Sunday, April 28, 2019

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

The key economic 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 Existing Home Sales Report for March from the National Association of Realtors (NAR)….also released this week was the Chicago Fed National Activity Index (CFNAI) for March, a weighted composite index of 85 different economic metrics, which rose to –0.15 in March from –0.31 in February, after February's index was revised down from the -0.29 reported last month...as a result, the 3 month average of that index fell to –0.24 in March from a revised –0.18 in February, a negative number which thus indicates that national economic activity has been below the historical trend over recent months...

This week also saw the release of two more regional Fed manufacturing surveys for April:  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 +3, following last month's reading of +10, indicating a fairly sluggish growth of 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 +5 in April, down from a reading of +10 in March but up from a index of +1 in February, also indicating fairly sluggish growth in that region's manufacturing....

1st Quarter GDP Grows at a 3.2% Rate, Despite Biggest Durable Goods Pullback Since Q4 2009

Our economy grew at a 3.2% rate in the 1st quarter, somewhat faster than the growth rate of the fourth quarter, as improving international trade balances, greater growth of private inventories, and a sizable increase in state and local government investment was only partially offset by slower growth in personal consumption...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 3.2% annual rate from the output of the 4th quarter of 2018, when our real output grew at a 2.2% real rate...in current dollars, our first quarter GDP grew at a 3.84% annual rate, increasing from what would work out to be a $20,865.1 billion a year output rate in the 4th quarter of last year to a $21,062.7 billion annual rate in the 1st quarter of this year, with the headline 3.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 0.9%, aka the GDP deflator, was computed and applied to the current dollar change...

As is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now....also note that March construction and non-durables inventory data have yet to be reported, and that the BEA assumed a small increase in nonresidential construction, modest decreases in both residential and public construction, and a modest decrease in nondurable manufacturing inventories for March before they estimated 1st quarter output (see their Key source data and assumptions Excel file that accompanies this report for more specific details)..

While we cover the details on the 1st quarter below, 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 indexes chained from 2012 prices, 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 pdf for the advance estimate of 1st quarter GDP, which we find on the BEA GDP landing page, where you can also find 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 2nd quarter of 2015, 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 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....

Personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, grew at a 1.8% rate in current dollars in the 1st quarter, which worked out to a real growth rate of 1.2% in consumed goods and services after an annualized 0.6% PCE price index increase was used to adjust that personal spending for inflation....however, consumer outlays for durable goods actually fell at a 5.7% rate in current dollars while prices of those durable goods were on average 0.4% lower, and thus the BEA found real growth in output of consumer durables fell at a 5.3% rate, the largest real drop since the 4th quarter of 2009, as a drop in real consumption of automobiles at a 18.4% rate more than offset a modest increase in real consumption of recreational goods and vehicles, while other durable goods were little changed....the BEA also found that real output of consumer non-durable goods grew at a 1.7% rate after a decrease in consumer spending for non-durable goods at a 0.7% rate was adjusted for an average drop in non-durable prices at a 2.4% rate, with decreased real consumption of food, clothing and energy goods more than offset by greater growth in real consumption of other nondurables... meanwhile, the 3.7% nominal growth in consumer outlays for services was deflated by a 1.6% increase in prices for services to show that real output of consumer services grew at a 2.0% annual rate, led by real growth of health care and financial services....as a result of these changes in growth from the 4th to the 1st quarter, the decrease in outlays for durable goods subtracted 0.38 percentage points from GDP, largely on a 0.49 percentage point hit from automotives, while the increased consumption of non-durable goods added 0.24 percentage points to the growth of GDP, and as increased consumption of services added 0.96 percentage points to the growth rate of the 1st quarter economy..

