Sunday, April 3, 2022

March jobs report; 3rd estimate 4th quarter GDP; February’s income and outlays,​ ​construction spending​, and JOLTS, et al

There were three key monthly economic reports released over the past week: the Employment Situation Summary for March from the Bureau of Labor Statistics, the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis....in addition, the February report on Construction Spending from the Census Bureau, and the Job Openings and Labor Turnover Survey (JOLTS) for February, from the Bureau of Labor Statistics, were also released this week....this week also saw the last of the regional Fed manufacturing surveys for March: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index fell to +8.7 from last month's +14.0, indicating that a smaller plurality of Texas businesses reported an increase in activity during the month.

Privately issued reports released this week included the ADP Employment Report for March, the light vehicle sales report for March from Wards Automotive, which estimated that vehicles sold at a 13.33 million annual rate in March, down from the 14.07 million annual sales rate in February, and down from the 17.75 million annual sales rate reported for March a year earlier, and the Case-Shiller Home Price Index for January from S&P Case-Shiller, which indicated that home prices during November, December and January averaged 19.2% higher nationally than prices for the same homes that sold during the same 3 month period a year earlier....in addition, this week also saw the widely followed March Manufacturing Report On Business from the Institute for Supply Management (ISM), which indicated that the manufacturing PMI (Purchasing Managers Index) fell to 57.1% in March, down from 58.6% in February, which suggests a less widespread expansion among manufacturing firms nationally...

Employers Added 431,000 Jobs in March, Unemployment Rate Fell 0.2% to 3.6%

The Employment Situation Summary for March reported a payroll job increase that was a bit short of expectations, even as the employment rate rose 0.2% and the unemployment rate fell 0.2%….seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 431,000 jobs in March, after the previously estimated payroll job increase for January was revised up by 23,000, from 481,000 to 504,000, and the payroll jobs increase for February was revised up by 72,000, from 678,000 to 750,000…so including those revisions, this report thus represents a total of 526,000 more seasonally adjusted payroll jobs than were reported last month...oddly enough, that brought the average job gain in the first quarter of 2022 to 562,000 per month, the same as the average monthly gain for the entirety of 2021....however, seasonally adjusted non-farm payrolls are still 1,579,000 below the record 152,504,000 jobs now indicated for February 2020, before the pandemic related layoffs kicked in...the unadjusted data shows that there were actually 794,000 more payroll jobs extant in March than in February, as the usual seasonal job increases in sectors such as construction, administrative and waste services, and in leisure and hospitality were washed out by the seasonal adjustments…

Seasonally adjusted job increases in March were spread through both the goods producing and the service sectors and government, with only the utility sector showing a 1,200 job loss...since the BLS summary of the job gains by sector is clear and more detailed than our usual synopsis, we'll just quote that summary here:

  • Employment in leisure and hospitality continued to increase, with a gain of 112,000 in March. Job growth occurred in food services and drinking places (+61,000) and accommodation (+25,000). Employment in leisure and hospitality is down by 1.5 million, or 8.7 percent, since February 2020.
  • Job growth continued in professional and business services, which added 102,000 jobs in March. Within the industry, job gains occurred in services to buildings and dwellings (+22,000), accounting and bookkeeping services (+18,000), management and technical consulting services (+15,000), computer systems design and related services (+12,000), and scientific research and development services (+5,000). Employment in professional and business services is 723,000 higher than in February 2020.
  • Employment in retail trade increased by 49,000 in March, with gains in general merchandise stores (+20,000) and food and beverage stores (+18,000). Health and personal care stores lost 5,000 jobs. Retail trade employment is 278,000 above its level in February 2020.
  • Manufacturing added 38,000 jobs in March. Employment in durable goods industries rose by 22,000, with gains in transportation equipment (+11,000) and electrical equipment and appliances (+4,000). These gains were partially offset by a loss of 5,000 jobs in nonmetallic mineral products. Nondurable goods manufacturing added 16,000 jobs over the month, including a gain in chemicals (+7,000). Since February 2020, manufacturing employment is down by 128,000, or 1.0 percent.
  • Employment in social assistance increased by 25,000 in March, with the gain concentrated in individual and family services (+18,000). Employment in social assistance is down by 126,000, or 2.9 percent, from its level in February 2020.
  • Employment in construction continued to trend up in March (+19,000) and has returned to its February 2020 level.
  • In March, employment in financial activities rose by 16,000, with gains in real estate and rental and leasing (+14,000) and in securities, commodity contracts, and investments (+5,000). Employment in financial activities is 41,000 above its level in February 2020.
  • Health care employment changed little in March (+8,000), after a large increase in the prior month. Employment in the industry is down by 298,000, or 1.8 percent, since February 2020.
  • Employment in transportation and warehousing was essentially unchanged in March (-1,000), following large gains in the prior 2 months. In March, a job gain in couriers and messengers (+7,000) was offset by small losses in other component industries. Employment in transportation and warehousing is 608,000 higher than in February 2020.
  • Employment showed little change over the month in mining, wholesale trade, information, other services, and government.

