Sunday, January 28, 2018

4th quarter GDP; December durable goods, new home sales, existing home sales

the key economic release of the past week was the 1st estimate of 4th quarter GDP from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for December and the December report on new home sales, both from the Census bureau, and the existing home sales report for December from the National Association of Realtors (NAR)…we also saw the release of the Chicago Fed National Activity Index (CFNAI) for December, a weighted composite index of 85 different economic metrics, which rose to +0.27 in December, up from +0.11 in November, which was revised from the +0.15 reported last month....that left the 3 month average of the index at +0.42 in December, down from a revised  +0.43  in November, which still indicates that national economic activity continued at a pace above the historical trend over the 4th quarter...in addition to those reports, the BLS also released the Regional and State Employment and Unemployment for December on Friday, which breaks down the establishment survey and household survey data from the monthly jobs report released four weeks earlier by region and by state..

  this week also saw the release of two more regional Fed manufacturing surveys for January: 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 fell to +14 in January from +20 in December, still suggesting a modest expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey for January, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to 16 in January, up from 13 in December and 15 in November, also indicating an ongoing expansion of that region's manufacturing...

4th Quarter GDP Up at 2.6% Rate as Imports & Inventory Cut Growth in Half

our economy grew at a 2.6% rate in the 4th quarter,  somewhat slower than the growth rate of the third quarter, as increasing imports and slower growth in private inventories partially offset stronger personal consumption and fixed investment growth...the Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 2.6% annual rate over the output of the 3rd quarter of 2017, when our real output grew at a 3.2% real rate, as increasing imports subtracted 1.96 percentage points from 4th quarter growth and slower inventory growth subtracted another 0.67 percentage points...for the entire year, our economy grew at a 2.3% rate, 0.8 percent faster than the 1.5% growth that we saw in 2016...in current dollars, our fourth quarter GDP grew at a 5.0% annual rate, increasing from what would work out to be a $19,500.6 billion a year output rate in the 3rd quarter to a $19,738.9 billion annual rate in the 4th quarter, with the headline 2.6% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.4%, 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 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 December construction and non-durables inventory data have yet to be reported, and that the BEA assumed a small decrease in nonresidential construction, an increase in residential construction, and a large increase in nondurable manufacturing inventories for December before they estimated 4th quarter output (see their Key source data and assumptions Excel file)..

while we cover the details on the 4th quarter 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 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 1st estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA’s press release, which also offer links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2014, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters 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 GDP 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 roughly 69% of GDP, grew at a 6.65% rate in current dollars in the 4th quarter, which was reduced to a 3.8% real growth rate of goods and services consumed for GDP purposes, after an annualized PCE price index increase of 2.8% was used to adjust that consumer spending for inflation.... consumer outlays for durable goods rose at a 12.1% rate in current dollars while prices for those durable goods fell at a 1.8% rate, and thus the BEA found real growth in output of consumer durables rose at a 14.2% rate, as real consumption of motor vehicles and parts grew at a 16.7% rate while real consumption of recreational vehicles, furniture and other durable goods all increased at a double digit rate as well...the BEA also found that real output of consumer non-durable goods grew at a 5.2% rate, after growth in consumer spending for non-durables at a 9.4% rate was adjusted for non-durable goods prices that rose at a 4.0% rate, as strong growth in real consumption of food, clothing and other non-durable goods more than offset slightly lower consumption of gasoline and other energy goods....meanwhile, the 4.9% nominal growth in consumer outlays for services was deflated by a 3.1% average increase in prices for personal services to show real output of consumer services grew at a 1.8% annual rate, as a strong real growth rate in health care services and housing and utilities offset a small pullback in use of transportation and recreational services...as a result of those changes in growth from the 3rd to the 4th quarter, the increase in real outlays for durable goods added 1.02 percentage points to the GDP growth rate, increased consumption of non-durable goods added 0.74 percentage points, and increased consumption of services added 0.82  percentage points to the growth rate of the economy in the 4th quarter..

