting on the shelf', their decrease by $2.2 billion means real final sales of GDP must have been higher by that much, hence increasing at a 2.3% annual rate, revised up from the real final sales of GDP increase of 2.1% reported last month...

both the increase in real exports and the increase in real imports were revised higher with this release, where increasing exports add to gross domestic product because they represent that part of our production that was not consumed or added to investment in our country, while increased imports subtract from GDP because they represent either consumption or investment that was not produced here....our real exports grew at a 4.5% rate rather than the 3.2% rate reported in the second estimate, and as a result added 0.59% to GDP...however, our real imports growth was revised to 10.4% from the previously reported 10.1% growth and hence subtracted 1.62% from the 4th quarter's growth rate...hence, the increase in our imports in the 4th quarter was greater than the 4th quarter increase of our consumption of durable goods, non-durable goods and equipment investment combined, and was largely responsible for the weak showing in 4th quarter growth..

finally, there were also minor revisions to real government consumption and investment in this 3rd estimate...real federal government consumption and investment contracted at a 7.3% rate, which was revised from the 7.5% contraction reported in the 2nd estimate, and subtracted 0.53% from 4th quarter GDP...real federal spending for defense was revised to show contraction at a 12.2% rate rather than the 12.4% contraction previously reported, while all other federal consumption and investment grew at a 1.5% rate, revised from the 1.4% growth rate reported last month...real state and local outlays, on the other hand, were revised lower, from the 2.0% growth rate previously reported to growth at a 1.6% rate, which only added 0.18% to GDP..

our FRED bar graph below, which can also be viewed as an interactive, has been updated with these latest GDP revisions…each color coded bar shows the change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2012...in each quarterly grouping of seven bars on this graph below, the quarterly changes in real personal consumption expenditures are shown in blue, the quarterly changes in real fixed private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is shown in yellow, the real change in exports are shown in purple, while the change in real imports is shown in green ..then the change in state and local government spending and  investment is shown in pink, while the change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they did in the 2nd quarter, they'll appear below the zero line...you can see from the graph that it was our personal consumption expenditures that drove 4th quarter growth, and our imports that limited it to a 2.2% rate..

4th qtr 2014 3rd estimte GDP

Consumer Prices Rise 0.2% in February; Core Prices also Up 0.2%

after 5 months of generally lower prices, February saw a broad-based increase in the CPI that suggests retail sales were even weaker than the 0.9% downturn reported...the Consumer Price Index for All Urban Consumers (CPI-U) for February from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.2% after falling 0.7% in January and 0.3% in December, leaving the index statistically unchanged from a year ago ...the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 234.722 in February from 233.707 in January, a reading 0.02% lower than the 233.069 reading from February of last year....core prices, which exclude food and energy, also rose by 0.2%, as the unadjusted core index rose to 240.083, 1.70% ahead of its year ago level of 236.075... 

energy prices were mostly higher, as the energy index rose by 1.0%, the first increase in 8 months...prices for energy commodities rose 2.1% on a 1.9% increase in fuel oil prices and a 2.4% increase in gasoline prices, while energy services were 0.2% lower on a  2.0% decrease in prices from natural gas utilities, while electricity costs were 0.3% higher...the food price index rose 0.2% as prices for food at home were 0.1% higher while prices for food away from home were 0.3% higher than January...Table 1 gives us prices by expenditure category, including six categories for food at home, where we see that the index for dairy products fell 1.0% in February, while Table 2 gives us a line item breakdown for prices of roughly 100 food items and more than 200 items overall...as you scroll down, the column headings scroll off the top of the page, so in reading price changes for each item off that table it's useful to keep in mind that the monthly price change is in the far right column, whereas the year over year change is the leftmost price change indicated...thus we can see that while most meat prices were generally higher in February, pork prices fell 1.3% in February with breakfast sausage prices and pork chop prices both down 2.4%...

prices changes for "All items less food and energy" are also included on both of those tables, with price changes for commodities (aka durable and non-durable goods) preceding price changes for services...it's here we learn that prices for all commodities less food and energy rose 0.2% (actually 0.21%) in February, the first time since September 2011 that index rose as much as 0.2%...this suggests a similar deflator will be used on retail sales for February when computing personal consumption expenditures of goods for the month, and since retail sales ex groceries and gas stations fell by 0.93% in February, that implies real personal consumption expenditures of all other goods would be down by more than 1.1% for the month...on the other hand, the index for services less energy services was up by just 0.1%, with the 0.3% increase in rent of shelter counting for more than half that index, so the deflator for other February services should be negative...

