Sunday, May 30, 2021

1st quarter GDP revision; April’s personal income and outlays, durable goods, and new home sales

The key economic releases of the past week were the second estimate of 1st quarter GDP from the Bureau of Economic Analysis and the April report on Personal Income and Spending, also from the BEA, a report which provides 23% of 2nd quarter GDP....other widely watched reports that were released this week included the April advance report on durable goods and the April report on new home sales, both from the Census bureau, and the March Case-Shiller Home Price Index from S&P Case-Shiller, an index which represents the relative average of January, February & March home sales prices compared to home sales prices of previous 3 month periods; the Case Shiller index indicated that home prices nationally for those 3 months averaged 13.2% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 12.0% year over year increase reported for the February index a month ago.....

This week also saw the release of Chicago Fed National Activity Index (CFNAI) for April, a weighted composite index of 85 different economic metrics, which fell to +0.24 in April, down from +1.71 in March, in an index where positive readings indicate economic activity has been above the historical trend ...with the April decrease, the 3 month average of the CFNAI fell to +0.07 in April from +0.35 in March, which indicates that national economic activity has barely been above the historical average over the most recent months...

In addition to that index, two more regional Fed manufacturing surveys for May were also released this week: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported that its broadest composite index rose to +18 in May from +17 in April, indicating an ongoing expansion among that region's manufacturers; while the Kansas City Fed manufacturing survey for May, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to +26 in May from +31 in April, indicating a smaller but still substantial majority of the region's manufacturing firms reported an increase in their activity this month than in April...

Revised 1st Quarter GDP Report Still Shows Growth at a 6.4% Rate

The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 6.4% rate in the 1st quarter, unchanged from the 6.4% growth rate reported in the advance estimate last month, as upward revisions to growth of real personal consumption expenditures and to growth of real fixed investment were offset by downward revisions to inventories, to state and local government investment, and to exports, and by an upward revision to imports, which subtract from GDP.....in current dollars, our first quarter GDP grew at a 10.96% annual rate, increasing from what would work out to be a $21,494.7 billion a year output rate in the 4th quarter of last year to a $22,061.0 billion annual rate in the 1st quarter of this year, with the headline 6.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.3%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change....

As we review this month's revisions, 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 from one 3 month period to the next, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now 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 Full Release & Tables for the second estimate of 1st quarter GDP, which is linked to on the BEA's main GDP page...specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2017; 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 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...the full pdf for the 1st quarter advance estimate, which this estimate revises, is here....

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 10.7% growth rate reported last month to indicate real PCE growth a 11.3% rate with this estimate…that growth figure was arrived at by deflating the 15.5% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 3.7% annual rate in the 1st quarter, which was revised from the 3.5% PCE inflation rate published a month ago....real consumption of durable goods grew at a 48.6% annual rate, which was revised from the 41.4% growth rate shown in the advance report, and added 3.40 percentage points to GDP, as growth in real consumption of vehicles and parts at a 66.2% rate accounted for more than a third of the quarter's growth in durable goods....real consumption of nondurable goods by individuals rose at a 14.0% annual rate, revised from the 14.4% increase reported in the 1st estimate, and added 1.95 percentage points to 1st quarter economic growth, as increased real consumption of food and clothing accounted for more than two-thirds of the growth in nondurable goods….at the same time, consumption of services rose at a 4.6% annual rate, unchanged from the growth rate reported last month, and added 2.06 percentage points to the final GDP tally, as a 26.6% real growth rate of food services and accommodations accounted for more than 42% of the quarter's growth in services....

