Sunday, May 1, 2022

1st quarter GDP; March incomes & outlays, durable goods, and new home sales

The key economic releases from the past week that we'll review today are the advance estimate of 1st quarter GDP and the concurrent March report on Personal Income and Spending, both from the Bureau of Economic Analysis....other widely watched releases included the March advance report on durable goods and the March report on new home sales, both from the Census bureau, and the February Case-Shiller Home Price Index from S&P Case-Shiller, which reported that the relative average of December, January and February home prices was 19.8% higher than average prices for the same homes that sold during the same 3 month period a year earlier...also released this week was the Chicago Fed National Activity Index (CFNAI) for March, a weighted composite index of 85 different economic metrics, which fell to +0.44 in March, down from +0.54 in February, after February's index was revised up from the +0.51 reported last month...however, the often cited 3 month average of that index rose to +0.57 in March from a revised +0.43 in February, in an index where positive readings indicate that national economic activity has been above the historical trend over recent months...

This week also saw the release of the last three regional Fed manufacturing surveys for April: the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas, western Louisiana and eastern New Mexico, reported their general business activity composite index fell to +1.1 in April, down from +8.7 in March, indicating that a just a very small plurality of Texas business are still reporting expansion during April, the Kansas City Fed manufacturing survey for April, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to +25 in April, down from +37 in March, but still indicating a fairly broad based expansion of that region's manufacturing, while 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 inched up to +14 in April from +13 in March, also indicating an ongoing expansion among that region's manufacturing firms..

1st Quarter GDP Shrunk at a 1.4% Rate on a Record Trade Deficit and Slower Growth of Inventories

Our economy shrunk at a 1.4% rate in the 1st quarter, the first GDP reversal since the first quarter of 2020, as increased personal consumption of services and greater fixed investment were more than offset by weaker investment in inventories and a record trade deficit, which subtracted over 3 percent from GDP.....the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US contracted at a 1.4% annual rate from the output of the 4th quarter of 2021, when our real output grew at a 6.9% real rate....in current dollars, our first quarter GDP grew at a 6.48% annual rate, increasing from what would work out to be a $24,002.8 billion a year output rate in the 4th quarter of last year to a $24,382.7 billion annual rate in the 1st quarter of this year, with the headline 1.4% annualized rate of decrease in real output arrived at after an annualized inflation adjustment averaging inflation adjustment averaging 8.0%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change.... ...

As is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now....note that March construction, March trade in services, and non-durables inventory data have yet to be reported, and that the BEA assumed a $12.6 billion increase in exports of services, a $10.1 billion increase in imports of services, a $10.0 billion increase in residential construction, a $5.5 billion increase in non-residential construction, a $0.5 billion increase in public construction, and a $6.5 billion increase in nondurable manufacturing inventories for March before they estimated 1st quarter output (see the Key source data and assumptions excel file that accompanies this report for more specific details)..

While we cover the details on the 1st quarter below, remember that the news release for the Advance Estimate reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over four 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 indexes chained from 2012 prices, 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, because the change in real GDP is not a monetary metric....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the advance estimate of 1st quarter GDP, which we find on the BEA’s GDP landing page, where you can also find links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2018, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters 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....

Our personal consumption expenditures (PCE), which are used to compute around 70% of GDP, grew at a 9.93% rate in current dollars in the 1st quarter, which worked out to a real growth rate of 2.7% in consumed goods and services after an annualized PCE price index increase averaging 7.0% was used to adjust that personal spending for inflation....consumer spending on durable goods grew at a 10.9% rate in current dollars while prices of those durable goods were on average 6.5% higher, and as a result the BEA found that real growth in output of consumer durables grew at a 4.1% rate, as an increase in real consumption of motor vehicles and parts at a 10.4% rate accounted for about a third of the growth in durable goods output....on the other hand, the BEA found that the real output of consumer non-durable goods shrunk at a 2.5% rate, after an increase in consumer spending for non-durable goods at a 12.0% rate was adjusted for an average jump in non-durable prices at a 14.9% rate, as lower real consumption of gasoline and other energy goods accounted for about 80% of the quarter's nondurable goods pullback...meanwhile, the 9.0% nominal growth in consumer outlays for services was deflated by a 4.6% increase in prices for services to show that real output of consumer services grew at a 4.3% annual rate, as real growth of health care, food services and accommodations, and financial services and insurance accounted for more than half the quarter's growth in services....as a result of those changes in growth from the 4th to the 1st quarter, the increase in outlays for durable goods added 0.35 percentage points to 1st quarter GDP, the decrease in real consumption of non-durable goods subtracted 0.38 percentage points from the growth of GDP, while increased consumption of services added 1.86 percentage points to the growth rate of the 1st quarter economy..

