4th quarter GDP, December durable goods, new home sales, & state jobs report, November Case-Shiller, et al

the key release this week was the the first or "advance" estimate of 4th quarter GDP from the Bureau of Economic Analysis; the other most widely watched reports were the December advance report on durable goods from the Census bureau, the December report on new home sales, also from the Census bureau, and the November Case-Shiller Home Price Index, which is a 3 month average of prices for repeat home sales closed in September, October and November; in addition, the Bureau of Labor Statistics released the Regional and State Employment and Unemployment Summary for December, and the week also saw the release of the last three regional Fed manufacturing surveys for January...

the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity composite index had fallen to a six year low of -34.6, from a revised reading of -20.1 in December, the thirteenth consecutive negative reading, the result of an going recession in the Texas oil patch economy...the Richmond Fed Survey of Manufacturing Activity for January, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index slipped to +2, following last month's reading of +6, indicating ongoing sluggish growth in the region's manufacturing, and the Kansas City Fed manufacturing survey for January, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index was unchanged at –9 in January, its eleventh consecutive negative reading, indicating that their regional contraction, mostly in the energy industry, continues...we also saw the private release of the Chicago Purchasing Managers Index (PMI) for January, which reported their Chicago Business Barometer jumped 12.7 points, from 42.9 in December to 55.6 in January, in a diffusion index where readings above 50 indicate that a plurality of Chicago area purchasing managers saw growth in various facets of their business...

4th Quarter GDP Growth Slows to 0.7% Rate on Inventories and Trade

our economy grew at a 0.7% rate in the 4th quarter as growth in personal consumption slowed, exports fell, fixed investment contributed little, and the increase in private inventories decreased, while growth in the federal government was the sole positive change...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 0.7% annual rate over the output of the 3rd quarter of this year, when our real output grew at a 2.0% real rate...in current dollars, our fourth quarter GDP grew at a 1.5% annual rate, increasing from what would work out to be a $18,060.2 billion a year output rate in the 3rd quarter to a $18,128.2 billion annual rate in the 4th quarter, with the headline 0.7% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 0.8%, aka the GDP deflator, was applied to the current dollar change... as is always the case 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 December construction and inventory data have yet to be reported, and that BEA assumed an increase in nonresidential construction, an increase in residential construction, a decrease in nondurable manufacturing inventories, and an increase in wholesale and retail inventories ex-autos in December before estimating 4th quarter output..

while we look at the details, 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 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 unreal 2009 dollar figures, which we think would be better thought of as representing quantity indexes...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting here comes from the pdf for the 1st estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA 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 (inflation adjusted) 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...

personal consumption expenditures (PCE), which accounts for over 68% of GDP, grew at a 2.3% rate in current dollars in the 4th quarter, but once the inflation adjustment was made with the quarterly annualized PCE price index change of 0.1%, we find real PCE grew at a 2.2% rate in the 4th quarter, after rising at a 3.0% rate in the 3rd quarter...after annualized 4th quarter consumer spending for durable goods was adjusted for a 1.9% decrease in durable goods prices, the BEA found real growth in output of consumer durables was at a 4.3% annual rate, as real consumption of recreational goods and vehicles led the durables increase with a 11.9% growth rate even as real consumption of automotive vehicles decreased at a 4.9% rate...real output of consumer non-durable goods grew at a 1.5% rate after consumer spending for non-durables was adjusted for lower prices at a 4.5% rate, with real consumption of both food and energy goods seeing minor decreases...meanwhile, the 4.0% nominal growth in consumer outlays for services was reduced with a 2.0% increase in prices for services to show real output of consumer services grew at a 2.0% annual rate, led by a 3.8% real growth rate in health care services while real outlays for housing and utilities shrunk at a 1.4% rate and subtracted 17 percentage points from 4th quarter growth due to warmer than normal weather....thus, with real growth in each of the major components of personal consumption expenditures, real growth in output of consumer durable goods added 0. 32 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.22 percentage points to 4th quarter GDP growth, and real growth in services provided to consumers added 0.93 percentage points to the change in 4th quarter GDP...

