Monday, May 30, 2022

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 reports that were released this week included theApril advance report on durable goods and the April report on new home sales, both from the Census bureau, and the Chicago Fed National Activity Index (CFNAI) for April, a weighted composite index of 85 different economic metrics, which rose to +0.47 in April, up from +0.36 in March, in an index where any positive reading indicates economic activity has been above the historical trend ...despite the April increase, the widely watched 3 month average of the CFNAI ticked down to +0.48 in April from +0.49 in March, which still indicates that national economic activity has 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 fell to -9 in May from +14 in April, indicating that a plurality of Fifth District manufacturing firms reported declines in activity in May,; 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 +23 in May, down from +25 in April, and +37 in March, indicating a smaller but still substantial majority of the region's manufacturing firms reported an increase in their activity this month than in March or April...

1st Quarter GDP Revised to Show Our Economy Shrunk at a 1.5% Rate

The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 1.5% annual rate in the 1st quarter, revised from the 1.4% contraction rate reported in the advance estimate last month, as growth of inventories and of fixed investment were revised lower, more than offsetting an upward revision to the quarter's growth of personal consumption expenditures....in current dollars, our first quarter GDP grew at a 6.51% 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 $24,384.3 billion annual rate in the 1st quarter of this year, with the headline 1.5% annualized rate of decrease in real output arrived at after an annualized inflation adjustment averaging inflation adjustment averaging 8.1%, aka the GDP deflator, was computed from the price changes of the GDP components and applied to their current dollar change...since that inflation adjustment was revised from the 8.0% adjustment indicated in the advance estimate, it thus accounts for the revision to GDP by itself...

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 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 citing data from 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 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 2.7% growth rate reported last month to indicate real PCE growth a 3.1% rate with this estimate…that growth figure was arrived at by deflating the 10.3% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 7.0% annual rate in the 1st quarter, which was unrevised from the PCE inflation rate published a month ago....real consumption of durable goods grew at a 6.8% annual rate, which was revised from the 4.1% growth rate shown in the advance report, and added 0.57 percentage points to GDP, as growth in real consumption of motor vehicles and parts at a 16.5% rate accounted for more than 60% of the quarter's growth in durable goods....on the other hand, real consumption of nondurable goods by individuals shrunk at a 3.7% annual rate, revised from the 2.5% decrease rate reported in the 1st estimate, and subtracted 0.57 percentage points from 1st quarter economic growth, as lower real consumption of gasoline and other energy goods accounted for more than half of the quarter's nondurable goods pullback….meanwhile, consumption of services rose at a 4.8% annual rate, revised from the 4.3% growth rate reported last month, and added 2.09 percentage points to the final GDP tally, as growth of the output of nonprofit institutions serving households accounted for more than 20% of the quarter's growth in services....

At the same time, seasonally adjusted real gross private domestic investment grew at a 0.5% annual rate in the 1st quarter, revised from the 2.2% growth rate estimate reported last month, as real private fixed investment grew at a 6.8% rate, rather than at the 7.3% rate reported in the advance estimate, while inventory growth was also somewhat less than had been previously estimated....real investment in non-residential structures was revised from shrinking at a 0.9% rate to shrinking at a 3.6% rate, while real investment in equipment was revised to show it grew at a 13.2% rate, revised from the 15.3% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from real growth at a 8.1% rate to real growth at a 11.6% rate, while growth in real residential investment was revised from a 2.1% annual rate down to growth at a 0.4% rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.09 percentage points from the increase in 1st quarter GDP, while the increase in investment in equipment added 0.68 percentage points to the quarter's growth, the increase in investment in intellectual property added 0.57 percentage points, and the increase in residential investment added 0.02 percentage points to the 1st quarter's growth rate..

Meanwhile, the quarter's growth of real private inventories was revised from the originally reported $158.7 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $149.6 billion rate...this came after inventories had grown at an inflation adjusted $193.2 billion in the 4th quarter, and hence the $43.6 billion negative change in real inventories from those of the 4th quarter subtracted 1.09 percentage points from the 1st quarter's growth rate, revised from the 0.84 percentage point subtraction due to lower inventory growth shown in the advance estimate....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 $43.65 billion reduction in their growth conversely means real final sales of GDP were actually greater by that amount, and therefore the BEA found that real final sales of GDP only fell at a 0.4% rate in the 1st quarter, revised from the 0.6% rate of decrease in real final sales shown in the advance estimate...