At the same time, seasonally adjusted real gross private domestic investment shrunk at a 4.7% annual rate in the 1st quarter, revised from the 5.0% contraction rate estimate reported last month, as real private fixed investment grew at a 11.3% rate, rather than at the 10.1% rate reported in the advance estimate, while inventory shrinkage was somewhat greater than had been previously estimated....real investment in non-residential structures was revised from shrinking at a 4.8% rate to shrinking at a 5.8% rate, while real investment in equipment was revised to show it grew at a 13.4% rate, revised from the 16.7% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from real growth at a 10.1% rate to real growth at a 16.9% rate...meanwhile, growth in real residential investment was revised from a 10.8% annual rate to growth at a 12.7% rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.15 percentage points from the increase in 1st quarter GDP, while the increase in investment in equipment added 0.76 percentage points to the quarter's growth, the increase in investment in intellectual property added 0.78 percentage points, and the increase in residential investment added 0.57 percentage points to the 1st quarter's growth rate..

Meanwhile, the drop in real private inventories was revised from the originally reported $85.5 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $92.9 billion rate...this came after inventories had grown at an inflation adjusted $62.1 billion rate in the 4th quarter, and hence the $155.0 billion negative change in real inventories from those of the 4th quarter subtracted 2.78 percentage points from the 1st quarter's growth rate, revised from the 2.64 percentage point subtraction due to reduced inventory growth shown in the advance estimate....however, since shrinking inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by $155.0 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA found that real final sales of GDP grew at a 9.4% rate in the 1st quarter, revised up from the 9.2% growth rate shown in the advance estimate, and up from the real final sales growth rate of 2.9% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was smaller than that of the quarter's GDP......

The previously reported decrease in real exports more than doubled with this estimate, while the previously reported increase in real imports was revised higher, and as a result our net trade was a somewhat larger subtraction from GDP rather than was previously reported...our real exports of goods and services shrunk at a 2.9% rate in the 1st quarter, revised from the 1.1% contraction shown in 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, their  decrease conversely subtracted 0.29 percentage points from the 1st quarter's growth rate, up from the 0.10 percentage point subtraction shown last month...meanwhile, the previously reported 5.7% increase in our real imports was revised to a 6.7% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their increase subtracted 0.91 percentage points from 1st quarter GDP, revised from the 0.77 percentage point subtraction shown a month ago....thus, the deteriorating trade balance that has accompanied the increase in consumer spending subtracted a rounded 1.20 percentage points from 1st quarter GDP, up from the 0.87 percentage point subtraction resulting from a worsening foreign trade balance that was indicated by the advance estimate..

Finally, there was also a downward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown to have grown at a 5.8% rate, revised from the 6.3% growth rate for government indicated by the 1st estimate....however, real federal government consumption and investment is still seen to have grown at a 13.9% rate from that of the 4th quarter in this estimate, which was unchanged from the growth rate shown in the 1st estimate, as real federal outlays for defense shrunk at a 3.4% rate, unrevised from the previously reported contraction rate, and subtracted 0.14 percentage points from 1st quarter GDP, while all other federal consumption and investment grew at an unrevised 44.8% rate and added 1.07 percentage points to GDP....meanwhile, real state and local consumption and investment grew at a 0.8% rate in the quarter, revised from the 1.7% growth shown in the 1st estimate, and added 0.09 percentage points to 1st quarter GDP, which was revised from the 0.19 addition shown in the advance estimate, as state and local investment shrunk at a 9.2% rate and accounted for three-fifths of the downward revision......note that 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, thereby indicating an increase in the output of those goods or services...

April Personal Income Down a Record 13.1%, Disposable Personal Income Down a Record 14.6%, Savings Falls 54.0%

The April report on Personal Income and Outlays from the Bureau of Economic Analysis reflects the partial unwinding of the March government stimulus in just about every metric it tracks except for prices, which are said to be "transitory", influenced by temporary shortages and supply chain issues....as you'll recall, this report includes the month's data for our personal consumption expenditures (PCE), which usually accounts for nearly 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 national 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 seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if April'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 March to April..