the change in other components of the change in GDP are computed by the BEA in the same manner; ie, the actual increase in current dollar spending for the quarter is adjusted with an inflation factor for that component, giving the change in real units of goods or services produced in the quarter, and then those quarterly changes are converted to an annualized figure by compounding them 4 times...thus, real gross private domestic investment, which had shrunk at a 0.7% annual rate in the 3rd quarter, shrunk at a 2.5% annual rate in the 4th quarter; however, most of that decrease in investment growth in both quarters came from slower growth of inventories, as real growth in fixed investment still grew at a 0.2% annual rate in the 4th quarter, down from the 3.7% growth rate of the 3rd quarter...of 4th quarter fixed investment, real non-residential fixed investment fell at a 1.8% rate, as real investment in non-residential structures fell at a 5.3% rate and subtracted 0.15 percentage points from 4th quarter GDP and real investment in equipment fell at a 2.5% rate and subtracted 0.31 percentage points from GDP, while real investment in intellectual property grew at 1.6% rate and added 0.07 percentage points to GDP...in addition, real residential investment grew at a 8.1% rate in the 4th quarter, little changed from the 8.2% growth it saw in the 3rd quarter, and added 0.20 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...

as was mentioned, slower growth in inventories also reduced investment and hence GDP, as real private inventories grew by an inflation adjusted $68.6 billion in the 4th quarter, down from the $85.5 billion of inflation adjusted inventory growth we saw in the 3rd quarter, and as a result the $16.9 billion slower real inventory growth subtracted 0.45% from the 4th quarter's growth rate, after $28.0 billion slower real inventory growth in the 3rd quarter subtracted 0.71% from that quarter's GDP...since slower growth in inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf”, their decrease by $16.9 billion means real final sales of GDP were actually greater by that much, and hence real final sales of GDP rose at a 1.2% rate in the quarter, after real final sales increased at a 2.7% rate in the 3rd quarter, when the change in inventories was larger…

the value of both exports and imports in current dollars fell in the 4th quarter, but after large inflation adjustments due to lower prices for both, mostly for traded commodities, the BEA found that real imports rose while real exports shrunk...after adjusting for a 5.4% annualized decrease in prices, our real exports of goods and services fell at a 2.5% rate in the 4th quarter, after rising at a 0.7% rate in the 3rd quarter, while our real imports, adjusted for lower prices at a 7.8% rate, rose at a 1.1% rate in the 4th quarter, after rising at a 2.3% rate in the 3rd 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), while 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 here and hence not part of our national product...thus the 4th quarter decrease in real exports subtracted .31 percentage points from 4th quarter GDP,  a reversal of the 0.09 percentage points that our exports added to GDP in the 3rd quarter, while the 1.1% increase in real imports subtracted .16 percentage points from GDP, down from the 0.35 percentage points that an increase in imports subtracted in the 3rd quarter...thus, our worse trade balance subtracted a net 0.47% percentage points from 4th quarter GDP, after our increased trade deficit had subtracted 0.26% percentage points in the third quarter...

finally, real consumption and investment by branches of government increased at a 0.7% annual rate in the 4th quarter, after increasing at a 1.8% rate in the 3rd quarter, as federal government consumption and investment rose at a 2.7% rate while state and local consumption and investment fell at a 0.6% rate.....inflation adjusted federal spending for defense rose at a 3.6% rate and added 0.14 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment rose at a 1.4% rate and added  0.04 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 0.6% annual rate and subtracted 0.06 percentage points from the quarter's growth rate, as real growth in state and local consumption expenditures added 0.05 percentage points and a contraction in real state and local investment subtracted 0.11 percentage points...

