This week’s key reports were the advance estimate of 4th quarter GDP and the December report on Personal Income and Spending, both from the Bureau of Economic Analysis, while other widely watched reports included the advance report on durable goods for December and the December report on new home sales, both from the Census bureau....the week also saw the release of the Regional and State Employment and Unemployment Summary for December from the Bureau of Labor Statistics, which breaks down the previously published employment data by state and region, and the Chicago Fed National Activity Index (CFNAI) for December, a weighted composite index of 85 different economic metrics, which inched up to –0.49 in December, from –0.51 in November…as a result, the 3 month average of the CFNAI fell to –0.33 in December, down from a revised –0.14 in November, which indicates that national economic activity slipped further below the historical trend over the 4th quarter months…
This week also saw two more regional Fed manufacturing surveys for January: 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 fell to -11 in January from +1 in December and from −9 in November, meaning a moderate plurality of Fifth District manufacturers saw conditions worsen during the month, and the Kansas City Fed manufacturing survey for January, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -1 in January, up from -4 in December and -2 in November, indicating that just over half of that region’s manufacturers continue to see deteriorating business conditions in January...
4th Quarter GDP Grew at 2.9% Rate on Growth of Inventories, Personal Services, and Government
The Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 2.9% annual rate from the output of the 3rd quarter, when our real output grew at a 3.2% real rate, as growth in inventories, personal services, government, and a decrease in imports (a positive for GDP) accounted for the quarter's growth, more than offsetting a big drop in residential investment. For the entire year, our economy grew at a 2.1% rate, quite a bit slower than the 5.9% growth rate of 2021, when the economy was rebounding from the pandemic induced 2.8% contraction of 2020. In current dollars, our fourth quarter GDP grew at a 6.51% annual rate, increasing from what would work out to be a $25,723.9 billion a year rate in the 3rd quarter to a $26,132.5 annual rate in the 4th quarter, with the headline 2.9% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 3.5%, aka the GDP deflator, were computed from the price changes of the GDP components and applied to their current dollar change...
As is usual with an advance estimate, the BEA cautions that the source data for GDP 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.. Also note that December's construction, trade in services, and non-durables factory inventory data have yet to be reported or formally estimated, and that the BEA assumed a $12.5 billion increase in exports of services, a $1.8 billion increase in imports of services, a $7.4 billion decrease in residential construction, a $3.2 billion increase in non-residential construction, a $1.2 billion increase in public construction, and a $0.2 billion decrease in nondurable manufacturing inventories for December before they estimated the 4th quarter’s output (see the Key source data and assumptions (xls) for more details).
While we review the details for the 4th 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 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 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 actual dollar amounts, since 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 4th quarter GDP, which we find linked on the BEA GDP landing page, which also offers 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 1st quarter of 2019, 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 in the computation of more than 70% of GDP, grew at a 5.32% rate in current dollars in the 4th quarter, which were then deflated to indicate a 2.1% real growth rate of goods and services consumed, after an annualized PCE price index increase averaging 3.2% was computed to adjust that consumer spending for inflation.. Consumers outlays for durable goods fell at a 2.6% rate in current dollars, but prices for those durable goods averaged 3.1% lower, and thus the BEA found that the real output of consumer durables grew at a 0.5% rate, as real growth at an 7.4% rate in consumption of automobiles and parts accounted for 60% of the durable goods growth and offset decreases in recreational goods and other durable goods.. The BEA also found that real output of consumer non-durable goods grew at a 1.5% rate, after increased consumer spending for non-durables at a 1.0% rate was adjusted for weighted non-durable goods prices that fell at a 0.5% rate, as real consumption of gasoline grew at a 2.6% rate and led a broad based growth of all categories of non-durable goods. Meanwhile, the 8.3% nominal growth rate of consumer outlays for services was deflated by an average 5.6% increase in prices for personal services to show that the real output of consumer services grew at a 2.6% annual rate, as a 3.7% real growth rate for health care services accounted for almost 40% of the 4th quarter's growth in services. As a result of those changes in growth from the 3rd to the 4th quarter, the increase in our output of durable goods indicated by our spending on them added 0.04 percentage points to the GDP growth rate, the increase in the output of non-durable goods added 0.22 percentage points to GDP, and increased personal services added 1.16 percentage points to the growth rate of the economy in the 4th quarter..