February Durable Goods Orders Much Weaker than Expected

against a Bloomberg consensus estimate of a 0.7% increase, the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau indicated that new orders for manufactured durable goods fell in February by a seasonally adjusted $3.2 billion, or 1.4%, to $231.3 billion, the 3rd drop in the last 4 months, while the 2.8% increase first reported for January was revised to 2.0%...new orders for transportation equipment, down 3.5% to $69,484 million, drove the change, as new orders for commercial aircraft fell 8.9%, but even excluding transportation equipment orders, other new orders were still down 0.4%...the widely watched new new orders for nondefense capital goods fell by $2.1 billion or 2.6% to $77.3 billion, and even excluding aircraft order, new orders for nondefense capital goods were down 1.4%...

February's seasonally adjusted shipments of durable goods were nominally weak, falling $0.5 billion or 0.2 percent to $244.0 billion, after a revised 1.4% decrease of shipments in January; however, $0.3 billion of that decrease was a 1.1% decrease in shipments of primary metals, which were down in price by 0.7% to 1.1%, meaning actual physical shipments were close to unchanged...meanwhile, seasonally adjusted inventories of durable goods, which have been up 22 out of the last 23 months, rose another $1.1 billion or 0.3% to a new record at $413.0 billion, as inventories of  transportation equipment, up 0.9% to $135,407 billion, were the major factor in this month's increase; excluding transports inventories, all other inventories were statistically unchanged...finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, fell by $5.6 billion or 0.5% to $1,156.9 billion, the 3rd consecutive monthly decrease, with the 0.6% decrease in the large order book of the transportation sector accounting for half the decrease, as unfilled orders for defense aircraft fell 3.1% to $60,257 billion...nonetheless, unfilled orders for durable goods remained 8.4% higher than they were last February, with every industry except defense seeing a year over year increase in their backlog...

New and Existing Home Sales Continue Year over Year Uptrend

the National Association of Realtors (NAR) reported that existing home sales rose a seasonally adjusted 1.2% in February, as they project 4.88 million homes would sell over a year if February sales were extrapolated over an entire year, 4.7% higher than the annual rate projected in February of a year ago... the NAR press release, which is titled Existing-Home Sales Slightly Improve in February, Price Growth Gains Steam, is in easy to read plain English, so there's no point in our restating what they already report...however, since the report is entirely seasonally adjusted and at a meaningless annual rate, we'd also want to look at the raw data overview (pdf), which shows that 294,000 homes actually sold in February, up from 281,000 in January and up from 282,000 in February last year, as even 36,000 homes sold in the cold and snowy northeast, up 9.1% from January and 5.9% higher than the 34,000 that sold in January last year...that same pdf indicates that the median home selling price for all housing types was $202,600 in February, up from $197,600 in January, and 7.5% higher than the $188,400 median home sales price in February of last year, while the average home sales price was $248,400, up 1.0% from the $245,900 average in January, and up 5.0% from the $236,600 average sales price of February a year ago...for additional information on this report, Robert Oak has thorough coverage with graphs for sales and prices, and Bill McBride has two posts, first with a summary of the data, and the second with commentary, and both with multiple graphs...

the Census report on New Residential Sales for February estimated that new single family homes were selling at a seasonally adjusted annual rate of 539,000, 7.8 percent (±15.2%)* above the revised January rate of 500,000 a year, and 24.8 percent (±20.4%) above the annual rate that new homes were selling at in February of last year...as you know, the asterisks after the figure reported for February indicate that based on their small sampling, Census could not be certain whether February's new home sales rose or fell from those of January, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error of any census construction series...the unadjusted data from Census field reps estimated that 44,000 homes sold in February, up from 37,000 in January, which was revised from the 36,000 reported last month, and that home sales in the Northeast rose from 1,000 to 3,000, with a margin of error on that of ±111.2%…their raw data further indicated that the median sales price of new houses sold was $275,500 while the average sales price was $341,000....for more details and graphics, see Bill McBride's two posts, New Home Sales at 539,000 Annual Rate in February and Comments on 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 from the aforementioned GGO posts, contact me…)

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