Sunday, April 30, 2017

1st Quarter GDP, March durable goods and new home sales

the key report of this past week was the advance estimate of 1st quarter GDP from the Bureau of Economic Analysis, which was released on Friday; other widely watched releases included the March advance report on durable goods and the March report on new home sales, both from the Census bureau, and the February Case-Shiller Home Price Index, which actually is a average of December, January and February relative home prices...Case Shiller’s Index indicated that home prices nationally for those 3 months averaged 5.8% higher than prices for the same homes that sold during the same 3 month period a year earlier….also released was the Chicago Fed National Activity Index (CFNAI) for March, a weighted composite index of 85 different economic metrics, which fell to +0.08 in March from +0.27 in February, after February's index was revised from the +0.34 reported last month...as a result, the 3 month average of that index fell to +0.03 in February, down from a revised +0.16 in February, which indicates that national economic activity has been close to the historical trend over recent months...

the week also saw the last three regional Fed manufacturing surveys for April: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity composite index was unchanged at +16.8, indicating steady expansion of the Texas oil patch economy; 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 slipped to +20, following last month's reading of +22, still indicating a robust expansion in that region's manufacturing, while the Kansas City Fed manufacturing survey for April, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to +7 in April, down from readings of +20 in March and +14 in February, indicating a somewhat slower pace of growth in that region's manufacturing....

1st Quarter Growth Slows to 0.7% Rate on Weakest Personal Consumption Since 2009

our economy grew at a 0.7% rate in the 1st quarter, the slowest pace in 3 years, as personal consumption of motor vehicles and services slowed, and the increase in private inventories decreased, even as fixed private investment grew at the fastest rate in five years...the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 0.7% annual rate over the output of the 4th quarter of 2016, when our real output grew at a 2.1% real rate...in current dollars, our first quarter GDP grew at a 3.0% annual rate, increasing from what would work out to be a $18,869.4 billion a year output rate in the 4th quarter to a $19,007.3 billion annual rate in the 1st quarter of this year, with the headline 0.7% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.3%, aka the GDP deflator, was applied to the current dollar change... as usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate for the quarter is released, which will be two months from now....also note that March construction and some March inventory data have yet to be reported, and that the BEA assumed a small increase in nonresidential construction, a small increase in residential construction, and a substantial increase in nondurable manufacturing inventories for March before they estimated 1st quarter output...also note that revised retail sales data were made available on Wednesday, too late to be incorporated into this report, which will shave another 0.2% off the the first quarter's growth rate when the second estimate of GDP is published at the end of May...

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 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 2009, and then that all percentage changes in this report are calculated from those 2009 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 advance estimate of 1st quarter GDP, which we find 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 the 2nd quarter of 2013, 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...

personal consumption expenditures (PCE), which accounts for nearly 69% of GDP, grew at a 2.7% rate in current dollars in the 1st quarter, which became a 0.3% real growth rate of consumed goods and services after an annualized 2.4% PCE price index increase was used to adjust that spending for inflation....consumer outlays for durable goods fell at a 1.6% rate in current dollars while prices of those durable goods were on average 0.9% higher, and thus the BEA found real growth in output of consumer durables fell at a 2.5% rate, as a drop in real consumption of automobiles at a 16.1% rate more than offset increases in real consumption of furniture, appliances and recreational goods and vehicles...the BEA also found that real output of consumer non-durable goods grew at a 1.5% rate after increased consumer spending for non-durables at a 5.1% rate was adjusted for higher non-durable prices at a 3.6% rate, with decreased consumption of clothing and energy goods more than offset by greater growth of real consumption of food at home and other nondurables... meanwhile, the 2.6% nominal growth in consumer outlays for services was deflated by a 2.2% increase in prices for services to show real output of consumer services grew at a 0.4% annual rate, as a 2.3% decrease in the growth rate in real outlays for housing and utilities offset real growth in other services...as a result of these changes in growth from the 4th to the 1st quarter, the decrease in outlays for durable goods subtracted 0.19 percentage points from GDP, largely on a 0.45 percentage point hit from automobiles, while increased consumption of non-durable goods added 0.22 percentage points to the growth of GDP, and increased consumption of services added 0.21 percentage points to the growth rate of the 1st quarter economy..

the change in other components of the change in GDP are computed by the BEA in the same manner as PCE; ie, the actual annualized increase in current dollar spending for the quarter is adjusted with an inflation factor for that component, yielding the change in real units of goods or services produced in the quarter at an annual rate...thus, real gross private domestic investment, which had grown at a 9.4% annual rate in the 4th quarter of 2016, grew at a 4.3% annual rate from there in the 1st quarter...however, real growth in fixed investment grew at a 10.4% annual rate in the 1st quarter, after growing at a 2.9% rate in the 4th quarter, as real non-residential fixed investment grew at a 9.5% rate, and real residential investment grew at a 13.7% rate...real investment in non-residential structures grew at a 22.1% rate and added  0.55 percentage points to 1st quarter GDP, real investment in equipment grew at a 9.1% rate and added 0.49 percentage points to GDP, and real investment in intellectual property grew at 2.0% rate and added 0.08 percentage points to GDP, while the 13.7% growth rate of residential investment added 0.50 percentage points to 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...