The establishment survey also showed that average hourly pay for all employees rose by 13 cents an hour to $31.73 an hour in March, after it had increased by a revised 4 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 11 cents to $27.06 an hour...employers also reported that the average workweek for all private payroll employees decreased by 0.1 hour to 34.6 hours in March, after a 0.1 hour increase in February, while hours for production and non-supervisory personnel fell by 0.1 hour to 34.1 hours, also reflecting a reversal of February's gain...meanwhile, the manufacturing workweek was unchanged at 40.7 hours, while average factory overtime decreased by 0.1 hours to 3.4 hours...

At the same time, the March household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 736,000 to 158,458,000, while the similarly estimated number of those counted as unemployed fell by 318,000 to 5,952,000; which together meant there was a 418,000 increase in the total labor force...since the working age population had grown by 120,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 298,000 to 99,035,000...meanwhile, the increase of those in the labor force was large enough, when compared to the civilian noninstitutional population, to increase the labor force participation rate from 62.3% in February to 62.4% in March....likewise, the increase in number employed as a percentage of the increase in the population was enough to raise the employment to population ratio, which we could think of as an employment rate, by 0.2%, from 59.9% in February to 60.1% in March, the highest since February 2020...at the same time, the decrease in the number unemployed was enough to lower the unemployment rate by 0.2%, from 3.8% in February to 3.6% in March, similarly the lowest since February 2020....meanwhile, the number who reported they were involuntarily working part time rose by 35,000 to 4,170,000 in March, even as the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", fell from 7.2% in February to 6.9% in March, the lowest since December 2000..

Like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it alongside the press release to avoid the need to scroll up and down the page..

Hiring & Job Quitting were Higher in February; Job Openings and Layoffs were Little Changed

The Job Openings and Labor Turnover Survey (JOLTS) report for February from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 17,000, from 11,283,000 in January to 11,266,000 in February, after January’s job openings were revised up from the originally reported 11,263,000...February's jobs openings were still 43.3% higher than the 7,860,000 job openings reported for February a year ago, as the job opening ratio expressed as a percentage of the employed was unchanged at 7.0% in February, which was up from the 5.2% rate of February a year ago...there were relatively few changes month over month; the health care and social assistance sector, with a 54,000 job opening increase to 2,022,000 openings, saw the largest increase, while job openings in finance and insurance decreased by 63,000 to 313,000 (details on job openings by industry and region can be viewed in Table 1)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in February, seasonally adjusted new hires totaled 6,689,000, up by 263,000 from the revised 6,426,000 who were hired or rehired in January, as the hiring rate as a percentage of all employed rose from 4.3% in January to 4.4% in February, which was also up from the 4.2% hiring rate in February a year earlier (details of hiring by sector since October and for a year ago are in table 2)....meanwhile, total separations rose by 48,000, from 6,044,000 in January to 6,092,000 in February, as the separations rate as a percentage of the employed rose from 3.7% in January to 3.8% in February, and was also up from 3.7% in February a year ago (see details in table 3)...subtracting the 6,092,000 total separations from the total hires of 6,689,000 would imply an increase of 598,000 jobs in February, somewhat less than the revised payroll job increase of 750,000 for February reported in the March establishment survey later in the week, with at least some of that difference likely due to the difference in the date of the surveys, which is at month end for this report but is during the week of the 12th for the employment situation...