the change in other components of the change in GDP is computed by the BEA in the same manner that we have just shown for computing PCE; ie, the actual annualized increase in current dollar spending for the quarter is adjusted with an annualized 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 real 7.3% annual rate in the 3rd quarter, grew at a real 3.6% annual rate from those levels in the 4th quarter...however, real growth in fixed investments increased,  growing at a 7.9% annual rate in the 4th quarter, after growing at a 2.4% rate in the 3rd quarter...among fixed investments, real non-residential fixed investment grew at a 6.8% rate as real investment in non-residential structures grew at a 1.4% rate and added 0.04 percentage points to 4th quarter GDP, real investment in equipment grew at a 11.4% rate and added 0.62 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 4.5% rate and added 0.18 percentage points to GDP...at the same time, real residential investment grew at 11.6% rate and added 0.42 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...

meanwhile, real private inventories grew by an inflation adjusted $9.2  billion in the 4th quarter, after growing at an inflation adjusted $38.5 billion in the 3rd quarter, and as a result the $29.3 billion negative change in real inventory growth subtracted 0.67 percentage points from the 4th quarter's growth rate, after $33.0 billion in real inventory growth in the 3rd quarter had added 0.79% to that quarter's GDP....however, since smaller growth in inventories indicates that less of the goods produced during the quarter were left in storage or "sitting on the shelf”, their decrease by $29.3 billion in turn means real final sales of GDP were actually greater by that amount, and hence real final sales of GDP rose at a 3.2% rate in the 4th quarter, up from the real final sales growth rate of 2.4% in the 3rd quarter, when the greater increase in inventory growth meant that the quarter’s growth in real final sales was lower...

after an adjustment for a 5.8% growth rate in export prices, our real exports of goods and services grew at a 6.9% rate in the fourth quarter, an increase from their 2.1% 3rd quarter growth rate...however, after an adjustment for 6.0% growth rate in import prices, our real imports still grew at a 13.9% rate in the 4th quarter after falling at a 0.7% rate in the 3rd quarter....as you'll recall, 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 in this GDP calculation), while 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 here....thus the 4th quarter increase in real exports added 0.82 percentage points to 4th quarter GDP, while the greater 4th quarter import increase subtracted 1.96 percentage points from 3rd quarter GDP, and thus our deteriorating trade balance subtracted a total of 1.13 percentage points from our 4th quarter GDP, after our improved trade deficit had added 0.36  percentage points to GDP in the third quarter..

finally, real consumption and investment by government increased at a 3.0% annual rate in the 4th quarter, after growing at a 0.7% rate in the 3rd quarter, as federal government consumption and investment grew at a 3.5% rate, while state and local consumption and investment grew at a 2.6% rate....inflation adjusted federal spending for defense grew at a 6.0% rate and added 0.22 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment grew at a 0.1% rate and had no statistical impact on 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 those goods or services....meanwhile, state and local government investment and consumption expenditures grew at a 2.6% annual rate and added 0.28 percentage points to the growth of 4th quarter GDP, as real growth in state and local consumption expenditures added 0.06 percentage points while real state and local investment grew at a 13.1% annual rate and added 0.21 percentage points to GDP...

December Durable Goods: New Orders Up 2.9%, Shipments Up 0.6%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $7.0 billion or 2.9 percent to $249.4 billion in December, after November's new orders were revised from the $241.4 billion reported last month to $242.4 billion, now 1.7% more than October's new orders...for the year, 2017’s new orders were 5.8% above those of 2016, an increase from the 5.4% year over year change we saw in this report last month....a jump in the volatile monthly new orders for transportation equipment was largely responsible for the December increase, as new transportation equipment orders rose $6.0 billion or 7.4 percent to $87.2 billion, on a 55.3% increase to $5,329 million in new orders for defense aircraft and a 15,9% increase to $14,460 in new orders for commercial aircraft....excluding orders for transportation equipment, new orders still rose 0.6%, while excluding just new orders for defense equipment, new orders rose 2.2%....at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, fell $207 million or 0.3% to $67,135 million...

