Sunday, March 28, 2021

3rd estimate 4th quarter GDP; February’s income and outlays, durable goods, new home sales & existing home sales

The key economic reports released the past week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for February and the February report on new home sales, both from the Census bureau, and the Existing Home Sales Report for February from the National Association of Realtors (NAR)...we also had the release of the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which fell to –1.09 in February from +0.75 in January, which was revised from the +0.66 reported for January last month...as a result of the February decrease, the 3 month average of the CFNAI decreased to –0.02 in February from a revised +0.46 in January, which indicates that national economic activity has been ever so slightly below the historical trend over recent months...

In addition,  the week also saw the release of the Regional and State Employment and Unemployment Report for February from the Bureau of Labor Statistics, a report which breaks down the two employment surveys from the monthly national jobs report by state and region (Note: January's regional report was released last week, delayed in order to compile the annual revisions)....while the text of this report provides a useful summary of the state and regional data, the serious statistical aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands...

This week also saw the release of two more regional Fed manufacturing surveys for March: 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 rose to +17 in March from +14 in February, suggesting an ongoing expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +26 in March, up from +24 in February and from +17 in January, indicating the continuation of a broad based expansion in that region's manufacturing...

4th Quarter GDP Grew at a 4.3% Rate, Revised from a 4.1% Rate, on Greater Growth of Inventories

The Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 4.3% rate in the quarter, revised from the 4.1% growth rate reported in the second estimate last month, as inventories, exports, and government outlays were greater than was previously estimated, more than offsetting a downward revision to personal consumption expenditures....in current dollars, our fourth quarter GDP grew at a 6.27% 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 $21,494.7 billion annual rate in the 4th quarter, with the headline 4.3% annualized rate of increase in real output arrived at an annualized inflation adjustment averaging 2.0%, 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 GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 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 3rd 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; and table 4, which shows the change in the price indexes for each of the components...the pdf for the 4th quarter second estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from a growth rate of 2.4% to an overall 2.3% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 3.82% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 1.5% annual rate in the 4th quarter, which was revised from the 1.6% PCE inflation rate reported a month ago, and hence was a major factor in the downward revision to PCE....real consumption of durable goods shrank at a 1.1% annual rate, which was revised from the 0.6% contraction rate shown in the second estimate, and subtracted 0.09 percentage points from GDP, as consumption of motor vehicles, consumption of furniture and appliances and consumption of recreational goods and vehicles all decreased.....at the same time, real consumption of nondurable goods by individuals shrunk at a 1.6% annual rate, revised from the 1.1% contraction rate reported in the 2nd estimate, and subtracted 0.23 percentage points from the 4th quarter’s economic growth rate, as modest growth in real consumption of clothing and footwear was more than offset by lower consumption of food, gasoline and and other non-durable goods.....on the other hand, consumption of services grew at a 4.3% annual rate, revised from the 4.0% growth rate reported last month, and added 1.90 percentage points to the final GDP tally, as real consumption of health care services grew at a 14.3% rate and accounted for three-fourths of the quarter’s growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 27.8% annual rate in the 4th quarter, revised from the 26.5% growth estimate reported last month, as real private fixed investment grew at a 18.6% rate, revised from the 19.1% growth rate reported in the second estimate, while inventory growth was greater than previously estimated...investment in non-residential structures was revised to show contraction at a 6.2% rate, revised from the 1.1% growth rate previously reported, while real investment in equipment grew at 25.4% rate, revised from the 25.7% growth rate shown a month ago...meanwhile the quarter's investment in intellectual property products was revised from growth at a 8.4% rate to growth at a 10.5% rate, while at the same time real residential investment was shown to be growing at a 36.6% annual rate, revised from 35.8% in the previous report....after those revisions, the decrease in investment in non-residential structures subtracted 0.17 percentage points from the 4th quarter's growth rate, while the increase in investment in equipment added 1.32 percentage points to the quarter's growth rate, the increase in investment in intellectual property added 0.49 percentage points to the growth rate of 4th quarter GDP, and the increase in residential investment added 1.39 percentage points to the growth rate 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 of real private inventories was revised from the previously reported $48.0 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $62.1 billion rate….that came after inventories had contracted at an inflation adjusted $3.7 billion rate in the 3rd quarter, and hence the $65.8 billion positive change in real inventory growth from the 3rd to the 4th quarter added 1.37 percentage points to the 4th quarter's growth rate, revised from the 1.11 percentage point addition to GDP from inventory growth reported in the second estimate....however, since a greater growth of inventories indicates that more of the goods produced during the quarter were left in a warehouse or sitting on a shelf, their increase at a $65.8 billion rate conversely meant that real final sales of GDP were actually smaller by that much, and hence real final sales of GDP grew at a 2.9% rate in the 4th quarter, revised from the 3.0% real final sales growth shown in the second 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 higher with this estimate, while the previously reported increase in real imports was revised higher by a bit less, so on net the change in our net trade was a smaller subtraction from GDP rather than was previously reported.....our real exports grew at a 22.3% rate, revised from the 21.8% growth rate reported in the second 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 and hence not captured by another GDP metric, that growth added 2.04 percentage points to the 4th quarter's growth rate, revised from the 2.00 percentage point addition shown in the previous report....meanwhile, the previously reported 29.6% growth rate in our real imports was revised to a 29.8% 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 shouldn't have been because it was not produced here, their increase subtracted 3.57 percentage points from 4th quarter GDP, rather than the 3.55 percentage point subtraction shown last month....thus, that slight improvement in our deteriorating trade balance subtracted a net of 1.53 percentage points from 4th quarter GDP, rather than the 1.55 percentage point subtraction that had been indicated by the second estimate..