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 2012...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...you can clearly see that the only significant positive contribution to GDP growth in the 4th quarter came as a result of increased real personal consumption, with just a bit of help from increased government consumption and investment; the increase in private fixed investment in the 4th quarter was so small it doesn't even appear on a graph of this scale...meanwhile, the major negatives were slower inventory growth (yellow) smaller exports (purple), and greater imports (green)...

December New Orders for Durable Goods Crash 5.1%, Shipments Down 2.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell $12.0 billion or 5.1 percent to $225.4 billion, following a revised decrease of $1.2 billion, or 0.5% in November new orders, which were originally reported as unchanged...new orders for durable goods have now been down 4 out of the last 5 months, and ended the year 3.5% below the level of 2014, the largest drop in the history of the report, in part due to falling prices of some durable goods, such as primary metals and fabricated metal products, and in part due to the July through November shutdown of the Export-Import Bank, the financing vehicle for large export orders...as is usually the case, the volatile monthly change in new orders for transportation equipment drove the December headline change, as those transportation equipment orders fell $10.1 billion or 12.4% to $71.3 billion, as a 69.1% drop to $2,500 million in new orders for defense aircraft was coupled with 29.4% decrease to $9,360 million in new orders for commercial aircraft, which ended the year 32.7% below their level of 2014....excluding those new orders for transportation equipment, other new orders still fell by 1.2% in December, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 4.3% to $65,866 million, after the November change in orders for such capital goods was revised from a 0.4% decrease to a 1.1% decrease....

meanwhile, the seasonally adjusted value of December shipments of durable goods, which were inputs into various components of 4th quarter GDP after adjusting for deflation, fell by  $5.4 billion, or 2.2 percent, to $235.8 billion, after November's shipments were revised from a increase of 0.9% to a increase of 0.6% and October's were down 1.2%, unrevised...again, lower shipments of transportation equipment drove the change, as they were down $5.4 billion or 6.7 percent to $75.1 billion, as the value of shipments of commercial aircraft fell 32.4% to $10,844 million; excluding that volatile sector, the value of other shipments of durable goods was unchanged in December but 1.1% lower than 2014 for the year as a whole....meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 1st time in 6 months, increasing by $2.1 billion, or 0.5 percent, to $397.9 billion, after a 0.2% decrease in November that was originally reported as a 0.3% decrease ...a $1.8 billion or 1.4 percent increase to $131.8 billion billion in the value of inventories of transportation equipment was again a major factor, as the value of inventories of motor vehicles rose 2.2% to $36,504 million...essentially flat in the 4th quarter, end of the year inventories of durable goods still remain 0.1% lower than at the end of 2014...

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 down following two consecutive monthly increases, falling by $$5.6 billion or 0.5 percent to $1,187.6 billion after a 0.1% increase in November, again largely due to a decrease in the backlog in orders for transportation equipment, which fell by $3.8 billion or 0.5 percent to $795.2 billion, which you might note is more than half the total of unfilled orders outstanding, as the $607,807 million backlog in commercial aircraft orders alone accounts for more than half of this metric...without the transportation equipment sector, December's unfilled orders still fell by 0.5%, rising from $394,229 million in November to $392,453 million in December....compared to a year ago, the unfilled order book for durable goods is 1.9% below last December's level, with unfilled orders for transportation equipment 1.8% below their year ago level...

Half a Million New Homes Sell in 2015, Up More than 10% from 2014

the Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 544,000 new homes a year, which was 10.8 percent (±17.1%)* above the revised November rate of 491,000 new single family homes a year and 9.9 percent (±25.0%)* 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 or even from those 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 subject to the largest revisions of any census construction series....hence, these initial reports are not very reliable and often see significant revisions...with this report; sales new single family homes in November were revised from the annual rate of 490,000 reported last month to a 491,000 a year rate, October's annualized home sale rate, initially reported at 495,000, was revised from 470,000 to 482,000, while the annual rate of September's sales, revised from 447,000 to 442,000 last month, was now revised higher, to an annual rate of 457,000...