The change in other components of the change in GDP is computed by the BEA in the same manner that we have just illustrated for computing real PCE; ie, the annualized increase in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the change in real units of goods or services produced during the quarter, at an annual rate......thus, after inflation adjustments, real gross private domestic investment, which had grown at a 36.7% annual rate in the 4th quarter of 2021, grew at just a 2.3% annual rate from there in the 1st quarter...however, that weak investment increase was due to falling inventory growth; real fixed investment itself grew at a 7.3% annual rate in the 1st quarter, after growing at a 2.7% rate in the 4th quarter...among fixed investments, real non-residential fixed investment grew at a 9.2% rate, even as real investment in non-residential structures shrunk at a 0.9% rate and subtracted 0.02 percentage points from 1st quarter GDP, because real investment in equipment grew at a 15.3% rate and added 0.79 percentage points to 1st quarter GDP, and real investment in intellectual property grew at 8.1% rate and added 0.40 percentage points to GDP....at the same time, real residential investment grew at a 2.1% rate and added 0.10 percentage points to GDP....for an easy to understand table as to what's included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3.....

Meanwhile, slower growth of real inventories reduced the net change in overall gross investment and hence GDP, as real private inventories grew by an inflation adjusted $158.7 billion in the quarter, after growing at an inflation adjusted $193.2 billion in the 4th quarter...as a result, the rounded $34.5 billion negative change in real inventory growth subtracted 0.84 percentage points from the 1st quarter's growth rate, after a $259.9 billion positive change in real inventory growth in the 4th quarter had added 5.32 percentage points to that quarter's GDP....however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or "sitting on the shelf”, the $34.5 billion reduction in their growth conversely means real final sales of GDP were actually greater by that amount, and hence real final sales of 1st quarter GDP only shrunk at a 0.6% rate in the 1st quarter, down from the real final sales growth rate of 1.5% in the 4th quarter, when the big increase in inventory growth meant that the quarter’s growth in real final sales was much smaller than that of the quarter's GDP...

Meanwhile, our real exports of goods and services shrunk at a 5.9% rate in the 1st quarter, after growing at a 22.4% rate in the 4th quarter of 2021, while our real imports grew at a 17.7% rate in the 1st quarter, after rising at a 17.9% rate in the 4th quarter....as you'll recall, real increases in exports add to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP figures elsewhere), so conversely that 5.9% decrease in 1st quarter exports subtracted 0.68 percentage points from 1st quarter GDP, after growth in exports had added 2.24 percentage points to 4th quarter GDP....on the other hand, real increases in imports subtract from GDP because they are either consumption or investment that was added to another GDP component that shouldn't have been, because it was not produced in our country and not part of our national product…hence, the 17.7% increase in real imports in the 1st quarter subtracted 2.53 more percentage points from 1st quarter GDP, after the 4th quarter's increase in imports had subtracted 2.46 percentage points from that quarter's GDP.... hence our worsening trade imbalance subtracted a rounded net of 3.20 percentage points from 1st quarter GDP, after our deteriorating trade deficit had subtracted a rounded 0.23 percentage points from GDP in the fourth quarter…

Finally, real consumption and investment by all branches of government decreased at a 2.7% annual rate in the 1st quarter, after decreasing at a 2.6% rate in the 4th quarter, as federal government consumption and investment shrunk at a 5.9% rate, while state and local consumption and investment shrunk at a 0.8% rate....inflation adjusted federal spending for defense shrunk at a 8.5% rate and subtracted 0.33 percentage points from 4th quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 2.2% rate and subtracted 0.06 percentage points from GDP....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services....meanwhile, state and local government investment and consumption expenditures shrunk at a 0.8% annual rate and subtracted 0.08 percentage points from the growth of 1st quarter GDP, as a real increase in state and local consumption expenditures added 0.10 percentage points from GDP, while real state and local investment shrunk at a 9.3% annual rate and subtracted 0.18 percentage points from GDP...