Finally, there was also an upward revision to real government consumption and investment in this 3rd estimate, as the real contraction rate for the entire government sector was revised from a 1.1% rate to a 0.8% rate.....real federal government consumption and investment was seen to have shrunk at a 0.9% rate in this estimate, unchanged from the second estimate, as real federal outlays for defense grew at a 4.8% rate and added 0.20 percentage points to 4th quarter GDP, revised from the 4.7% growth rate shown previously, while all other federal consumption and investment shrunk at an unrevised 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 1.2% rate in the second estimate to shrinking at a 0.8% rate in this estimate, as state and local investment spending grew at a 7.8% rate and added 0.16 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 there had been an increase in the output of those goods or services...

Personal Income down 7.1% in February, Personal Spending down 1.0%, PCE Price Index up 0.2%

The February report on Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 1st quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and 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....this report also provides us with the nation's personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds into GDP and other national accounts data, the change reported for each of those metrics are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase in a year if February’s 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 January to February...

Hence, when the opening line of the press release for this report tell us "Personal income income decreased $1,516.6 billion (7.1 percent) in February", that means that the annualized figure for US personal income in February, $19,945.6 billion, was $1,516.6 billion, or roughly 7.1% less than the annualized personal income figure of $21,462.2 billion for January; the actual change in personal income from January to February is not provided...similarly, annualized disposable personal income, which is income after taxes, fell by nearly 8.0%, from an annual rate of an annual rate of $19,210.5 billion in January to an annual rate of $17,678.2 billion in February...the components of the monthly decrease in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures...in February, the reason for the $1,516.6 billion annualized decrease in personal income was a $1,584.1 billion annualized decrease in government social benefits to individuals, which was only slightly offset by a $37.7 billion annualized increase in business & farm proprietors’ income and a $15.6 billion annualized increase in interest and dividend income...wages and salaries, which fell by an annualized $0.2 billion, were barely a factor in February's personal income change...