The change in the 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 (or decrease) 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, real gross private domestic investment, which had shrunk at a real 9.4% annual rate in the 3rd quarter, grew at a real 1.4% annual rate from those lower levels in the 4th quarter, even as the real growth rate of fixed investments shrunk at a 6.7% annual rate in the 4th quarter, after shrinking at a 3.5% rate in the 3rd quarter, as growth in inventories provided all of the 4th quarter's investment boost. Among fixed investments, real non-residential fixed investment grew at a 0.7% rate as real investment in non-residential structures grew at 0.4% rate and added 0.01 percentage point to 4th quarter GDP, real investment in equipment shrunk at a 3.7% rate and subtracted 0.20 percentage points from 4th quarter GDP, and real investment in intellectual property grew at 5.3% rate and added 0.28 percentage points to GDP. However, real residential investment shrunk at a 26.7% rate and subtracted 1.29 percentage points from 4th quarter GDP, and turned the fixed investment component of GDP negative. 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.....
Meanwhile, real private inventories grew at an inflation adjusted $129.9 billion rate over the 4th quarter, after growing at an inflation adjusted $38.7 billion rate in the 3rd quarter, and as a result the $91.2 billion positive change in real inventory growth added 1.46 percentage points to the 4th quarter's growth rate, after a $71.5 billion negative change in real inventory growth in the 3rd quarter had subtracted 1.19 percentage points from that quarter's GDP. However, since growth in inventories indicates that more of the goods produced during the quarter were left in storage or sitting on a shelf, the $91.2 billion increase in their growth in turn means real final sales of GDP were smaller by that amount, and hence real final sales of GDP only grew at a 1.4% rate in the 4th quarter, down from the real final sales growth rate of 4.5% in the 3rd quarter, when lower inventory growth was a major drag on the quarter's GDP growth...
Real exports and real imports both decreased in the 4th quarter, but our imports fell by quite a bit more, thus indicating greater domestic sourcing of goods and services than in the prior quarter, and hence boosting 4th quarter GDP. Our real exports of goods and services shrunk at a 1.3% rate in the fourth quarter, after our exports had increased at a 14.6% rate in the 3rd quarter, while our real imports, which are half again greater than exports, shrunk at a 4.6% rate in the fourth quarter, after shrinking at a 7.3% rate in the 3rd quarter. As you'll recall, increases in our exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted elsewhere in this GDP calculation), so that decrease in 4th quarter exports conversely subtracted 0.15 percentage points from 4th quarter GDP. On the other hand, real increases in imports subtract 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 in our country and hence is not part of our national product. So conversely, the decrease in imports means that more of the quarter’s consumption or investment was produced domestically, and hence the 4th quarter decrease in real imports added 0.71 percentage points to 4th quarter GDP. As a result, our improving trade imbalance added a net 0.56 percentage points to 4th quarter GDP, after our improving trade deficit had added 2.86 percentage points to our GDP in the third quarter…
Finally, real consumption and investment by all branches of government increased at a 3.7% annual rate in the 4th quarter, after growing at an identical 3.7% rate in the 3rd quarter, as federal government consumption and investment grew at a 6.2% rate, while state and local consumption and investment grew at a 2.3% rate. Inflation adjusted federal spending for defense grew at a 2.4% rate and added 0.09 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment grew at a 11.2% rate and added 0.30 percentage points to 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 those goods or services. Meanwhile, state and local government investment and consumption expenditures grew at a 2.3% annual rate and added 0.25 percentage points to the growth of 4th quarter GDP, as a real increase in state and local investment at a 2.9% annual rate accounted for 0.06 percentage points of that addition to GDP…
December Personal Income Rose 0.2%, Personal Spending Fell 0.2%, PCE Price Index Up 0.1%