Breaking down the seasonally adjusted job separations, the BLS found that 4,352,000 of us voluntarily quit our jobs in February, up by 94,000 from the revised 4,258,000 who quit their jobs in January, while the quits rate, widely watched as an indicator of worker confidence, rose from 2.8% to 2.9% of total employment, which was also up from the quits rate of 2.4% year earlier (see details in table 4)....in addition to those who quit, another 1,386,000 were either laid off, fired or otherwise discharged in February, down by 17,000 from the revised 1,403,000 who were discharged in January, as the discharges rate remained at 0.9% of all those who were employed during the month, while it was down from the 1.1% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 355,000 in February, down from 383,000 in January, for an 'other separations rate’ of 0.2%, down from 0.3% in January, but the same as in February of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

4th Quarter GDP Grew at a 6.9% Rate, Revised from a 7.0% Rate, as PCE Revised Lower

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 6.9% rate in the quarter, revised from the 7.0% growth rate reported in the second estimate last month, as a steep downward revision to personal consumption expenditures more than offset a big upward revision to investment in inventories...in current dollars, our fourth quarter GDP grew at a 14.53% annual rate, increasing from what would work out to be a $23,202.3 billion a year output rate in the 3rd quarter to a $24,002.8 billion annual rate in the 4th quarter, with the headline 6.9% annualized rate of increase in real output arrived at an annualized inflation adjustment averaging 7.1%, 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 GDP press 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 includes links to the tables on Excel and other technical notes about this release...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 2018; 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 3.1% to an overall 2.5% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 9.04% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 6.4% annual rate in the 4th quarter, which was revised from the 6.3% PCE inflation rate reported a month ago, and hence also contributed to the downward revision to real PCE....real consumption of durable goods grew at a 2.5% annual rate, which was revised from the 2.7% growth rate shown in the second estimate, and added 0.22 percentage points to GDP, as real growth at a 12.5% rate in consumption of recreational goods and vehicles was mostly offset by lower consumption of motor vehicles, furniture and durable household equipment.....at the same time, real consumption of nondurable goods by individuals grew at a 0.4% annual rate, revised from the 0.8% growth rate reported in the 2nd estimate, and added 0.06 percentage points to the 4th quarter’s economic growth rate, as falling real consumption of food and beverages and of clothing and footwear was more than offset by greater real consumption of gasoline and other non-durable goods.....meanwhile, consumption of services grew at a 3.3% annual rate, revised from the 3.9% growth rate reported last month, and added 1.48 percentage points to the final GDP tally, as real consumption of health care services grew at a 3.7% rate and accounted for almost a third of the quarter’s growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 36.7% annual rate in the 4th quarter, revised from the 33.5% growth estimate reported last month, as real private fixed investment grew at a 2.7% rate, revised from the 2.6% growth rate reported in the second estimate, while inventory growth was greater than previously estimated...investment in non-residential structures was revised to indicate contraction at a 8.3% rate, up from the 9.4% contraction rate previously reported, while real investment in equipment grew at 2.8% rate, revised up from the 2.4% growth rate shown a month ago...meanwhile, the quarter's investment in intellectual property products was revised down from a 10.6% growth rate to an 8.9% rate, while at the same time real residential investment was shown to be growing at a 2.2% annual rate, revised from the 1.0% growth rate shown in the previous report....after those revisions, the increase in investment in non-residential structures subtracted 0.22 percentage points from the 4th quarter's growth rate, while the increase in investment in equipment added 0.17 percentage points to the quarter's growth rate, growth in investment in intellectual property added 0.45 percentage points to the growth rate of 4th quarter GDP, and growth in residential investment added 0.10 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 of real private inventories was revised from the previously reported $171.2 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $193.2 billion rate….that came after inventories had contracted at an inflation adjusted $66.8 billion rate in the 3rd quarter, and hence the $259.9 billion positive change in real inventory growth from the 3rd to the 4th quarter added 5.32 percentage points to the 4th quarter's growth rate, revised from the 4.90 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 $259.9 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 1.5% rate in the 4th quarter, revised from the 2.0% real final sales growth shown in the second estimate, and up from the real final sales growth rate of 0.1% in the 3rd quarter, when inventory growth had accounted for almost all of the quarter's growth in GDP....

