Sunday, February 28, 2021

4th quarter GDP revision; January’s income and outlays, durable goods, & new home sales

The key economic reports released during the past week were the 2nd estimate of 4th quarter GDP and the January report on Personal Income and Spending, both from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for January and the January report on new home sales, both from the Census bureau....this week also had the release of the Chicago Fed National Activity Index (CFNAI) for January, a weighted composite index of 85 different economic metrics, which rose to +0.66 in January from +0.41 in December, which was revised from the +0.52 reported for December last month... after revisions, the 3 month average of the CFNAI slipped to +0.47 in January from a revised +0.60 in December, which still indicates that national economic activity has been somewhat above the historical trend over recent months...in addition, the week also saw the Case-Shiller Home Price Index for December from S&P Case-Shiller, which reported that home prices nationally during October, November and December averaged 12.4% higher than prices for the same homes that sold during the same 3 month period a year earlier...since last month's Case-Shiller report indicated that home prices for September, October and November averaged 9.5% higher than September, October and November of 2019, this month's price index jump means that the implied but unpublished one month year over year index would have risen ~8.7% between September and December...

This week also saw the release of the last three regional Fed manufacturing surveys for February: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index rose to +17.2 from last month's +10.2, suggesting a broader based expansion of the Texas area 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 held steady at +14 in February, suggesting an ongoing modest expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey for February, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +24 in February, up from +17 in January and +14 in December, suggesting widespread improvement among that region's manufacturers...

4th Quarter GDP Grew at a 4.1% Rate, Revised from 4.0% in the Advance Estimate

The Second Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 4.1% rate in the quarter, revised from the 4.0% growth rate reported in the advance estimate last month, as slower growth of personal consumption than was previously estimated was more than offset by greater growth of in fixed investment and inventories....in current dollars, our fourth quarter GDP grew at a 6.14% annual rate, increasing from what would work out to be a $21,170.3 billion a year output rate in the 3rd quarter to a $21,487.9 billion annual rate in the 4th quarter, with the headline 4.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, known in aggregate as the GDP deflator, was computed from the weighted price changes of each of the GDP components and applied to their current dollar change....

Remember that the second estimate GDP news release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change typically 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 2012, 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 2nd estimate of 4th quarter GDP, which can be accessed directly on the BEA's GDP landing page, which also offers links to just the tables on Excel and other technical notes...specifically, we reference table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2017; table 2, which shows the contribution of each of the components to the GDP 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 over the last 5 quarters; and table 4, which shows the change in the price indexes for each of the components...the pdf for the 4th quarter advance estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from 2.5% to an overall 2.4% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 3.97% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 1.6% annual rate in the 4th quarter, and which was revised from the 1.5% PCE inflation rate reported a month ago, and thus accounted for most of the revision to PCE...real consumption of durable goods shrank at a 0.6% annual rate, which was revised from the statistically unchanged growth rate shown in the advance report, and subtracted 0.04 percentage points from GDP, as consumption of motor vehicles, consumption of furniture and appliances and consumption of recreational goods and vehicles all declined slightly...in addition, real consumption of nondurable goods by individuals shrank at a 1.1% annual rate, revised from the 0.7% contraction rate reported in the 1st  estimate, and subtracted 0.15 percentage points from the 4th quarter’s economic growth rate, as modest growth in real consumption of clothing, footwear, and other non-durable goods was more than offset by lower consumption of food, gasoline and other energy goods...at the same time, consumption of services grew at a 4.0% annual rate, statistically unrevised from the 4.0% growth rate reported last month, and added 1.80 percentage points to the final GDP tally, as a 12.2% growth rate in real health care services accounted for more than three-quarters of 4th quarter services growth...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 26.5% annual rate in the 4th quarter, revised from the original 25.3% growth estimate reported last month, as real private fixed investment grew at a 19.1% rate, revised from the 18.4% growth rate reported in the advance estimate, while inventory growth was greater than previously estimated...investment in non-residential structures was revised to show growth at a 1.1% rate, down from the 3.0% growth rate previously reported, whiile real investment in equipment grew at 25.7% rate, revised up from the 24.9% growth rate shown a month ago...meanwhile the quarter's investment in intellectual property products was revised from growth at a 7.5% rate to growth at a 8.4% rate, while at the same time real residential investment was shown to be growing at a 35.8% annual rate, revised from the 33.5% rate shown in the previous report....after those revisions, the increase in investment in non-residential structures added 0.03 percentage points to the 4th quarter's growth rate, the increase in investment in equipment added 1.33 percentage points to the quarter's growth rate, growth in investment in intellectual property added 0.40 percentage points to the growth rate of 4th quarter GDP, and growth in residential investment added 1.37 percentage points to the growth of 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.....

