Sunday, May 31, 2015

2nd estimate 1st quarter GDP; April durable goods, new home sales, and state jobs; March Case-Shiller

the key report this past week was the 2nd estimate of 1st quarter GDP from the Bureau of Economic Analysis; other widely watched reports included the April advance report on durable goods, the Census Bureau report on new home sales for April, the March Case-Shiller Home Price Index, and the Regional and State Employment and Unemployment Summary for April...we also saw the last two regional Fed manufacturing surveys for May: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index at +1, following last month's reading of −3 and the March reading of −8, turning only slightly positive in May on a jump in the wages subcomponent from +9 to +20, and the Texas area manufacturing survey from the Dallas Fed, who saw their general business activity index fall to -20.8 in May, its lowest reading since June 2009, and after a –16 in April and a -17.6 in March, indicating a deepening recession in the district..

1st Quarter GDP Revised to Negative 0.7%; We Doubt That

the Second Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 0.7% rate in the 1st quarter, revised from the 0.2% growth rate reported in the advance estimate last month, as inventories were revised lower and imports (which subtract from GDP) were revised higher...in current dollars, 1st quarter GDP contracted at a 0.9% rate, falling from what would be $17,703.7 billion a year in the 4th quarter to $17,665.0 billion annually in the 1st quarter, with the headline -0.7% rate of decrease in real output arrived at after a negative deflator of 0.18% was applied to that dollar change...

while we cover the details below, remember that the press release for GDP 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 they only use the prefix "real" to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those nonsense 2009 dollar figures, which would be better thought of as a quantity indexes...given the misunderstanding evoked by the press release, all the data that we'll use in reporting on this estimate comes from the pdf for the 2nd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, 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 inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts... 

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 1.8% annual rate rather than the 1.9% growth rate reported last month, and since the 1st quarter deflator for PCE was negative 2.0%, that means personal spending in current dollars actually shrunk at a 0.2% rate....real consumption of durable goods rose at a 1.1% annual rate, which was unrevised from the advance report, and added just 0.08 percentage points to GDP, as real output of automotive products consumed fell at a 3.9% rate and was a major drag...real consumption of nondurable goods rose at a 0.1% annual rate, revised from the 0.3% decrease reported in the 1st estimate, and added 0.02 percentage points to 1st quarter growth, as real consumption of food and clothing both decreased to hold down non-durable growth, while consumption of services rose at a 2.5% annual rate, revised from the 2.8% rate reported last month, which added 1.13 percentage points to the final GDP tally...almost all of that was in the increases posted by real consumption of health care and utilities in the colder than normal winter, while other types of consumer services made minimal contributions, with a 10.0% decrease in the real consumption expenditures of nonprofit institutions serving households the major negative in this component...

due to the downward revision of real private inventories, seasonally adjusted real gross private domestic investment grew at a 0.7% annual rate in the 1st quarter, revised from the 2.0% growth estimate made last month, while the contraction in private fixed investment was revised from -2.5% to -1.3% and on net subtracted 0.21 percentage points from the quarter's growth rate...real non-residential fixed investment fell at a 2.8% rate, rather than the 3.4% decrease previously estimated, as the contraction in investment in non-residential structures was revised up from a drop at a 23.1% rate to a drop at a 20.8% rate, which was still largely due to a near 50% pullback in oilfield drilling over the quarter; by itself, that subtracted 0.67 percentage points from the 1st quarter change in GDP...however, investment in equipment grew at a 2.7% rate, not the 0.1% rate previously reported, and growth in residential investment was revised up from 1.3% to 5.0%, while the quarter's investment in intellectual property products, mostly software in this quarter, was revised down, from growth at a 7.8% rate to growth at a 3.6% rate…after those revisions, investment in equipment added 0.16 percentage points to the 1st quarter growth rate, investment in intellectual property added 0.14 percentage points, while growth in residential investment added 0.16 percentage points to 1st quarter GDP...