Thus, when the opening line of the press release for the April report tell us "Personal income decreased $3.21 trillion (13.1 percent) in April", that means that the annualized figure for seasonally adjusted national personal income in April, $21,195.2 billion, was $3.205 trillion, or a record 13.1% less than the annualized personal income figure of $24,400.5 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given...at the same time, annualized disposable personal income, which is income after taxes, fell by a record 14.6%, from an annual rate of an annual rate of $22,061.8 billion in March to an annual rate of $18,844.5  billion in April....the reasons for the annualized $3.21 trillion decrease in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and primarily reflected a $3,383.8 billion decrease in government social benefits, mostly reversing March's $3,990.6 billion increase, which was in turn only slightly offset by a $102.1 billion increase in wages and salaries, a $57.8  billion increase in farm and small business proprietor's income, and a $15.8 billion increase in interest and dividend income...again, those are all annualized figures...

For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they rose at a $ $80.3 billion annual rate, or by more than 0.5%, as the annual rate of national PCE increased from $15,480.1 billion in March to $15,560.3 in April....March PCE was revised from $15,401.6 billion annually to $15,480.1 billion, while February PCE was revised from $14,785.5 billion annually to $14,789.7 billion, revisions that were already included in this week’s GDP report....total personal outlays for April, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $82.8 billion to $16,030.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $2,814.2 billion annual rate in April, down by a record $3,300.1 billion from the revised $6,114.2 billion in annualized personal savings in March...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 14.9% in April, after the previously reported 27.6% March savings rate was revised to 27.7%...

As you know, before those personal consumption expenditures are used in the 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 a chained price index based on 2012 prices = 100, which is computed from the components by the BEA and included in Table 9 in the pdf for this report....that index rose from 113.387 in March to 114.075 in April, a month over month inflation rate that's statistically 0.60677%, which BEA reports as an increase of 0.6 percent, following the rounded 0.6% increase in the PCE price index reported for March...applying that 0.607% April inflation adjustment to the 0.5% nominal change in PCE left real PCE down by 0.0882% in April, which the BEA reports as a 0.1%% decrease in their press release and in the tables, following the 4.1% increase in March....note that when those PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar chained 2012 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another....that result is shown in table 7 of the PDF, where we see that April's chained dollar consumption total works out to 13,641.8 billion annually, 0.879% less than March's 13,653.8 billion, again a decrease that the BEA reports as -0.1%...

However, to estimate the impact of the change in PCE on the change in GDP, that month over month PCE change doesn't help us much, since GDP is computed & reported quarterly... thus we have to compare April's real PCE to the real PCE of all 3 months of the first quarter....while this release reports PCE for all those amounts on a monthly basis, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 13,352.2 billion in chained 2012 dollars..(note that's the same as is shown in table 3 of the pdf for the 1st quarter GDP report)....when we compare April's adjusted PCE of 13,641.8 billion to the 1st quarter real PCE of 13,352.2 billion on an annual basis, we find that April's real PCE has risen at a 8.96% annual rate from that of the 1st quarter....that would mean that even if real PCE does not appreciate during May and June from the April level, growth in real PCE would still add 6.27 percentage points to the growth rate of 2nd quarter GDP... ..

April Durable Goods: New Orders Down 1.3%, Shipments Up 0.6%, Inventories Up 0.5%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell by $3.2 billion or 1.3 percent to $246.2 billion in April, the first decrease in twelve months, after durable goods orders for March were revised to show a 1.3% increase to $249.4 billion, revised from the 0.5% increase to $256.3 billion that was reported a month ago...note that other than the usual monthly revisions to the underlying data, this month's report also reflects the May 14th re-benchmarking of shipments and inventories data to the 2019 and 2018 Annual Survey of Manufactures data, revised back to 2013, and then adjusting the new orders data to be consistent with the re-benchmarked data...

As is usually the case, the volatile monthly change in April's new orders for transportation equipment was the reason for this month's headline change, as April transportation equipment orders fell $4.9 billion or 6.7 percent to $68.9 billion, on a 8.5% decrease to $3,605 billion in new orders for defense aircraft and a 6.2% decrease to $50.0 billion in new orders for motor vehicles and parts....excluding new orders for transportation equipment, other new orders were up 1.0% in April, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were up 2.3% to $75,001 million...