The real change in other components of the change in GDP are computed by the BEA in the same manner as we have just illustrated for computing PCE; ie, the annualized increase in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the change in real units of goods or services produced during the quarter at an annual rate....thus, after inflation adjustment, real gross private domestic investment, which had grown at a 3.7% annual rate in the 4th quarter of 2018, grew at a 5.1% annual rate from there in the 1st quarter...however, real growth in fixed investment grew at a 1.5% annual rate in the 1st quarter, after growing at a 3.1% rate in the 4th quarter, as real non-residential fixed investment grew at a 2.7% rate while real residential investment contracted at a 2.7% rate...real investment in non-residential structures, however, fell at a 0.8% rate and subtracted 0.02 percentage points from 1st quarter GDP, while real investment in equipment grew at a 0.2% rate and added 0.01 percentage point to GDP, as real investment in intellectual property grew at 8.6% rate and added 0.39 percentage points to GDP, while contracting real residential investment subtracted 0.11 percentage points from the quarter’s growth rate....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, greater growth in inventories boosted gross investment and hence GDP, as real private inventories grew by an inflation adjusted $128.4 billion in the quarter, up from the $96.8 billion of inflation adjusted inventory growth that we saw in the 4th quarter, and as a result the $31.6 billion greater real inventory growth added 0.65 percentage points to the 1st quarter's growth rate, after $7.0 billion in real inventory growth in the 4th quarter had added 0.11 percentage points to that quarter's GDP....however, since greater growth in inventories indicates that more of the goods produced during the quarter were left in storage or "sitting on the shelf”, the $31.6 billion increase in their growth in turn meant that real final sales of GDP were actually smaller by that much, and hence real final sales of GDP grew at a 2.5% rate in the 1st quarter, after real final sales had increased at a 2.1% rate in the 4th quarter, when the change in inventories was smaller, and hence had a smaller impact on real final sales of GDP…

At the same time, our real exports of goods and services grew at a 3.7% rate in the 1st quarter, after growing at a 1.8% rate in the 4th quarter of 2018, while our real imports shrunk at a 3.7% rate in the 1st quarter, after rising at a 2.0% 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 that  increase in 1st quarter exports added .45 percentage points to 1st quarter GDP....on the other hand, real increases in imports subtract from GDP because they are 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, so conversely a decrease in imports adds to GDP growth….hence the 3.7% decrease in real imports in the 1st quarter added .58 more percentage points to GDP, and as a result, our improving trade balance added a net 1.03% percentage points to 1st quarter GDP, after an increase in our trade deficit had subtracted 0.08% percentage points from GDP in the fourth quarter of last year...

Finally, real consumption and investment by all branches of government grew at a 2.4% annual rate in the 1st quarter, after decreasing at a 0.4% rate in the 4th quarter, as federal government consumption and investment was statistically unchanged, while state and local consumption and investment grew at a 3.9% rate.....at the federal level, inflation adjusted spending for defense grew at a 4.1% rate and added 0.16 percentage points to 1st quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 5.9% rate and subtracted 0.16 percentage points from 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 grew at an 3.9% annual rate and added 0.41 percentage points to the quarter's growth rate, as growth of real state and local investment at an 19.9% rate added 0.35 percentage points of that to the quarter's growth rate...

March Durable Goods: New Orders Up 2.7%, Shipments Up 0.3%, Inventories Up 0.3%

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 $6.8 billion or 2.7 percent to $258.5 billion in March, after February's new orders were revised from the $250.6 billion reported last month to $251.8 billion, now down by 1.1% from January's new orders, revised from the 1.6% drop originally reported, and as a result, year to date new orders are now up by 3.0% from those of 2018...the volatile monthly new orders for transportation equipment led this month’s increase, as new transportation equipment orders rose $6.1 billion or 7.0 percent to $93.8 billion, on a 31.2% increase in new orders for commercial aircraft....excluding orders for transportation equipment, other new orders were up 0.4%, while excluding just new orders for defense equipment, new orders rose 2.3%....at the same time, new orders for nondefense capital goods less aircraft, a category that’s a proxy for equipment investment, rose 1.3% to $69,979 million, led by a 9.0% increase in new orders for communications equipment...