meanwhile, real private inventories were revised from the originally reported $110.3 billion in real growth to show inventory growth at an inflation adjusted $95.0 billion rate, after inventories had grown at a $80.0 billion rate in the 4th quarter, and hence the $15.0 billion greater inventory growth only added 0.33 percentage points to the 1st quarter's growth rate, in contrast to the 0.74 percentage point addition from inventory growth reported in the advance estimate...since inventories indicate that some of the goods produced goods during the quarter are still sitting on the shelf, their increase by $15.0 billion means real final sales of GDP were lower by that much, hence decreasing at a 1.1% annual rate, revised down from the real final sales decrease of 0.5% reported last month....

both the decrease in real exports and the increase in real imports were revised higher with this release, and hence our net trade was a much larger negative, as exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (hence not counted elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was not produced here....our real exports fell at a 7.6% rate rather than the 7.2% contraction reported in the first estimate, and as a result subtracted 1.03 percentage points from 1st quarter GDP growth...meanwhile, the real growth of our imports was revised to 5.6% from the previously reported 1.8% growth and hence it also subtracted another 0.87 percentage points from the quarter's growth rate...hence the 1.90 percentage points subtracted by trade were greater than the additions in the other GDP components, and were largely responsible for the 0.7% contraction in GDP reported here...

however, there are some anomalies in these revisions this report, leading us to question the BEA result...you may recall that our imports jumped in March when the West coast dock strike ended and the ships were unloaded, and as a result the March trade deficit increased 43%...however, those imports did not show up in March business sales, business inventories, or anywhere in investment...so while BEA applied their GDP formula to subtract imports from 1st quarter GDP as they normally would, the reason imports are subtracted is because they represent consumption inventories or investment that was previously added to GDP that was not produced here...considering that those March imports don't seem to have been added to any of the other national accounts, they shouldn't subtract from GDP...where those March imports went is still a mystery, perhaps they'll show up in consumption or inventories in the 2nd quarter, but from here it appears that the subtraction of the March jump in imports was misallocated by the automated GDP algorithm  ...

to nonetheless finish our review of this BEA report,  there were also revisions to real government consumption and investment in this 2nd estimate...real federal government consumption and investment grew at a 0.1% rate vis a vis the 4th quarter, which was revised from growth at a 0.3% rate...real federal spending for defense was revised to show contraction at a 1.0% rate rather than the 0.7% contraction previously reported, while all other federal consumption and investment grew at a 2.0% rate, up from the 1.9% growth rate reported last month...real state and local consumption and investment were also revised lower, from falling at 1.5% rate in the first estimate to a drop at a 1.8% rate in this estimate...thus, while the slight uptick in Federal consumption and investment added just 0.01 percentage points to GDP, the decrease in real state and local consumption and investment subtracted 0.21 percentage points from the final 1st quarter GDP growth figure....note that government outlays for social insurance are not included in this GDP component; rather, they are included in personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services...

April Orders for Durable Goods Drop 0.5% after Prior Months Revised Up 1.4%

new orders for durable goods fell back a bit in April after the unexpected spike in orders for cars and planes in March...the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell in April by a seasonally adjusted $1.2 billion or 0.5% to $235.5 billion, following a March increase of 5.1% that was revised up from a 4.0% increase and a 1.1% decrease in February orders, also revised up from an earlier reported 1.4% drop...the value of new orders remained 1.3% below the level of a year earlier, but part of that decrease is likely due to falling prices in some durable goods, such as primary metals and fabricated metal products...as is usually the case, the monthly change in new orders was driven by the 2.5% decrease in new orders for transportation equipment, as new orders for commercial aircraft fell 4.0% to $16,340 million, and new orders for defense aircraft fell 12.8% to $4,443 million...excluding transportation orders, new orders for other durable goods actually rose 0.5%, as the important new new orders for nondefense capital goods excluding aircraft rose 1.0% to $69,136 million, after March capital goods orders were revised from a decrease of 0.5% to a 1.5% increase...however, those increases followed 6 months of decreasing new orders for capital goods less aircraft, leaving new orders for this proxy for investment in equipment 2.5% lower than a year earlier..

the value of seasonally adjusted shipments of durable goods slipped slightly in April, falling $0.1 billion or less than 0.1% to $240.5 billion, after March shipments rose 1.5% for the first increase this year...however, a $0.5 billion or 2.1% decrease to $21.6 billion in shipments of primary metals, which have been down 6 out of the last 7 months due to lower prices, was responsible for the decrease, suggesting a real increase in shipments on the order of 0.2%...also, shipments of nondefense capital goods excluding aircraft rose 0.8%, indicating a decent increase in equipment investment in the first month of the second quarter...meanwhile, seasonally adjusted inventories of durable goods, which have been up 24 out of the last 25 months, rose again to a new record at $401.5 billion, increasing by $0.9 billion or 0.2%, $0.6 billion of which was a 0.5% increase to $130,267 million in inventories of transportation equipment.....

