Written by rjs, MarketWatch 666
4th quarter GDP; December’s personal income and outlays, durable goods, and new home sales
The two most widely watched reports released this past week were the existing home sales report for December from the National Association of Realtors (NAR) and the first advanced estimate for 4Q 2029 GDP from the BEA (Bureau for Economic Analysis).
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, and the Case-Shiller Home Price Index for November from S&P Case-Shiller, which reported that prices for homes that sold nationally during September, October and November averaged 3.5% higher than the prices for the same homes that sold during the same 3 month period a year earlier
In addition, this week also saw the last two 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, which reported its broadest composite index rose to +20 in January from -5 in December and -1 in November, suggesting a return to robust growth of Fifth District manufacturing, and the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas and adjacent counties in Louisiana and New Mexico, reported its general business activity index rose to 0.0, up from last month’s -3.2, a zero reading which the Dallas Fed says “suggests manufacturers were fairly balanced in their assessment of whether activity had improved or worsened from last month“.
See also:
- January 2020 Richmond Fed Manufacturing Survey Significantly Improves
- January 2020 Texas Manufacturing Improves Again
- January 2020 Chicago Purchasing Managers Barometer Travels Deeper Into Contraction
- February 2020 Economic Forecast Index Slightly Improved But Remains In Contraction
- December 2019 Coincident Indices Continue To Show Weak But Improving Growth
- Final January 2020 Michigan Consumer Sentiment Improves
- January 2020 Conference Board Consumer Confidence Improved
4th Quarter GDP Grew at 2.1% Rate; 2019’s Growth was Weakest Since 2016
Our economy grew at a 2.1% rate in the fourth quarter, the same growth rate as in the third quarter, as weaker personal consumption and much slower growth in private inventories were offset by a return to fixed investment growth and a big positive contribution from trade figures…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 2.1% annual rate over the output of the 3rd quarter of 2018, when our real output grew at a 2.1% real rate, as improving trade added almost a point and a half to GDP while slowing inventory investment subtracted more than a point…for the entire year, our economy grew at a 2.3% rate, down from the the 2.9% growth of 2018, and the 2.4% growth rate of 2017….in current dollars, our fourth quarter GDP grew at a 3.6% annual rate, increasing from what would work out to be a $21,542.5 billion a year output rate in the 3rd quarter to a $21,734.3 billion annual rate in the 4th quarter, with the headline 2.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was computed and applied to the 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…also note that December construction and factory inventory data were not yet reported or estimated at the time of this release, and that the BEA assumed a $4.8 billion increase in residential construction, a $2.4 billion decrease in nonresidential construction, and a $7.6 billion increase in nondurable manufacturing inventories for December before they estimated the 4th quarter’s output (see Key source data and assumptions (xls)
While we review the details for the 4th quarter below, remember that the news release for GDP 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 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 advance estimate of 4th quarter GDP, which we find on the BEA GDP landing page, which also offer 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 2016, 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….
Personal consumption expenditures (PCE), which accounts for almost 70% of GDP, grew at a 3.4% rate in current dollars in the 4th quarter, which was deflated to indicate a 1.8% real growth rate of goods and services consumed for GDP purposes, after an annualized PCE price index increase of 1.6% was indicated to adjust that consumer spending for inflation…consumer outlays for durable goods fell at a 0.3% rate in current dollars while prices for those durable goods fell at a 2.4% rate, and thus the BEA found that the real growth in the output of consumer durables indicated by that lower spending rose at a 2.1% rate, as real consumption of recreational goods and vehicles grew at a 3.3% rate and accounted for half the growth in durables…the BEA also found that real output of consumer non-durable goods grew at a 1.6% rate, after growth in consumer spending for non-durables at a 2.4% rate was adjusted for weighted non-durable goods prices that rose at a 1.6% rate, as modest growth in real consumption of clothing, footwear, gasoline and other energy goods was offset by lower consumption of food and other non-durable goods….meanwhile, the 4.2% nominal growth in consumer outlays for services was deflated by a 2.2% average increase in prices for personal services to show real output of consumer services grew at a 2.2% annual rate, as a 2.9% growth rate in real health care services accounted for almost one-third of services growth…as a result of those changes in growth from the 3rd to the 4th quarter, the increase in real outlays for durable goods added 0.15 percentage points to the GDP growth rate, increased non-durable goods added 0.11 percentage points, and increased services added 0.94 percentage points to the growth rate of the economy in the 4th quarter..