Meanwhile, the seasonally adjusted value of March shipments of durable goods, which were ultimately included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased by $0.9 billion or 0.3 percent to $259.6 billion, after the value of February shipments was revised from $258.6 billion to $258.7 billion, now up 0.3% from January....higher shipments of transportation equipment were responsible for the March increase, as those shipments increased by $1.0 billion or 1.1 percent to $90.7 billion...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $1.4 billion or 0.3 percent to $420.5 billion, after the value of end of February inventories was revised from $418.9 billion to $419.149 billion, now up 0.4% from January....a $0.7 billion or 1.0 percent increase to $71.6 billion in the value of inventories of machinery accounted for half of the March increase..

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 time in the past 3 months, increasing by $3.2 billion or 0.3 percent to $1,181.9 billion, after the February unfilled orders decrease was revised from $3.6 billion to $3.2 billion, now down 0.2% from January...a $3.1 billion or 0.4 percent increase to $811.9 billion in unfilled orders for transportation equipment accounted for most of the increase, while unfilled orders excluding transportation equipment orders were up $119 million, statistically a 0.0% change....the unfilled order book for durable goods is now 2.8% above the level of last March, with unfilled orders for transportation equipment now 2.5% above their year ago level, mostly on a 4.0% increase in the backlog of orders for motor vehicles...

New Home Sales Reported Higher on Lower Prices 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 692,000 homes annually during the month, which was 4.5 percent (±17.6 percent)* above the revised February annual sales rate of 662,000, and 3.0 percent (±11.4 percent)* above the estimated annual rate that new homes were selling at in March of last year....the asterisks indicates that based on their small sampling, Census could not tell whether March new home sales rose or fell from those of February, or even from home sales of a year ago, 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 667,000 reported last month to an annual rate of 662,000, and new home sales in January, initially reported at an annual rate of 607,000 and revised to a 636,000 rate last month, were revised back to a 625,000 a year rate with this report, while December's annualized new home sales rate, initially reported at an annual rate of 621,000 and revised from the initial revision of 652,000 to a 588,000 a year rate last month, were revised down to a 562,000 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 68,000 new single family homes sold in March, up from the estimated 56,000 new homes that sold in February and up from the 47,000 that sold in January .....the raw numbers from Census field agents were further used to estimate that the median sales price of new houses sold in March was $302,700, down from the median sale price of $315,200 in February and down from the median sales price of $335,400 in March a year ago, while the average new home sales price was $376,000, down from the $385,300 average sales price in February, but up from the average sales price of $369,200 in March a year ago....a seasonally adjusted estimate of 344,000 new single family houses remained for sale at the end of March, which represents a 6.0 month supply at the March sales rate, down from the 6.1 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 increased to 692,000 Annual Rate in March and A few Comments on March New Home Sales..

Existing Home Sales Decrease 4.9% in March

The National Association of Realtors (NAR) reported that existing home sales fell at a 4.9% rate from February to March on a seasonally adjusted basis, projecting that 5.21 million existing homes would sell over an entire year if the March home sales pace were extrapolated over that year, a pace that was also 5.4% below the annual sales rate projected in March of a year ago...February homes sales, now at a 5.48 million annual rate, were revised from the 5.51 annual rate reported a month ago....the NAR also reported that the median sales price for all existing-home types was $259,400 in March, which was 3.8% higher than the median price of $249,800 in March a year earlier, which they report as "the 85th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Slide 4.9% in March", is in easy to read plain English, so if you're interested in a regional breakdown, or 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 usually look at the raw data overview (pdf) to see what actually happened during the month...this unadjusted data estimates that roughly 400,000 homes sold in March, up 28.6% from the 311,000 homes that sold in February, but down by 7.8% from the 434,000 homes that sold in March of last year, so we can see the effect of a large springtime seasonal adjustment causing the headline to show a decrease....that same pdf indicates that the median home selling price for all housing types rose by 3.7%, from a revised $250,100 in February to $259,400 in March, while the average home sales price rose 3.0% to $297,200 from the $288,500 average sales price in February, while it was up 2.5% from the $289,900 average home sales price of March a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, again see the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Decreased to 5.21 million in March and Comments on March 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 picked from the aforementioned GGO posts, contact me…)      

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