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they decreased at a $149.0 billion annual rate, or by nearly 1.0 percent, as the annual rate of PCE fell from $14,939.1 billion in January to $14,790.1 in February, after the January PCE rate was revised down from the originally reported $14,816.8 billion annually...the current dollar decrease in February spending resulted from a $155.9 billion decrease to $ 5,018.9 billion in spending for goods, a decrease which was evident in last week's February retail sales report, which was only slightly offset by a $7.0 billion annualized increase to $9,771.2 billion in annualized in spending for services....total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $141.5 billion to $15,267.7 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $2,410.4 billion annual rate in February, down from the revised $3,801.3 billion in annualized personal savings in January... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 13.6% in February from January's savings rate of 19.8%, which was still up from the saving rate of 8.3% in February of last year and still higher than any personal savings rate of the entire 1975 to 2019 period...

Before 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...the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report....that PCE price index rose from 112.481 in January to 112.740 in February, a month over month inflation rate that's statistically 0.23026%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of 0.3% that they reported for January...then, applying that 0.23026% inflation adjustment to the decrease in February PCE shows that real PCE fell by 1.22482% in February, which the BEA reports as a 1.2% decrease......notice 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 PDF, where we see that February's chained dollar consumption total works out to 13,119.2 billion annually, 1.22497% less than January's 13,281.9 billion, statistically the same as the real PCE decrease we just computed...

Finally, to estimate the impact of the change in PCE on the change in GDP, we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter....while this report shows PCE for all those months on a monthly basis, the BEA also provides the annualized chained dollar PCE on a quarterly basis in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3 months of the 4th quarter was represented by 12,999.1 billion in chained 2012 dollars...(note that's the same figure shown in table 3 of the pdf for the 4th quarter GDP report)....then, by averaging the annualized chained 2012 dollar PCE figures for January and February, 13,281.9 billion and 13,119.2 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have the data for so far....when we compare that average of 13200.55 to the 4th quarter chained dollar PCE of 12,999.1, we find that 1st quarter real PCE has grown at a 6.34% annual rate for the two months of the 1st quarter included in this report (note the math to get that annual rate: ((( 13,281.9 +13,119.2 ) / 2 ) /12,999.1 ) ^ 4 = 1.063445...growth at that rate means that if March real PCE does not improve from the average of January and February, which seems unlikely, growth in PCE would still add 4.39 percentage points to the growth rate of the 1st quarter...

February Durable Goods: New Orders Down 1.1%, Shipments Down 3.5%, Inventories Up 0.7%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods decreased by $2.9 billion or 1.1 percent to $254.0 billion in February, the first decrease in 10 months, after January's new orders were revised from the $256.6 billion reported last month to $256.9 billion, now a 3.5% increase from December's new orders…as a result, year to date new orders are still up by 3.4% from those of 2020...

The volatile monthly new orders for transportation equipment led February’s new orders decrease, as the value of new transportation equipment orders fell $1.3 billion or 1.6 percent to $83.6 billion, despite a 103.3% increase to $9,504 million in new orders for defense aircraft, as the value of new orders for motor vehicles and parts fell 8.7% to $57,588 million...excluding orders for transportation equipment, other new orders fell 0.9%, while excluding just new orders for defense equipment, new orders fell  0.7%....meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were also weak, falling by $563 million or 0.8% to $72,480 million...

Over the same period, the seasonally adjusted value of February’s shipments of durable goods, which will ultimately be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, fell for the first time in six months, decreasing by $9.1 billion or 3.5 percent to $250.9 billion, after the value of January shipments was revised from $513.3 billion to $512.2 billion, now up 1.7% from December, rather than the 2.0% increase reported a month ago....lower shipments of transportation equipment were mostly responsible for the February shipments decrease, as they decreased by $7.0 billion or 8.2 percent to $78.6 billion, on an 8.9% decrease to $57,196 million in the value of shipments of motor vehicles and parts....meanwhile, the value of shipments of nondefense capital goods less aircraft fell 1.0% to $71,281 million, after January’s capital goods shipments were revised down from $72,054 million to $71,966 million...

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $2.8 billion or 0.7 percent to $427.3 billion, the first increase in three months, after the value of January inventories was revised from $424.3 billion to $424.5 billion, still down 0.3% from December....the value of inventories of transportation equipment rose $0.9 billion or 0.6 percent to $146.6 billion, led by a 2.6% increase to $41,612 in inventories of motor vehicles and parts, while the value of all other inventories rose 0.7% to $280,654 million...