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, real gross private domestic investment, which had shrunk at a real 1.0% annual rate in the 3rd quarter, shrunk at a real 6.1% annual rate from those levels in the 4th quarter…however, the real growth rate of fixed investments increased, growing at a 0.1% annual rate in the 4th quarter, after shrinking at a 0.8% rate in the 3rd quarter…among fixed investments, real non-residential fixed investment shrunk at a 1.5% rate because real investment in non-residential structures shrunk at a 10.1% rate and subtracted 0.30 percentage points from 4th quarter GDP, and because real investment in equipment shrunk at a 2.9% rate and subtracted 0.17 percentage points from 4th quarter GDP, while real investment in intellectual property grew at 5.9% rate and added 0.27 percentage points to GDP….at the same time, real residential investment grew at a 5.8% rate and added 0.21 percentage points to 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…..
Meanwhile, real private inventories grew by an inflation adjusted $6.5 billion in the 4th quarter, after growing at an inflation adjusted $69.4 billion in the 3rd quarter, and as a result the rounded $63.0 billion negative change in real inventory growth subtracted 1.09 percentage points from the 4th quarter’s growth rate, after real inventory growth that was unchanged in the 3rd quarter had no impact on 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 the shelf”, the $63.0 billion decrease in their growth in turn means real final sales of GDP were actually greater by that amount, and hence real final sales of GDP rose at a 3.2% rate in the 4th quarter, up from the real final sales growth rate of 2.1% in the 3rd quarter, when the lack of inventory growth meant that the quarter’s growth in real final sales was the same as that of the quarter’s GDP…
Real exports increased in the quarter, while real imports decreased, thus increasing the portion of our investment and consumption that was domestically sourced….our real exports of goods and services grew at a 1.4% rate in the fourth quarter, after our exports had increased at a 1.0% rate in the 3rd quarter, while our real imports shrunk at a 8.7% rate in the fourth quarter, after growing at a 1.8% rate in the 3rd quarter…as you’ll recall, increases in 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), and thus the fourth quarter increase in real exports added 0.17 percentage points to 4th quarter GDP, after increasing exports had added 0.11 percentage points to the 3rd quarter…on the other hand, 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 the US, so conversely the decrease in 4th quarter imports added 1.32 percentage points to 4th quarter GDP, after increasing imports had subtracted 0.26 percentage points from the 3rd quarter….as result, our improving trade balance added a rounded total of 1.48 percentage points to 4th quarter GDP, after our worsening trade deficit had subtracted a rounded 0.14 percentage points in the third quarter…
Finally, real consumption and investment by all branches of government increased at a 2.7% annual rate in the 4th quarter, after growing at a 1.7% rate in the 3rd quarter, as federal government consumption and investment grew at a 3.6% rate, while state and local consumption and investment grew at a 2.2% rate….inflation adjusted federal spending for defense grew at a 4.9% rate and added 0.19 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment grew at a 1.6% rate and added 0.04 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 2.2% annual rate and added a rounded 0.23 percentage points to the growth of 4th quarter GDP, as real growth in state and local consumption expenditures added 0.11 percentage points while real state and local investment grew at a 6.5% annual rate and added 0.13 percentage points to GDP.
See also:
- Advance Estimate 4Q2019 GDP Quarter-over-Quarter Growth Unchanged at 2.1%
- GDP Number Hides Serious Economic Weakness
December Personal Income Rose 0.2%, Personal Spending Rose 0.3%, PCE Price Index Up 0.3%
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 tell us “Personal income increased $40.7 billion (0.2 percent) in December...“, they mean that the annualized figure for all types of personal income in December, $18,922.3 billion, was $40.7 billion, or more than 0.2% greater than the annualized personal income figure of $18,881.6 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 nearly 0.2%, from an annual rate of $16,675.8 billion in November to an annual rate of $16,706.4 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 largest contributors to the $40.7 billion annual rate of increase in personal income were a $28.4 billion increase in wages and salaries and a $29.6 billion increase in dividend and interest income, while proprietor’s income fell at a $25.0 billion rate on a $36.2 billion decrease in farm 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, rose at a $46.6 billion annual rate to a $14,852.6 billion pace of consumer spending annually, more than 0.3% above that of November, after November‘s PCE was revised down from the previously reported annual rate of $14,824.1 billion to $14,806.0 billion…the current dollar increase in December spending included a $33.4 billion annualized increase to an annualized $10,263.9 billion in spending for services, a $26.1 billion increase to $3,043.8 billion in annualized spending for nondurable goods, offset by a $12.9 billion decrease to $1,545.0 billion in annualized spending for durable goods…total personal outlays for December, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $51.5 billion to $15,430.6 billion, which left personal savings, which is disposable personal income less total outlays, at a $1,275.9 billion annual rate in December, down from the revised $1,296.7 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, fell to 7.6%, down from 7.8% in November, and the lowest savings rate since July..