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 38,000 new single family homes sold in December, up from the 34,000 new homes that sold in November, which was unrevised, while the unadjusted estimate for October home sales was revised from 38,000 to 39,000 after it was originally reported at 41,000, and the estimate for September sales, first reported at 36,000, was revised back up to 35,000, after prior downward revisions to 34,000 and 33,000...all totaled, an estimated 501,000 new homes were sold in 2015, 14.5 percent (±4.5%) above the 437,000 single family homes that sold in 2014....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $288,900, down from $297,000 in November, which was originally reported as $305,000, while the average December new home sales price was $346,400, down from $364,200 in November, and down from the average sales price of $373,500 in December a year ago....a seasonally adjusted estimate of 237,000 new single family houses remained for sale at the end of December, which represents a 5.2 month supply at the December sales rate, down from a 5.7 month supply in November....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 544,000 Annual Rate in December and Comments on December New Home Sales...

November Case-Shiller Report Shows National Home Prices up 5.3% From a Year Earlier

the Case-Shiller house price indexes for November indicated a 5.3% year over year increase in sales prices on repeat home sales in the ten cities of the original index, a 5.5% year over year increase in the 20 City Composite, and a 5.3% increase in home prices nationally since the November report of last year, led by an 11.1% increase in home prices in Portland and an 11.0% increase in home prices in San Francisco....Case-Shiller also reports a 'monthly' increase of 0.1% in the national index and the in 20 city index, and no change in the 10 city index, all of which compare prices of houses sold in August, September and October to those sold in September, October and November, and hence the change in the month over month indexes are arithmetically equal to 1/3rd the difference between August home prices and November home prices, ie, not really a useful monthly change at all...seasonally adjusting those so called month over month indexes shows that all three indexes are 0.9% higher than last month's; thus, while home prices in 14 of the 20 cities showed an actual increase in November prices when compared to those of August, after those seasonal adjustments were applied, home prices in all 20 of the cities increased...the full pdf of the release, titled Home Prices Continue to Increase in November, 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, see the following two posts from Bill McBride, which include several graphs: Case-Shiller: National House Price Index increased 5.3% year-over-year in November, followed by his analysis in Real Prices and Price-to-Rent Ratio in November...
as we mentioned, since Case-Shiller indexes are simple averages of home price changes over 3 months, they are not very useful for monthly comparisons...that's simply because two of the months are being compared to themselves, leaving only prices changes from the current month, and the month before the month before last left in each month over month comparison....this is also the case with any three month average, which we can represent by (a + b + c) / 3, with a being the current month, b being last month, and c being the month before that...another way of writing that same expression is "a/3 + b/3 + c/3 " .... when one compares that to the prior month 3 month average, represented by (b + c + d) / 3, where d is the month before the month before last, we end up comparing (a/3 + b/3 + c/3) to (b/3 + c/3 + d/3), and since two of our elements in that comparison are identical, the comparison simply becomes a/3 to d/3, or one-third the difference between months a and d....nonetheless, such 3 month averages are used by economists everywhere, including at the Fed, as if they're providing some special insight, even though the comparison they offer borders on nonsense...

State and Regional Employment Report for December

the Regional and State Employment and Unemployment Summary for December 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, with BLS referring to appropriate tables linked to at the bottom of the press release wherever relevant, with tables and complete coverage of all 50 states, which means it’s quite a bit more detailed than we can meaningfully cover in a short synopsis....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....North Dakota at 2.7% continues as the state with the lowest unemployment rate, despite the troubles in the oil patch, largely through a reduction of their labor force, while New Mexico had the highest unemployment rate at 6.7%, as they saw their unemployment rate fall from 6.8% in November..

for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last December, 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 ...the latter two tables are very detailed, giving you both actual and seasonally adjusted totals for jobs in each state and the District of Columbia in several categories, including construction, manufacturing, trade, transportation and utilities, financial, professional and business services, education and health services, leisure and hospitality and government....the 22 page pdf version of this report has even more detail also includes map graphics for both the employment rate and the year over year payroll jobs increase by state and region...

(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…)