The seasonally adjusted value of April's shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the eleventh time in twelve months, increasing by $1.4 billion or 0.6 percent to $248.7 billion, after March shipments were revised from an increase of 2.5% to $257.0 billion to an increase of 2.7% to $247.352 billion after re-benchmarking...reduced shipments of transportation equipment limited the April increase, as they fell $0.3 billion or 0.4 percent to $73.1 billion, as the value of shipments of motor vehicles fell 6.5% to $49,572 million…excluding that volatile sector, the value of other shipments of durable goods rose 1.0%, led by a $0.6 billion or 2.7% increase to $21.6 billion in the value of shipments of primary metals, and are now 12.1% higher year to date than a year ago....meanwhile, shipments of nondefense capital goods excluding aircraft, important in figuring equipment investment, rose 0.9% in April after rising a revised 1.5% in March...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for a 3rd month in a row, increasing by d $2.2 billion or 0.5 percent to $441.6 billion, after the value of end of March inventories was revised from $431.8 billion to $439.452 billion, still shown as a 1.0% increase from February...a $$0.9 billion or 0.6% increase to $149.4 billion in the value of inventories of transportation equipment led the April inventory increase, but excluding inventories of transportation equipment, other inventories were still up 0.4%..

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the third consecutive month, increasing by $1.9 billion or 0.2 percent to $1,197.0 billion, following a March increase which was revised from the 0.4% increase to $1,087.7 billion reported last month to a 0.5% increase to $1,125.3 billion...a $3.1 billion or 3.4% increase to $95.9 billion in unfilled orders for fabricated metal products was the reason for the April increase, as unfilled orders for transportation equipment fell 0.5% to $801,195 million....compared to a year ago, the unfilled order book for durable goods is still 2.5% lower than the level of last April, with unfilled orders for transportation equipment 7.7% below their year ago level, on a 6.0% decrease in the backlog of orders for defense aircraft and a 10.4% decrease in the order book for commercial aircraft...

New Home Sales Reported Lower in April After March Sales were Revised Much Lower

The Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted annual pace of 863,000 homes during the month, which was 5.9 percent (±11.2 percent)* below the revised March annual rate of 619,000 new home sales, but still 48.3 percent (±24.5 percent) above the estimated annual rate that new homes were selling at in April of last year, when pandemic related lockdowns had collapsed sales....the asterisk indicates that based on their small sampling, Census could not tell whether April new home sales rose or fell from those in March, 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; seasonally adjusted estimates of housing units sold, housing units for sale, and the months' supply of new housing have been revised back to January 2016; and with that, sales of new single family homes in March were revised from the fourteen year high annual rate of 1,021,000 reported last month to an annual rate of 917,000, and sales in February, initially reported at an annual rate of 775,000 and revised to a 846,000 rate last month, were revised to an annual rate of 854,000, while new home sales in January, initially reported at an annual rate of 923,000 and revised from a 948,000 rate to a 1,010,000 rate last month, were revised to a 993,000 a year rate with this release...

The annual rates of sales reported here are seasonally adjusted and extrapolated from the rough estimates of canvassing Census field reps, which indicated that approximately 78,000 new single family homes sold in April, down from the estimated 86,000 new homes that sold in March but up from the 71,000 new homes that sold in February....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in April was at $372,400, up from the median sales price of $334,200 in March and up from the median sales price of $310,100 in April a year ago, while the average new home sales price was at a record high $435,400, up from the $400,500 average sales price in March, and up from the average sales price of $360,300 in April a year ago....a seasonally adjusted estimate of 316,000 new single family houses remained for sale at the end of April, which represents a 4.4 month supply at the April sales rate, up from the revised 4.0 months of new home supply now being reported for March...

For graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales Decrease to 863,000 Annual Rate in April and A few Comments on April 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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