The previously reported increase in real exports was revised lower with this estimate, while the previously reported increase in real imports was revised higher, so on net the net change in our foreign trade was a greater subtraction from GDP rather than was previously reported.....our real exports grew at a 22.4% rate, revised from the 23.6% 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 2.24 percentage points to the 4th quarter's growth rate, revised from the 2.35 percentage point addition from exports shown in the previous report....meanwhile, the previously reported 17.6% growth rate in our real imports was revised to a 17.9% growth rate, and since imports are subtracted 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 domestically, their increase subtracted 2.46 percentage points from 4th quarter GDP, rather than the 2.42 percentage point subtraction shown last month....thus, our deteriorating trade balance subtracted a rounded net of 0.23 percentage points from 4th quarter GDP, rather than the 0.07 percentage point subtraction that had been indicated by the second estimate..

Finally, there was also a slight downward revision to real government consumption and investment in this 3rd estimate, even as the real contraction rate for the entire government sector remained at a 2.6% rate....real federal government consumption and investment was seen to have shrunk at a 4.3% rate in this estimate, revised from the 4.5% contraction shown in the second estimate, as real federal outlays for defense shrunk at a 6.0% rate and subtracted 0.24 percentage points from 4th quarter GDP, revised from the 6.1% contraction rate shown previously, while all other federal consumption and investment shrank at a 2.0% rate, revised from the 2.2% shrinkage shown in the 2nd estimate, and subtracted 0.05 percentage points from 4th quarter GDP....meanwhile, real state and local consumption and investment was revised from shrinking at a 1.4% rate in the second estimate to shrinking at a 1.6% rate in this estimate, as state and local investment spending shrank at a 6.9% rate and subtracted 0.14 percentage points from 4th quarter GDP, while state and local consumption spending shrunk at a 0.4% rate and subtracted 0.03 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 Rose 0.2% in February, Personal Spending Rose 0.5%, PCE Price Index Rose 0.6%

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....

Hence, when the opening line of the press release for this report tell us "Personal income increased $101.5 billion (0.5 percent) in February", they mean that the annualized figure for US personal income in February, $21,153.3 billion, was $101.5 billion, or less than 0.5% greater than the annualized personal income figure of $21,051.9 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, rose by less than 0.4%, from an annual rate of an annual rate of $18,284.7 billion in January to an annual rate of $18,360.8 billion in February...the components of the monthly increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures...in February, the main contributors to the $101.5 billion annualized increase in personal income included an $86.4 billion annual rate of increase in income from wages and salaries and a $14.9 billion annualized increase in business & farm proprietors’ income, which were slightly offset by an $11.0 billion annualized decrease in government social benefits to individuals...

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased at a $34.9 billion annual rate, or by roughly 0.2 percent, as the annual rate of PCE rose from $16,678.4 billion in January to $16,713.3 in February, after the January PCE rate was revised up from the originally reported $16,616.0 billion annually...the current dollar increase in February spending resulted from a $93.8 billion annualized increase to $10,886.1 billion in annualized in spending for services, which was partly offset by a $58.9 billion decrease to $5,827.2 billion in spending for goods, a decrease which wasn't particularly evident in the February retail sales report....total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $37.3 billion to $17,212.2 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,148.5 billion annual rate in February, up from the revised $1,109.8 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, rose to 6.3% in February from January's savings rate of 6.1%, with both of those figures lower than any personal savings rate since December 2013...

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 119.356 in January to 120.047 in February, a month over month inflation rate that's statistically 0.57894%, which BEA reports as an increase of 0.6 percent, following the PCE price index increase of 0.5% that they reported for January...then, applying that 0.57894% inflation adjustment to the nominal increase in February PCE shows that real PCE fell by 0.36756% in February, which the BEA reports as a 0.4% 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 13,924.0 billion annually, 0.36778% less than January's 13,975.4 billion, statistically equal to the real PCE decrease we just computed from the index values...

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 13,818.4 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, 13,975.4 billion and 13,924.0 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 1st quarter average of 13,949.7 to the 4th quarter chained dollar PCE of 13,818.4, we find that 1st quarter real PCE has grown at a 3.86% annual rate for the two months of the 1st quarter that are included in this report (note the math to get that annual rate: ((( 13,975.4 + 13,924.0 ) / 2 ) / 13,818.4 ) ^ 4 = 1.038552...growth at that rate means that if March real PCE does not improve from the average of January and February, growth in PCE would still add 2.69 percentage points to the growth rate of the 1st quarter...