At the same time, growth in real private inventories was revised from the originally reported $44.6 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $48.0 billion rate….that came after inventories had contracted at an inflation adjusted $3.7 billion rate in the 3rd quarter, and hence the (rounded) $51.8 billion positive change in real inventory growth from the 3rd to the 4th quarter added 1.11 percentage points to the 4th quarter's growth rate, revised from the 1.04 percentage point addition to GDP from inventory growth reported in the advance estimate....however, since greater growth of inventories indicates that more of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their increase at a $51.8 billion rate meant that real final sales of GDP were actually smaller by that amount, and hence real final sales of GDP grew at a 3.0% rate in the 4th quarter, statistically unrevised from the real final sales growth rate shown in the advance estimate, and down from the real final sales growth rate of 25.9% in the 3rd quarter, when the greater inventory growth from the deeply negative 2nd quarter inventory figure had reduced real final sales by as much as it added to the quarter's GDP....

The previously reported increase in real exports was revised a bit lower with this estimate, while the previously reported increase in real imports was revised a bit higher, so on net the change in our net trade was a greater subtraction from GDP rather than was previously reported...our real exports grew at a 21.8% rate rather than the 22.0% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, that growth added 2.00 percentage points to the 4th quarter's growth rate, revised from the 2.01 percentage point addition shown in the previous report....meanwhile, the previously reported 29.5% growth rate in our real imports was revised to a 29.6% growth rate, and since imports are subtracted from GDP because they represent either consumption or investment that was added to an other GDP component that was not produced here, their increase subtracted 3.55 percentage points from 4th quarter GDP, rather than the 3.53 percentage point subtraction shown last month....thus, our deteriorating trade balance subtracted a net of 1.55 percentage points from 4th quarter GDP, rather than the 1.52 percentage point subtraction that had been indicated by the advance estimate..

Finally, there was a small upward revision to real government consumption and investment in this 2nd estimate, since the real contraction rate for the entire government sector was revised from a 1.2% rate to a 1.1% rate...however, real federal government consumption and investment was seen to have shrunk at a 0.9% rate in this estimate, revised from the 0.5% contraction rate shown in the advance estimate, as real federal outlays for defense grew at a 4.7% rate and added 0.20 percentage points to 4th quarter GDP, revised from the 5.0% growth rate shown previously, while all other federal consumption and investment was revised from a 8.4% contraction rate to contraction at a 8.9% rate, which subtracted 0.26 percentage points from 4th quarter GDP....meanwhile, real state and local consumption and investment was revised from shrinking at a 1.7% rate in the first estimate to shrinking at a 1.2% rate in this estimate, as state and local investment spending grew at a 5.2% rate and added 0.11 percentage points to 4th quarter GDP, while state and local consumption spending shrunk at a 2.7% rate and subtracted 0.24 percentage points from GDP....note that government outlays for social insurance are not included in this government GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating an increase in the output of those goods or services...

Personal Income up 10.0% in January, Personal Spending up 2.4%, PCE Price Index up 0.3%

The January report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month's data for our personal consumption expenditures (PCE), which accounts almost 70% of the month's GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they're reporting seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if January's change in seasonally adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from December to January..