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were virtually unchanged, slipping by $0.3 billion to $1,156.4 billion, but still the 4th decrease in the last 5 months...a $0.9 billion or 0.7% decrease in unfilled orders for machinery was the underlying reason for the decrease, and as a result the order book for nondefense capital goods excluding aircraft was 0.2% smaller at $249,475 million....despite the year to date decrease, unfilled orders for durable goods remained 7.0% higher than they were last April, with only primary metals, machinery and defense goods seeing a year over year decrease in their order backlog...for more details and a longer term perspective on this report, Robert Oak has coverage which includes 9 FRED graphs...

New Home Sales Continue Ahead of Last Year's Pace

the Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 517,000 new home sales a year, 6.8 percent (±15.8%)* above the revised March rate of 484,000 new single family homes a year, and 26.1 percent (±15.4%) above the annual rate that new homes were selling at in April of last year...as you know, the asterisk on the increase in April sales indicates that based on their small sampling, Census could not be certain whether new home sales rose or fell from those of March, 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 49,000 new homes sold in April, up from 45,000 new homes sold in March…their imprecise raw data further indicated that the median sales price of new houses sold was $297,300, up from $285,500 in March, while the average sales price was $341,500, down from $343,300 last month.... the seasonally adjusted estimate of new houses left for sale at the end of April was 205,000, which represents a 4.8 month supply at the April sales rate...for more details and graphics, see Bill McBride's two posts, New Home Sales increased to 517,000 Annual Rate in April and Comments on New Home Sales, and Robert Oak's New Home Sales Increase 6.8% While Prices Surge with 6 FRED graphs..

Case-Shiller Home Price Indexes for March

the Case-Shiller house price indexes for March were released Tuesday and indicated a 4.7% year over year increase in prices on repeat home sales in the orginal ten cities covered, a 5.0% increase in the 20 city Composite, and a 4.1% increase in home prices nationally since the March report of last year....they also report a 'monthly' increase of 0.8% in the ten city index and in home prices nationally and a 0.9% increase in the 20 city index from the index readings of the February report; but since the month over month figures for this report are comparing January, February and March home prices to those of December, January and February, the change in the month over month indexes is in effect equal to 1/3rd the difference between March prices and December prices...the full pdf of the release is here and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary...for coverage of this Case-Shiller report on the web, Bill McBride has two posts, which include several graphs: Case-Shiller: National House Price Index increased 4.1% year-over-year in March, followed by his analysis in Real Prices and Price-to-Rent Ratio in March….in addition, the interactive FRED graphs for the 20 city Composite that i had assembled last year are still viewable at the St Louis Fed website: our first FRED graph shows the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red, and our second FRED graph of the Case-Shiller city indices shows the the historical price track of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red...the index values for each of those cities since January 2000 will appear as you move your cursor across the face of the graphs..

April Regional and State Employment and Unemployment

the Regional and State Employment and Unemployment Summary for April expands on the national employment situation summary of three weeks ago by breaking down the state and regional details...as with most BLS reports, the press release is very readable & self explanatory, better than we can restate, with BLS referring to appropriate tables linked to at the bottom of the press release wherever relevant...the BLS table corresponding to household survey data, including the seasonally adjusted count of the unemployed and the unemployment rate for each state, is here....for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last April, see the following two BLS tables accompanying this release: Table 5. Employees on nonfarm payrolls by state and selected industry sector, seasonally adjusted and Table 6. Employees on nonfarm payrolls by state and selected industry sector, not seasonally adjusted ...this report was also covered by Bill McBride with his graphs here: BLS: Twenty-Three States had Unemployment Rate Decreases in April 

(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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