however, much slower growth in inventories reduced gross investment and hence GDP, as real private inventories grew by an inflation adjusted $10.3 billion in the quarter, down from the $49.6 billion of inflation adjusted inventory growth that we saw in the 4th quarter, and as a result the $39.2 billion slower real inventory growth subtracted 0.93 percentage points from the 1st quarter's growth rate, after $42.5 billion greater real inventory growth in the 4th quarter added 1.01 percentage points to that quarter's GDP....however, since slower growth in inventories indicates that less of the goods produced during the quarter were left in storage or "sitting on the shelf”, the decrease in their growth by $39.2 billion in turn means real final sales of GDP were actually greater by that much, and hence real final sales of GDP rose at a 1.6% rate in the quarter, after real final sales had only increased at a 1.1% rate in the 4th quarter, when the change in inventories was positive…

meanwhile, our real exports of goods and services rose at a 5.8% rate in the 1st quarter, after falling at a 4.5% rate in the 4th quarter of 2016, while our real imports rose at a 4.1% rate in the 1st quarter, after rising at a 9.0% rate in the 4th quarter...as you'll recall, real increases in 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 in GDP elsewhere), so the increase in 1st quarter exports added .68 percentage points to 1st quarter GDP...on the other hand, real increases in imports subtract 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 in our country and hence is not part of our national product….hence the 4.1% 1st quarter increase in real imports subtracted 0.61 percentage points from GDP, and therefore our improving trade balance added a net 0.07% percentage points to 1st quarter GDP, after a big increase in our trade deficit had subtracted 1.82% percentage points from GDP in the fourth quarter of last year...

finally, real consumption and investment by all branches of government shrunk at a 1.7% annual rate in the 1st quarter, after increasing at a 0.2% rate in the 4th quarter, as federal government consumption and investment fell at a 1.9% rate, while state and local consumption and investment fell at a 1.6% rate.....inflation adjusted federal spending for defense fell at a 4.0% rate and subtracted 0.16 percentage points from 1st quarter GDP growth, while real non-defense federal consumption and investment rose at a 0.9% rate and added 0.03 percentage points to GDP...note that federal 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, indicating an increase in the output of goods or services....meanwhile, state and local government investment and consumption expenditures fell at a 1.6% annual rate and subtracted 0.17 percentage points from the quarter's growth rate, as real growth in state and local consumption expenditures added 0.05 percentage points while shrinkage in real state and local investment at an 11.2 rate subtracted 0.22 percentage points from the quarter's growth...

we'll again include our FRED GDP graph, so you can picture how these GDP components all come together...in our FRED bar graph below, each color coded bar shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real 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 have in the recent quarter, they'll appear below the zero line...from this we can clearly see that the unusual collapse in real personal consumption expenditures was responsible for the weakness in the 1st quarter's growth rate, and that only the greatest growth in fixed private investment in five years kept the quarter's GDP growth rate from being negative...

1st quarter 2017 advance GDP

March Durable Goods: New Orders Up 0.7%, Shipments Up 0.2%, Inventories Up 0.1%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $1.6 billion or 0.7 percent to $238.7 billion in March, after February's new orders were revised from the $235.4 billion reported last month to $237.1 billion, still 2.3% more than January's new orders…as a result, year to date new orders are now up by 3.4% from those of 2016...the volatile monthly new orders for transportation equipment were responsible for the month’s increase, as new transportation equipment orders rose $2.0 billion or 2.4 percent to $83.3 billion, on a 26.1% increase in new orders for defense aircraft and a 7.0% increase in new orders for commercial aircraft....excluding orders for transportation equipment, other new orders fell 0.2%, while excluding just new orders for defense equipment, new orders rose 0.1%....at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose 0.2% to $65.0 billion...

meanwhile, the seasonally adjusted value of March shipments of durable goods, which were included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased by $0.6 billion or 0.2 percent to $239.8 billion, after the value of February shipments increased 0.2% from January...higher shipments of transportation equipment led the March increase, as those shipments increased by $0.4 billion or 0.5 percent to $81.7 billion...at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $0.5 billion or 0.1 percent to $385.7 billion, after end of February inventories were revised from $385.1 billion to $385.2 billion, still up 0.2% from January....

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but somewhat volatile new orders, rose for the 2nd consecutive month, increasing by $2.5 billion or 0.2 percent to $1,119.0 billion, after the nominal February decrease was revised to a 0.1% increase...a $1.6 billion or 0.2 percent to $755.5 billion increase to $752.7 billion in unfilled orders for transportation equipment led the overall increase, as unfilled orders excluding transportation equipment orders were also up 0.2% to $363,541 million...the unfilled order book for durable goods is still 0.9% below the level of last March, with unfilled orders for transportation equipment still 2.7% below their year ago level, mostly on a 3.6% decrease in the backlog of orders for commercial aircraft...

New Home Sales Reported Higher in March

the Census report on New Residential Sales for March (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 621,000 homes annually during the month, which was 5.8 percent (±15.5 percent)* above the revised February annual sales rate of 587,000 new home sales and 15.6 percent (±15.0 percent) above the estimated annual rate that new homes were selling at in March of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether March new home sales rose or fell from those of February, 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; sales of new single family homes in February were revised from the annual rate of 592,000 reported last month to an annual rate of 587,000, and new home sales in January, initially reported at an annual rate of 555,000 and revised to a 558,000 rate last month, were revised up to a 585,000 a year rate with this report, while December's annualized new home sales rate, initially reported at an annual rate of 536,000 and revised from a revised 535,000 to a 530,000 a year rate last month, were again revised to a 551,000 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 58,000 new single family homes sold in March, up from the estimated 48,000 new homes that sold in February and up from the 43,000 that sold in January .....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in March was $315,100, up from the median sale price of $293,100 in February and down from the median sales price of $311,400 in March a year ago, while the average new home sales price was $388,200, up from the $373,60 average sales price in February, and up from the average sales price of $367,700 in March a year ago....a seasonally adjusted estimate of 268,000 new single family houses remained for sale at the end of March, which represents a 5.2 month supply at the March sales rate, down from the 5.4 months of new home supply reported in February...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 621,000 Annual Rate in March and A few Comments on March 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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