Construction Spending Rose 0.5% in February after January & December Figures Were Revised Higher

The Census Bureau's report on February construction spending (pdf) reported that "Construction spending during February 2022 was estimated at a seasonally adjusted annual rate of $1,704.4 billion, 0.5 percent (±0.7 percent)* above the revised January estimate of $1,695.5 billion. The February figure is 11.2 percent (±1.2 percent) above the February 2021 estimate of $1,533.3 billion. During the first two months of this year, construction spending amounted to $237.8 billion, 10.4 percent (±1.0 percent) above the $215.4 billion for the same period in 2021. "...the January annualized spending estimate was revised 1.1% higher, from the $1,677.2 billion reported a month ago to $1,695.5 billion, while December's construction spending was revised from $1,655.8 billion to $1,668.7 billion annually, which together meant that the January construction spending increase was revised from +1.3% to +1.6%...the $12.9 billion upward revision to December’s annualized spending would mean we’ll see a upward revision of about 11 basis points to 4th quarter GDP when the annual revisions are released later this summer...

A further breakdown of the different subsets of construction spending are provided by a Census summary, which precedes the detailed spreadsheets, is included below:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,353.7 billion, 0.8 percent (±0.7 percent) above the revised January estimate of $1,343.4 billion. Residential construction was at a seasonally adjusted annual rate of $850.6 billion in February, 1.1 percent (±1.3 percent)* above the revised January estimate of $841.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $503.0 billion in February, 0.2 percent (±0.7 percent)* above the revised January estimate of $502.2 billion.
  • Public Construction: In February, the estimated seasonally adjusted annual rate of public construction spending was $350.7 billion, 0.4 percent (±1.3 percent)* below the revised January estimate of $352.2 billion. Educational construction was at a seasonally adjusted annual rate of $80.6 billion, 1.3 percent (±1.8 percent)* below the revised January estimate of $81.7 billion. Highway construction was at a seasonally adjusted annual rate of $104.4 billion, 1.3 percent (±4.8 percent)* below the revised January estimate of $105.8 billion.

As you can tell from that summary, construction spending data is used as the source for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of February’s construction spending reported in this release on 1st quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price to determine the actual change in construction put in place....there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust the figures for all of those types of construction separately, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment and come up with an approximate estimate...

That price index showed that aggregate construction costs were up 0.6% in February, after they had increased by 3.6% in January, and had been up by 0.3% in December and by 0.4% in November...on that basis, we can estimate that February construction costs were about 4.2% more than those of December, roughly 4.5% more than those of November, and roughly 4.9% more than those of October, and of course 0.6% more than those of January (NB we are ignoring compounding monthly inflation because we're only expecting a rough estimate anyway)....we'll then use those relative price change percentages to inflate the lower cost spending figures for each of the 4th quarter months vis a vis February, which is arithmetically the same as adjusting higher priced January and February construction spending downward, for purposes of comparison...

This report gives annualized construction spending in millions of dollars for the 4th quarter months as $1,668,718 in December, $1,643,024 in November, and $1,626,413 in October, while annualized construction spending was at $1,704,383 in February and $1,695,531 in January....thus to compare January's nominal construction spending of $1,695,531 and February's figure of $1,704,383 to inflation adjusted figures of the fourth quarter, our formula becomes: ((1,704,383 + 1,695,531 * 1.006) / 2 ) / (( 1,668,718 * 1.042 + 1,643,024 * 1.045 + 1,626,413 * 1.049) / 3) = 0.990945, which tells us that real construction spending over January and February has fallen by 0.905% from that of the 4th quarter period, or was down at a 0.36% annual rate...then, to figure the potential effect of that change on GDP, we take the difference between the 4th quarter inflation adjusted average and that of January's & February's adjusted spending as a fraction of 4th quarter GDP, and find that 1st quarter construction spending is falling at a rate that would subtract about 0.22 percentage points from 1st quarter GDP, an estimate which assumes there would be little change in real construction in March over the January & February average...

 

 

(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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