Friday's release of the December 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 4th quarter GDP report we just covered actually originated with this report...and like that GDP report, all the dollar values reported here are at an annual rate and seasonally adjusted, ie, they tell us what personal income, spending and saving would be for a year if December'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 November to December....thus, when the opening line of the news release for this report tells us "Personal income increased $49.5 billion (0.2 percent) in December..", they mean that the annualized figure for all types of personal income in December, $22,224.3 billion, was $49.5 billion, or more than 0.2% greater than the annualized personal income figure of $22,174.8 billion for November; the actual increase in personal income in December over November is not given....similarly, disposable personal income, which is income after taxes, rose by almost 0.3%, from an annual rate of $18,933.0 billion in November to an annual rate of $18,982.1 billion in December...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...in December, the primary reasons for the $49.5 billion annual rate of increase in personal income were an annualized $28.5 billion increase in wages and salaries, an annualized $18.6 billion increase in personal interest income, and an annualized $9.6 billion increase in business proprietor's income…
Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for December, which were included in the change in real PCE in the 4th quarter GDP report, fell at a $41.6 billion annual rate to a $17,737.2 billion pace of consumer spending annually, more than 0.2% below that of November, after November‘s PCE was revised down from the previously reported annual rate of $17,828.1 billion to $17,778.8 billion, now down 0.1% from October...the current dollar decrease in December spending was due to a $95.0 billion decrease to $5,893.2 billion in annualized spending for goods, and was partly offset by a $53.4 billion annualized increase to an annualized $11,844.0 billion in spending for services....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $39.2 billion to $18,344.7 billion in December, which left personal savings, which is disposable personal income less total outlays, at a $637.5 billion annual rate in December, up from the revised $549.1 billion in annualized personal savings in November...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 3.4%, up from 2.9% in November, resulting in a 2022 savings rate of 3.3%, down from our 12.0% personal savings rate of 2021, and down from the 16.2% record annual savings rate in 2020..
While our personal consumption expenditures accounted for 70.6% of our fourth quarter GDP, before they could be used in the computation of the change in our output, they first needed to be adjusted for inflation, to give us the real change in consumption, and hence the real change in the goods and services that were produced for that consumption.....that adjustment was made using the price index for personal consumption expenditures, also included in this report, which is a chained price index based on 2012 prices = 100....from Table 9 in the pdf for this report, we find that index rose from 124.744 in November to 124.809 in December, giving us a month over month inflation rate of 0.05211%, which the BEA reports as an increase of +0.1%...at the same time, Table 11 reports a rounded year over year PCE price index increase of 5.0%, and a core price increase, excluding food and energy, of 4.4% for the past year, both still well above the Fed's inflation target....applying the December inflation adjustment to the nominal change in December’s PCE shows that real PCE was down 0.28594% for the month, which BEA reports as a 0.3% decrease in their summary table...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 report PDF, where the quarterly figures given are identical to those shown in table 3 of the current GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP...
December Durable Goods: New Orders Up 5.6%, Shipments Up 0.5%, Inventories Up 0.7%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December(pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $15.3 billion or 5.6 percent to $286.9 billion in December, the fourth increase in five months, after November's new orders were revised from the $270.6 billion reported a month ago to $271.6 billion, now a 1.7% decrease from October's new orders, revised from the 2.1% decrease reported for November's new orders last month...for the year, 2022's new orders were valued at $3,254,293 million, which was 10.5% above the $2,943,966 million value of 2021's orders, after the value of 2020s durable goods orders had risen 20.9% from those of 2020....note that the 4th quarter GDP report indicated prices of durable goods rose 6.4% over the past year, so some of that year over year durable goods orders increase was due to higher prices...
An increase of $15.5 billion or 16.7 percent to $108.1 billion in the value of new orders for transportation equipment, also up four of the last five months, was responsible for the December new orders increase, as new orders for commercial aircraft rose 115.3% to $28,879 million and new orders for defense aircraft rose 15.2% to $5,652 million....excluding orders for transportation equipment, the value of other new orders fell 0.1%, while excluding new orders for defense equipment, the value of new orders rose 6.3%....meanwhile, the value of new orders for nondefense capital goods less aircraft, a proxy for equipment investment intentions, fell 0.2% million to $74,880 million, after being statistically unchanged in November....