Hence, when the opening line of the news release for this report tell us "Personal income increased $1,954.7 billion (10.0 percent) in January ", they mean that the annualized figure for seasonally adjusted personal income in January, $21,453.9 billion, was $1,954.7 billion higher, or a bit more than 10.0% higher than the annualized personal income figure of $19,499.2 billion extrapolated for December; the actual, unadjusted change in personal income from December to January is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by nearly 11.4%, from an annual rate of $17,254.5 billion in December to an annual rate of $19,217.7 billion in January...the monthly contributors to the change in personal income, which can be viewed in detail in the Full Release & Tables (PDF) for this release, are also annualized...in January, there was a $1,954.7 billion annual rate of increase in personal income because there was $1,977.1 billion annual rate of increase in personal current transfer programs, including an increase of $1,682.1 billion annualized from "other" government programs and a $262.8 billion annualized increase in unemployment insurance, both of which came about as provisions of the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act of late December, in addition to a $69.7 billion annual rate of increase in income from wages and salaries, while interest and dividend income saw a decrease at a $88.7 billion annual rate...

For the January personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased at an annual rate of $340.9 billion, or by 2.4%, from a $14,475.9 billion annual rate in December to a $14,816.8 billion annual rate in January; at the same time, the December PCE figure was revised down from the originally reported $14,493.7 billion annual rate, a revision that was already incorporated into this week's 4th quarter GDP estimate (this report, although usually released a business day later than the GDP release, is computed concurrently)....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $348.7 billion to a $15,287.6 billion annual rate in January, which left total personal savings, which is disposable personal income less total outlays, at a $3,930.1 billion annual rate in January, up from the revised $2,315.6 billion in annualized personal savings in December... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to a eight month high of 20.5% in January, up from the December savings rate of 13.4% ...

As you know, before January's personal consumption expenditures can be used in the 1st quarter GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is shown in Table 9 in the pdf for this report, which is a chained price index based on 2012  prices = 100....that PCE price index rose from 112.149 in December to 112.530 in January, giving us a month over month PCE inflation rate of 0.33973%, which BEA rounds to a 0.3% increase in reporting it in the text and tables here....then, applying that 0.33973% inflation adjustment to the increase in January PCE shows that real PCE rose by 2.0084% in January, which the BEA reports as a 2.0% increase...note that when those PCE price indexes are applied to a given month's annualized PCE in current dollars, it gives us that month's annualized real PCE in those same chained 2012 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to that of another....that result is shown in table 7 of the pi PDF, where we see that January's chained dollar consumption total works out to 13,167.4 billion annually, 2.008% more than December's 12,908.2 billion, statistically the same as the real PCE increase we just computed..

However, to estimate the impact of the change in January PCE on the change in GDP, the change from December doesn't help us much, since GDP is reported on a quarterly basis...thus we have to compare January's real PCE to the the real PCE of the 3 months of the fourth quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 in this report, where we find that the annualized real PCE for the 4th quarter was represented by 13,000.3 billion in chained 2012 dollars..(ie, that's the same as what's shown in table 3 of the pdf for the 4th quarter GDP report)....when we compare January's real PCE representation of 13,167.4 billion to the 4th quarter real PCE figure of 13,000.3 billion, we find that real PCE is growing at a 5.24% annual rate so far in the 1st quarter....that’s a rate that means that even if January's real PCE does not improve during February and March, growth in PCE would still add 3.63 percentage points to the growth rate of 1st quarter GDP...

January Durable Goods: New Orders up 3.4%, Shipments Up 2.0%, Inventories Down 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for January (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $8.5 billion or 3.4% to $256.6 billion in January, which was also 4.5% greater than the value of new orders in January 2020... at the same time, December's new orders were revised from the $245.3 billion reported last month to $248.1 billion, now indicated to be 1.2% greater than November's new orders, revised from the 0.2% increase previously reported....