The previously reported decrease in real exports was revised lower with this estimate, but the previously reported increase in real imports was revised higher by more, and as a result our net trade was a bit larger subtraction from GDP than was previously reported...our real exports of goods and services shrunk at a 5.4% rate in the 1st quarter, revised from the 5.9% contraction shown in first estimate, and since exports are an addition to GDP because they are that part of our production that was not consumed or added to investment in our country, their decrease conversely subtracted 0.62 percentage points from the 1st quarter's growth rate, less than the 0.68 percentage point export subtraction due to lower exports shown last month...on the other hand, the previously reported 17.7% increase in our real imports was revised to a 18.3% increase, and since imports subtract from GDP because they represent either consumption or investment that is added to GDP with those figures but was not produced in the US, their increase subtracted 2.61 percentage points from 1st quarter GDP, revised from the 2.53 percentage point subtraction shown a month ago....thus, the deteriorating trade balance that has accompanied the increase in consumer spending subtracted a rounded 3.23 percentage points from 1st quarter GDP, up from the 3.20 percentage point subtraction resulting from a worsening foreign trade balance that was indicated by the advance estimate..

Finally, there was also a tiny net upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is still shown to be shrinking at a 2.7% rate, the same contraction rate for government indicated by the 1st estimate....real federal government consumption and investment was seen to have shrunk at a 6.1% rate from that of the 4th quarter in this estimate, which was revised from the 5.9% contraction rate shown in the 1st estimate, as real federal outlays for defense shrunk at a 8.5% rate, same as was previously reported, and subtracted 0.33 percentage points from 1st quarter GDP, while real non-defense federal consumption and investment shrunk at a 2.6% rate, revised from the 2.2 rate previously reported, and subtracted 0.07 percentage points from GDP....meanwhile, real state and local consumption and investment shrunk at a 0.6% rate in the quarter, revised from the 0.8% contraction shown in the 1st estimate, and subtracted 0.07 percentage points from 1st quarter GDP, which was revised from the 0.08 percentage points subtraction shown in the advance estimate...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 Up 0.4%, Personal Spending Up 0.9%, PCE Prices Up 0.2%, Savings Rate at a 13 Year Low

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

Hence, when the opening line of the news release for this report tell us "Personal income increased $89.3 billion (0.4 percent) in April", that means that the annualized figure for seasonally adjusted national personal income in April, $21,469.8 billion, was $89.3 trillion, or 0.4% more than the annualized personal income figure of $21,380.4 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, rose by less than 0.3%, from an annual rate of $18,332.4 billion in March to an annual rate of $18,380.7 billion in April....the reasons for the annualized $89.3 trillion increase in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and primarily reflected a $66.8 billion annual rate of increase in income from wages and salaries and an $22.9 billion annualized increase in interest and dividend income…...

For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they rose at a $152.3 billion annual rate, or by almost 0.9%, as the annual rate of national PCE increased from $16,907.0 billion in March to $17,059.3 in April....March PCE was revised from $16,862.7 billion annually to $16,907.0 billion, while February PCE was revised from $16,677.7 billion annually to $16,676.7 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 $155.3 billion to $17,565.5 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $815.3 billion annual rate in April, down by $107.0 billion from the revised $922.3 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 4.4% in April, down from a revised 5.0% savings rate in March, and the lowest personal savings rate since September 2008....

As you know, before those personal consumption expenditures can be 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 121.024 in March to 121.323 in April, a month over month inflation rate that's statistically 0.24706%, which BEA reports as an increase of 0.2 percent, following the rounded 0.9% increase in the PCE price index reported for March...applying that 0.247% April inflation adjustment to the ~0.9% nominal change in PCEleft real PCE up by 0.65214% in April, which the BEA reports as a 0.7% increase in their press release and in the tables, following the 0.5% 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 14,063.8 billion annually, 0.652% more than March's 13,972.7 billion, again an increase that the BEA reports as +0.7%...

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 13,924.8 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 chained dollar PCE of 14,063.8 billion to the 1st quarter real PCE of 13,924.8 billion on an annual basis, we find that April's real PCE has risen at a 4.05% 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 2.86 percentage points to the growth rate of 2nd quarter GDP... ..