meanwhile, the seasonally adjusted value of December shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $1.5 billion or 0.6 percent to $246.8 billion, after the value of November shipments was revised from from $244.5 billion to $245.3 billion, now up 1.3% from October...shipments of fabricated metal products, up $0.5 billion or 1.5 percent to $33.5 billion, saw the largest percentage increase....at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 17th time in the past 18 months, increasing by $1.3 billion or 0.3 percent to $406.5 billion, after November inventories were revised from $405.2 billion to $405.239 billion, still up 0.2% from October....a $0.4 billion or 0.6 percent increase to $70.4 billion in inventories of machinery was the largest inventory increase, while a $285 million or 0.4 percent decrease to $66,912 million in inventories of commercial aircraft was the largest decrease...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, increased for the fourth month in a row, rising by $6.9 billion or 0.6 percent to $1,144.1 billion, following a November increase of 0.1%, which was statistically unchanged from what was reported a month ago...a $6.0 billion or 0.8 percent increase to $775.9 billion in unfilled orders for transportation equipment was responsible for most of the gain, as unfilled orders excluding transportation equipment orders were up $892 million or 0.2% to $368,222 million...compared to the end of 2016, the unfilled order book for durable goods is now 1.9% above the level of last December, with unfilled orders for nondefense capital goods less aircraft now 2.8% above their year ago level, led by a 5.1% increase in the backlog of orders for machinery...   

December New Home Sales Reported Lower After Sales in Prior Months Revised Down

the Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 625,000 homes annually during the month, which was 9.3 percent (±11.0 percent)* below the revised November annual rate of 689,000 new single family home sales, but was 14.1 percent (±13.0 percent) above the estimated annual rate that new homes were selling at in December of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, 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 new single family homes in November were revised from the annual rate of 733,000 reported last month to an annual rate of 689,000, while home sales in October, initially reported at an annual rate of 685,000 and revised to 624,000 last month, were revised even lower, to a 599,000 a year rate with this report, and while September's annualized home sale rate, initially reported at an annual rate of 677,000 and revised from the initially revised 645,000 a year rate to a 635,000 a year rate last month, were revised up to a 639,000 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 43,000 new single family homes sold in December, down from the estimated 49,000 new homes that sold in November and the 47,000 that sold in October.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $335,400, up from the median sale price of $334,900 in November and up from the median sales price of $327,000 in December a year ago, while the average December new home sales price was $398,900, up from the $383,600 average sales price in November, and up from the average sales price of $382,500 in December a year ago....a seasonally adjusted estimate of 295,000 new single family houses remained for sale at the end of December, which represents a 5.7 month supply at the December sales rate, up from the reported 4.6 months of new home supply in November...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 625,000 Annual Rate in December and A few Comments on December New Home Sales... 

December Existing Home Down 3.6% After November Sales Revised Lower

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell by 3.6% from November to December, projecting that 5.57 million existing homes would sell over an entire year if the December home sales pace were extrapolated over that year, a pace that was 1.1% above the annual sales rate projected in December of a year ago...November sales are now shown at a 5.78 million annual rate, revised down from the 5.81 million annual rate indicated by last month's report...total existing home sales for 2017 added up to 5.51 million, a 1.1% increase from the 5.45 million homes that were sold in 2016...the NAR also reported that the median sales price for all existing-home types was $246,800 in December, which was down from $247,200 in November, but 5.8% higher than in December a year earlier, which they report as "the 70th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Fade in December; 2017 Sales Up 1.1 Percent ", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf) to see what actually transpired during the month...this unadjusted data indicates that roughly 427,000 homes sold in December, up by 0.5% from the 425,000 homes that sold in November, but down by 2.3% from the 437,000 homes that sold in December of last year, so we can see that it was the seasonal adjustments that caused the headline figures to show a month over month decrease and a year over year increase....that same pdf indicates that the median home selling price for all housing types fell less than 0.2%, from a revised $247,200 in November to $246,800 in December, while the average home sales price was $288,200, down 0.4% from the $289,500 average sales price in November, but up 4.8% from the $274,900 average home sales price of December a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: "Existing-Home Sales Fade in December; 2017 Sales Up 1.1 Percent" and A Few Comments on December Existing 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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