March Personal Income Rose 0.5%, Personal Spending Rose 1.1% , PCE Price Index Rose 0.9%, Savings Rate at an 8 Year Low

Friday's release of the March Income and Outlays report from the Bureau of Economic Analysis was concurrent with the GDP release on Thursday, and all the PCE data in the first quarter GDP report we just covered actually originated with this report...and like that GDP report, all the dollar values reported here are seasonally adjusted and at an annual rate, ie, they tell us what personal income, spending and saving would be for a year if March's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one 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 February to March....thus, when the opening phrase of the press release for this report tell us "Personal income increased $107.2 billion (0.5 percent) in March..", it means that the annualized figure for all types of personal income in March, $21,338.4 billion, was $107.2 billion, or statistically 0.5% more than the annualized personal income figure $21,231.2 billion for February; the actual increase in personal income from February to March is not given....similarly, disposable personal income, which is income after taxes, also rose by almost 0.5%, from an annual rate of $18,430.1 billion in February to an annual rate of $18,519.8 billion in March...the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized....the main contributors to the $107.2 billion annualized increase in personal income in March included an $63.8 billion annual rate of increase in income from wages and salaries, a $15.0 billion annualized increase in business & farm proprietors’ income, and an $11.8 billion annualized increase in interest and dividend income…

At the same time, seasonally adjusted personal consumption expenditures (PCE) for March, which were included in the change in PCE in the 1st quarter GDP report, rose at a $185.0 billion annual rate to a $16,862.7 billion pace of consumer spending annually, almost 1.1% above that of February's rate, after February's PCE rate was revised from the previously reported annual rate of $16,713.3 billion to $16,677.7 billion, a revision which was also included in the GDP report...the current dollar increase in March's spending included a $114.6 billion annualized increase to an annualized $11,002.4 billion in spending for services and a $70.4 billion increase to a record high $5,860.3 billion in annualized spending for goods....total personal outlays for March, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $188.9 billion to $17,368.5 billion, which left personal savings, which is disposable personal income less total outlays, at a $1,151.4 billion annual rate in March, down from the revised $1,250.6 billion in annualized personal savings in February...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 6.2%, down from a revised 6.8% in February, and the lowest personal savings rate since December 2013

While our personal consumption expenditures accounted for 70.5% of our first quarter GDP, before they were included in the measurement of the change in our output they were first 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 all personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is then applied to the current dollar spending....from Table 9 in the pdf for this report, we find that that index rose to 121.000 in March from 119.961 in February, giving us month a over month inflation rate of 0.86612% in March, which the BEA reports as a PCE price index increase of 0.9% in their tables….at the same time, Table 11 gives us a year over year PCE price index increase of 6.6% in March, up from 6.3% in February, and a core PCE price index increase, excluding food and energy, of 5.2% for the past year, both well above the Fed's inflation target....applying the March inflation adjustment to the change in March PCE shows that real PCE was up 0.2411% in March, which BEA reports as a 0.2% increase in their press release and in the tables, following a February real PCE increase of 0.1%...note that when those PCE price indexes are applied to a given month's annualized current dollar PCE, it yields that month's annualized real PCE in chained 2012 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....those results are shown in tables 7 and 8 of the PDF, where the quarterly figures given are identical to those shown in table 3 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP...

March Durable Goods: New Orders Up 0.8%, Shipments Up 1.2%, Inventories Up 0.7%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March(pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $2.3 billion or 0.8 percent to $275.0 billion in March, after February's new orders were revised from the $271.5 billion reported last month to $272.7 billion, now down by 1.7% from January's new orders, revised from the 2.2% drop originally reported....however, with a 1.6% increase in January, year to date new orders are still up by 12.6% from those of 2021...

New orders for computers and electronic products led the new orders increase in March, rising $0.7 billion or 2.6 percent to $26.3 billion, while the volatile monthly new orders for transportation equipment wasn't much of a factor, rising $0.1 billion or barely 0.2 percent to $83.7 billion, as a 5.0% increase in orders for motor vehicles and parts was offset by a 9.9% decrease in new orders for commercial aircraft and a 25.6% decrease in new orders for defense aircraft....excluding orders for transportation equipment, the value of other new orders were up 1.1%, while excluding just new orders for defense equipment, the value of new orders rose 1.2%....at the same time, the value of new orders for nondefense capital goods less aircraft, a category that’s a proxy for equipment investment, rose 1.0% to $80,783 million, led by a 7.0% increase in the value of new orders for communications equipment...