Finally, the value of unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often very volatile new orders, rose for the second consecutive month after failing to rise over the prior ten, increasing by $8.4 billion or 0.8 percent to $1,082.0 billion, following a 0.2% January increase to $1,073.65 billion, which was revised from the previously reported 0.1% increase to $1,072.6 billion....a $5.0 billion or 0.7 percent increase to $711.1 billion in unfilled orders for transportation equipment led the February increase, while unfilled orders excluding transportation equipment orders were up 0.9% to $370,865 million...however, the unfilled order book for durable goods is still 5.7% below the level of last February, with unfilled orders for transportation equipment 10.9% below their year ago level, mostly due to a 15.5% decrease in the backlog of orders for commercial aircraft and parts...

February New Home Sales Reported 18.2% Lower After Prior Month's Sales Revised Higher

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 775,000 homes annually during the month, which was 18.2 percent (±13.9 percent) the revised January annual sales rate of 948,000 new home sales, but 8.2 percent (±21.7 percent)* above the estimated annual rate that new homes were selling at in February of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether February new home sales rose or fell from the February sales rate of a year ago, with the figures in parenthesis representing the 90% confidence range for the 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 January were revised from the annual rate of 923,000 reported last month to an annual rate of 948,000, and new home sales in December, initially reported at an annual rate of 842,000 and revised up to a 885,000 rate last month, were revised up to a 919,000 a year rate with this report, while November's annualized new home sales rate, initially reported at an annual rate of 841,000 and revised from a 829,000 rate to a 839,000 a year rate last month, were revised up to a 857,000 annual 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 64,000 new single family homes sold in February, down from the estimated 75,000 new homes that sold in January but up from the 62,000 that sold in December, and up from 63,000 in February a year ago...the raw numbers from Census field agents further estimated that the median sales price of new houses sold in February was $349,400, down from the median sale price of $353,200 in January and down from the median sales price of $351,800 in February a year ago, while the average February new home sales price was $416,000, up from the $410,400 average sales price in January, and up from the average sales price of $386,200 in February a year ago....a seasonally adjusted estimate of 312,000 new single family houses remained for sale at the end of February, which represents a 4.8 month supply at the February sales rate, up from the revised 4.2 months months of new home supply in January...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 775,000 Annual Rate in February and A few Comments on February New Home Sales..

Existing Home Sales Fell 6.6% in February

The National Association of Realtors (NAR) reported that existing home sales decreased by 6.6% from January to February on a seasonally adjusted basis, projecting that 6.22 million existing homes would sell over an entire year if the February home sales pace were extrapolated over that year, a pace that was still 9.1% above the annual sales rate projected in February of last year....at the same time, the January home sales pace was revised from the 6.69 million annual rate reported a month ago to a 6.66 million rate with this report, which means that February home sales actually fell by 6.7%...the NAR also reported that the median sales price for all existing-home types was $313,000 in February, 15.8% higher than in February a year earlier, which they report "marks 108 straight months of year-over-year gains", and that the inventory of homes for sale was at a record-low of 1.03 million units, down by a record 29.5% from a year ago.....the NAR press release, which is titled "Existing-Home Sales Descend 6.6% in February", is in easy to read plain English, so if you're interested in further 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 with home sales during the month...this unadjusted data indicates that roughly 364,000 homes sold in February, down 0.5% from the revised 366,000 homes that sold in January, and 8.7% more than the 335,000 homes that sold in February of last year....that same pdf indicates that the median home selling price for all housing types rose by 3.1%, from a revised $303,600 in January to $313,000 in February, while the average home sales price rose by 1.9% to $344,200 from the $337,800 average sales price in January, which was also up by 12.6% from the $305,800 average home sales price of February 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 Decreased to 6.22 million in February and Comments on February 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 of which are picked from the aforementioned GGO posts, contact me…)  

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