The seasonally adjusted value of December’s shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, rose by $1.4 billion or 0.5 percent to $277.7 billion, the nineteenth increase in twenty months, after the value of November shipments was revised from from $275.9 billion to $276.3 billion, now up 0.4% from October.…the value of shipments of transportation equipment, up 14 out of the last 15 months, led the increase, rising $1.5 billion or 1.7 percent to $93.8 billion, on a 3.2% increase to $14,545 million in the value of shipments of commercial aircraft and and a 4.4% increase in the value of shipments of defense aircraft... meanwhile, the value of shipments of nondefense capital goods less aircraft fell 0.4% to $74,729 million, after the value of November’s capital goods shipments was revised from $75,053 million to $75,044 million, now a 0.2% decrease from October....for the year, shipments of durable goods were valued 10.7% more than those of 2020, which in turn were valued 12.6% greater than those of 2020…
At the same time, the value of December’s seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the twenty-third consecutive month, increasing by $3.5 billion or 0.7 percent to $493.6 billion, after November inventories were revised from $489.7 billion to $426,631 million, now up 0.2% from October....increased inventories of transportation equipment led December's increase, rising $1.7 billion or 1.1 percent to $158.6 billion, on a 2.5% increase to $76,503 million in inventories of commercial aircraft....excluding inventories of transportation equipment, the value of all other durable goods inventories rose 0.6%, while the value of inventories of capital goods less aircraft rose 0.8% to $153,158 million….for the year, inventories of durable goods were valued 5.6% more than those of 2021 at year end, which in turn were were valued 9.4% more than those of at the end of 2020...
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, increased for the twenty-eighth consecutive month, rising by $14.5 billion or 1.3 percent to $1,158.2 billion, after unfilled orders for November were revised from $1,143.2 billion to $1,143.7 billion, now a virtually unchanged increase from October...a $14.3 billion or 2.1 percent increase to $685.0 billion in unfilled orders for transportation equipment was responsible for most of the December increase, while the value of unfilled orders for durable goods other than transportation equipment rose just 0.1% to $473,216 million...the unfilled order book for durable goods at the end of December was valued 7.3% above that of the level at the end of 2021, as the value of the unfilled order book for transportation equipment rose 11.2% over the year, largely on a 15.4% increase in unfilled orders for commercial aircraft, while the value of unfilled orders for nondefense capital goods less aircraft ended 3.1% above it’s year ago level..
New Home Sales Up on Lower Prices in December, Down Sharply for the Year
The Census report on New Residential Sales for December(pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 616,000 homes annually during the month, which was 2.3 percent (±18.5 percent)* above the revised November annual rate of 602,000 new single family home sales, but was 26.6 percent (±13.2 percent) below the estimated annual rate that new homes were selling at in December of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, 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; sales of new single family homes in November were revised from the annual rate of 640,000 reported last month to an annual rate of 602,000, while home sales in October, initially reported at an annual rate of 632,000 and revised to 605,000 last month, were further revised down to a 598,000 a year rate with this report, while September's home sale rate, initially reported at an annual rate of 603,000 and revised down from the initially revised 588,000 a year rate to a 559,000 a year rate last month, were again revised down to a 550,000 annual rate with this release...an estimated 762,000 new homes were sold during the past year, which was 7.3 percent (±5.1 percent) less than the 822,000 new homes that sold during 2020...
The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 47,000 new single family homes sold in December, up from the estimated 43,000 new homes that sold in November and the 45,000 that sold in October.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $442,100, down from the median sale price of $459,100 in November and the median sale price of $491,300 in October, but up from the median new home sales price of $410,000 in December a year ago, while the average December new home sales price was $528,400, down from the $528,600 average sales price in November, but up from the average sales price of $491,000 in December a year ago....a seasonally adjusted estimate of 461,000 new single family houses remained for sale at the end of December, which represents a 9.0 month supply of homes at the December sales rate, down from the revised 9.2 months of new home supply in November...for graphs and additional commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales at 616,000 Annual Rate in December; Annual Sales down 16.4% in 2022 and New Home Sales at 616,000 Annual Rate in December; Previous 3 Months Revised Down Sharply, which in turn links to his real estate newsletter post with the same title...
(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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