The volatile monthly new orders for transportation equipment drove the January new orders increase, as new transportation equipment orders rose $6.1 billion or 7.8 percent to $85.1 billion, on a 389.9% increase to $5,036 million in new orders for commercial aircraft and a 63.5% increase to $4,808 million in new orders for defense aircraft....excluding orders for transportation equipment, other new orders rose 1.4%, 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 proxy for equipment investment, rose $354 million or 0.5% to $72,924 million...

Meanwhile, the seasonally adjusted value of January shipments of durable goods, which will be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased in value by $5.1 billion or 2.0 percent to $260.6 billion, after the value of December shipments was revised from from $253.8 billion to $255.6 billion, now up 2.1% from November...a jump in the value of shipments of machinery led the January increase, as it rose $1.1 billion or 3.6 percent to $33.2 billion...with that contribution, shipments of nondefense capital goods less aircraft rose 2.1% to $72,054 million, after shipments of December’s capital goods were revised from $70,208 million to $70,566 million, now 1.0% higher than November...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell by $1.4 billion or 0.3 percent to $424.3 billion, after the value of December inventories was revised from $425.9 billion to $425.7 billion, still down 0.2% from November....lower inventories of transportation equipment drove the December decrease, as they fell $2.3 billion or 1.5 percent to $145.7 billion, while the value of inventories excluding those of transportation equipment rose $860 million or 0.3 percent to $278.6 billion...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but quite volatile monthly new orders, rose for the first time in eight months, but just by $1.0 billion or 0.1 percent to $1,072.6 billion...that followed a 0.2% December decrease of $2,247 million to $1,071,554 million, which was previously reported as a 0.3% decrease to $1,070.4 billion...a $0.9 billion or 1.2 percent increase to $78.6 billion in unfilled orders for fabricated metal products led January the increase, while unfilled orders for transportation equipment orders were down 0.1% to $705,873 million...the unfilled order book for durable goods is still 6.2% below the level of last January, with unfilled orders for transportation equipment 11.2% below their year ago level, led by a 16.3% decrease in the backlog of orders for commercial aircraft...

NB: for those who are interested in seeing graphs relating to this release, FRED at the St Louis Fed offers graphs of 445 different durable goods data sets...to change what is displayed on any graph, (ie, dollars, percent, etc) click the edit button and then click the edit line 1 tab and make your selection from the units menu...to change the displayed line graph into a bar graph, click the edit button and then the format tab...

January’s New Home Sales Reported Higher After Prior Months were Revised Higher

The Census report on New Residential Sales for January (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 923,000 homes annually in January, which was 4.3 percent (±18.1 percent)* above the revised December annual sales rate of 885,000, and 19.3 percent (±19.5 percent)* above the estimated 774,000 annual rate that new single family homes were selling at in January of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether January new home sales rose or fell from those of December, or even from the January 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 December were revised from the annual rate of 842,000 reported a month ago to an annual rate of 885,000, while new home sales in November, initially reported at an annual rate of 841,000 and revised to a 829,000 rate with the last report, were revised back up to a 839,000 a year rate with this report, and while October's new home sales rate, initially reported at an annual rate of 999,000 and revised from a 945,000 to a 949,000 a year rate last month, were again revised to a 965,000 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 70,000 new single family homes sold in January, up from the estimated 59,000 new homes that sold in both December and in November....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in January was $346,400, down from the median sale price of $353,100 in December but up from the median sales price of $328,900 in January a year ago, while the average January new home sales price was $408,800, up from the $394,700 average sales price in December, and up from the average sales price of $384,000 in January a year ago....a seasonally adjusted estimate of 307,000 new single family houses remained for sale at the end of January, which represents a 4.0 month supply at the January sales rate, down from the revised 4.1 months of new home supply now indicated for both December and for November....for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk:  New Home Sales increase to 923,000 Annual Rate in January and A few Comments on January 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 of which are picked from the aforementioned GGO posts, contact me…)  

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