While our personal consumption expenditures accounted for 69.8% of our fourth quarter GDP, before they could be included in that measurement 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 110.294 in November to 110.585 in December, giving us a month over month inflation rate of 0.26384%, which the BEA reports as an increase of +0.3%…at the same time, Table 11 gives us a year over year PCE price index increase of 1.6%, and a core price increase, excluding food and energy, also up 1.6% for the year, but both still below the Fed’s inflation target….applying the December inflation adjustment to the change in December PCE shows that real PCE was up 0.0508%, which BEA reports as a 0.1% increase 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 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.
See also:
December Durable Goods: New Orders Up 2.4%, Shipments Down 0.2%, Inventories Up 0.5%
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 $5.7 billion or 2.4 percent to $245.5 billion in December, after November’s new orders were revised from the $242.6 billion reported a month ago to $239.8 billion, now 3.1% less than October’s new orders…for the year, 2019’s new orders were 1.5% below those of 2018, a reversal of the 8.1% year over year increase this report indicated for 2018….an increase in the volatile monthly new orders for transportation equipment was responsible for the December increase, as new transportation equipment orders rose $5.9 billion or 7.6 percent to $82.9 billion, on a 168.3% increase to $5,887 million in new orders for defense aircraft, even as new orders for commercial aircraft fell 74.7% to $1,454 million….excluding orders for transportation equipment, other new orders fell 0.1%, while excluding new orders for defense equipment, new orders fell 2.5%….moreover, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, fell $639 million or 0.9% to $68,618 million…
Meanwhile, the seasonally adjusted value of December shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, fell by $0.5 billion or 0.2 percent to $250.4 billion, the sixth consecutive decrease, after the value of November shipments was revised from from $251.6 billion to $257.6 billion, now down 0.1% from October…shipments of transportation equipment, also down six consecutive months, led the decrease, falling $0.4 billion or 0.4 percent to $83.2 billion, on a 8.7% decrease to $3,766 million in shipments of defense aircraft….meanwhile, shipments of nondefense capital goods less aircraft fell 0.4% to $68,823 million, after November’s capital goods shipments were revised fractionally lower…for the year, shipments of durable goods were valued just 0.9% greater than those of 2018…
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 17th time in the past 18 months, increasing by $2.2 billion or 0.5 percent to $436.0 billion, after November inventories were revised from $434.0 billion to $433,828 million, still up 0.4% from October….a $1.7 billion or 1.2 percent increase to $151.2 billion in inventories of transportation equipment was responsible for most of the increase, which in turn was driven by a 2.8 percent increase to $12,915 million in inventories of commercial aircraft…
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, decreased for the third month out of the last four, falling by $0.8 billion or 0.1 percent to $1,156.0 billion, after unfilled orders for November were revised from $1,159.0 billion to $1,181.274 billion, now a 0.6% decrease from October…oddly enough, a $0.5 billion or 0.5 percent decrease to $101.6 billion in unfilled orders for machinery was responsible for more than half of the decrease, as unfilled orders for transportation equipment orders were statistically unchanged at $788,136 million…compared to the end of 2018, the unfilled order book for durable goods at the end of December was 2.2% below the level of the prior year end, with unfilled orders for nondefense capital goods less aircraft also 2.2% below their year ago level.
See also:
- Headline Durable Goods New Orders Improved In December 2019
- Weekly Economic Release Summary: Durable Goods Sales Continues To Drag On The Economy
New Home Sales Little Changed in December After Sales in Prior Two Months Revised Lower
The Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 694,000 homes annually during the month, which was 0.4 percent (±15.1 percent)* below the revised November annual rate of 697,000 new single family home sales, but was 23.0 percent (±20.0 percent) above 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 new single family homes in November were revised from the annual rate of 719,000 reported last month to an annual rate of 697,000, while home sales in October, initially reported at an annual rate of 733,000 and revised to 710,000 last month, were revised to a 705,000 a year rate with this report, and while September’s annualized home sale rate, initially reported at an annual rate of 701,000 and revised down from the initially revised 738,000 a year rate to a 710,000 a year rate last month, were further revised up to a 725,000 annual rate with this release…
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, down from the estimated 51,000 new homes that sold in November and the 55,000 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 $331,400, up from the median sale price of $320,900 in November and up from the median new home sales price of $305,400 in December a year ago, while the average December new home sales price was $384,500, up from the $377,600 average sales price in November, and up from the average sales price of $361,100 in December a year ago, but still down from the $402,900 average sales price of two years earlier….a seasonally adjusted estimate of 327,000 new single family houses remained for sale at the end of December, which represents a 5.7 month supply at the December sales rate, up from the revised 5.5 months of new home supply in November…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales at 694,000 Annual Rate in December and A few Comments on December New Home Sales.
See also:
- December 2019 Headline New Home Sales Under Forecast But Overall 2019 Was A Very Good Year
- December 2019 Pending Home Sales Growth Slows
- S and P CoreLogic Case-Shiller 20 City Home Price Index November 2019 Year-over-Year Growth Now 2.6%
.