Meanwhile, the seasonally adjusted value of March shipments of durable goods, which were ultimately included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, rose for the tenth time in eleven months, increasing by $3.3 billion or 1.2 percent to $274.2 billion, after the value of February shipments was revised from $270.6 billion to $270,926 billion, now up 0.1% from January, rather than down 0.1%.....higher shipments of transportation equipment led the March increase, increasing by $1.9 billion or 2.4 percent to $80.0 billion, on a 5.0% increase to $57,425 million in the value of shipments of motor vehicles and parts....meanwhile, the value of shipments of nondefense capital goods less aircraft rose 0.2% to $79,710 million, after the value of February’s capital goods shipments was revised down from $79,666 million to $79,524 million...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, increased by $3.3 billion or 0.7 percent to $482.9 billion, the 14th consecutive increase, after the value of end of February inventories was revised from $478.5 billion to $479.554 billion, now up 0.6% from January....the value of inventories of transportation equipment led the March inventory increase, rising $1.5 billion or 1.0 percent to $156.0 billion,on a 1.1% increase to $51,228 in the value of inventories of motor vehicles and parts, and a 1.0% increase to $76,174 in the value of inventories of commercial aircraft, while the value of all other inventories rose 0.6% to $326,923 million...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often volatile new orders, also rose for the fourteenth consecutive month, after falling over the prior ten months, increasing by $5.3 billion or 0.4 percent to $1,294.6 billion,following a 0.5% February increase to $1,289.3 billion, which was revised from the previously reported 0.4% increase to $1,288.4 billion....a $3.7 billion or 0.4 percent increase to $857.6 billion in unfilled orders for transportation equipment led the increase, but unfilled orders for other durable goods were also up 0.4% to $435,367 million....the unfilled order book for durable goods is now 8.3% above the level of last March, with unfilled orders for transportation equipment now 6.6% above their year ago level, largely on a 10.7% increase in the backlog of orders for commercial aircraft...

New Home Sales Reported 8.6% Lower on Record Prices in March, after Prior Months Sales Revised Much Higher

The Census report on New Residential Sales for March (pdf) estimated that new single family homes were selling at a seasonally adjusted annual rate of 763,000 homes during the month, which was 8.6 percent (±12.9 percent)* below the revised February annual sales rate of 835,000, and 12.6 percent (±11.3 percent) below the estimated annual rate that new homes were selling at during March of last year....the asterisk indicates that based on their small sampling, Census could not tell whether March new home sales rose or fell from home sales of February, with the figures in parenthesis representing the 90% confidence range for the 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 February were revised from the annual rate of 772,000 reported last month to an annual rate of 835,000, and new home sales in January, initially reported at an annual rate of 800,000 and revised to a 788,000 annual rate last month, were revised up to a 845,000 a year rate with this report, while December's annualized new home sales rate, initially reported at an annual rate of 811,000 and revised from the initial revision of 839,000 to an 860,000 a year rate last month, were revised to an 871,000 rate with this release...March 2021 sales were originally reported at a 1,021,000 annual rate, a 15 year high, and have since been revised down to an 873,000 annual rate...

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 72,000 new single family homes sold in March, down from the estimated 73,000 new homes that sold in February but up from the 69,000 that sold in January...the raw numbers from Census field agents were further used to estimate that the median sales price of new houses sold in March was $436,700, up from the median sale price of $421,600 in February and up from the median sales price of $359,600 in March a year ago, while the average new home sales price was $523,900, uo from the $508,100 average sales price in February, and up from the average sales price of $414,700 in March a year ago....a seasonally adjusted estimate of 407,000 new single family houses remained for sale at the end of March, which represents a 6.4 month supply at the March sales rate, up from the revised 5.6 months of new home supply in February, which was originally reported at 6.3 months...for graphs and additional commentary on this report, see the following blog posts by Bill McBride at Calculated Risk: New Home Sales Decrease to 763,000 Annual Rate in March. and March New Home Sales: Little Completed Inventory, High Number of Homes Under Construction, which in turn links to his lengthy real estate newsletter post on the same subject...

 

 

(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…)  

No comments:

Post a Comment