April Durable Goods: New Orders Up 0.4%, Shipments Up 0.1%, Inventories Up 0.8% after Downward Benchmark Revisions

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 rose by $1.2 billion or 0.4 percent to $265.3 billion in April, the sixth increase in seven months, after durable goods orders for March were revised to show a 0.6% increase to $264.153 billion, revised from the 0.8% increase to $275.0 billion that was reported a month ago...note that over and above the usual monthly revisions to the underlying data, this month's report also reflects the May 13th re-benchmarking of shipments and inventories data to the 2020 and 2019 Annual Survey of Manufactures data, revised back to 2012, and then the adjustment of the orders data to be consistent with the re-benchmarked data...while this resulted in significant downwards revisions over the span of the data, we will only document the revisions to March....

As is usually the case, the volatile monthly change in April's new orders for transportation equipment led this month's headline change, as April transportation equipment orders rose $0.6 billion or 0.6 percent to $86.7 billion, on a 4.3% increase to $14,536 million in new orders for commercial aircraft and a 1.0% increase to $4,854 million in new orders for defense aircraft ....excluding new orders for transportation equipment, other new orders were up 0.3% in April, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment orders, were up 0.3% to $73,070 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 $0.3 billion or 0.1 percent to $264.3 billion, after March shipments were revised from an increase of 1.2% to $274.2 billion to an increase of 1.4% to $263.951 billion, obviously after re-benchmarking...lower shipments of transportation equipment limited the April increase, as shipments of transportation equipment were virtually unchanged at $82.5 billion because the value of shipments of motor vehicles fell 0.1% to $57,381 million and the value of shipments of defense aircraft fell 0.9% to $5,315 million…excluding that, the value of other shipments of durable goods rose 0.2%, led by a $0.2 billion or 0.9 percent to $20.9 billion in the value of shipments of primary metals, and are now 10.6% higher year to date than a year ago....meanwhile, shipments of nondefense capital goods excluding aircraft, important in figuring equipment investment, rose 0.8% to $72,076 million in April after rising a revised 0.2% 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 $3.6 billion or 0.8 percent to $479.4 billion, after the value of end of March inventories was revised from $482.9 billion to $475.7 billion, now shown as a 0.9% increase from February, after re-benchmarking....a $1.1 billion or 0.7% increase to $157.0 billion in the value of inventories of transportation equipment led the April inventory increase, while excluding inventories of transportation equipment, other inventories were also up 0.8%..

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 twentieth consecutive month, increasing by $5.9 billion or 0.5 percent to $1,106.7 billion, following a March increase which was revised from the 0.4% increase to $1,294.6 billion reported last month to a 0.5% increase to $1,100.764 billion...a $4.2 billion or 0.7% increase to $637.2 billion in unfilled orders for transportation equipment led the April increase, as unfilled orders for motor vehicles and parts rose 1.2% to $28,511 million and unfilled orders for commercial aircraft and parts rose 1.0% to $426,358 million....compared to a year ago, the unfilled order book for durable goods is now 7.7% higher than the level of last April, with unfilled orders for transportation equipment 6.6% above their year ago level, on a 13.1% increase in the backlog of orders for motor vehicles and parts and a 11.3% increase in the order book for commercial aircraft...

New Home Sales Much Lower in April on Record High Prices 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 591,000 homes during the month, which was 16.6 percent (±10.4 percent) below the revised March annual rate of 709,000 new home sales, and 26.9 percent (±13.7 percent) below the estimated annual rate that new homes were selling at in April of last year... the figures in parenthesis represent 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 2017; and with that, sales of new single family homes in March were revised from the annual rate of 763,000 reported last month to an annual rate of 709,000, and sales in February, initially reported at an annual rate of 772,000 and revised to a 835,000 rate last month, were revised back to an annual rate of 792,000, while new home sales in January, initially reported at an annual rate of 800,000 and revised from a 811,000 rate to a 845,000 rate last month, were revised to a 831,000 a year 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 881,000 annual rate...

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 53,000 new single family homes sold in April, down from the estimated 68,000 new homes that sold in March and down from the 72,000 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 a record high of $450,600, up from the median sales price of $435,000 in March and up from the median sales price of $376,600 in April a year ago, while the average new home sales price was at a record high $570,300, up from the $522,500 average sales price in March, and up from the average sales price of $434,800 in April a year ago....a seasonally adjusted estimate of 444,000 new single family houses remained for sale at the end of April, which represents a 9.0 month supply at the April sales rate, up from the revised 6.9 months of new home supply now being reported for March...

For graphs and commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales Decrease Sharply to 591,000 Annual Rate in April and April New Home Sales Decline Sharply, almost 6 Months of Inventory Under Construction, which links to his detailed 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…)  

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