Written by rjs, MarketWatch 666
4th quarter GDP revision; January’s income and outlays, durable goods, & new home sales
The key economic reports released the past week were the 2nd estimate of 4th quarter GDP and the January report on Personal Income and Spending from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for January and the January report on new home sales, both from the Census bureau.
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We also had the release of the Chicago Fed National Activity Index (CFNAI) for January, a weighted composite index of 85 different economic metrics, which rose to – 0.25 in January from – 0.51 in December, which was revised from the -0.35 reported for December last month…so after revisions, the 3 month average of the CFNAI rose to to – 0.09 in January from a revised – 0.23 in December, which still indicates that national economic activity has been slightly below the historical trend over recent months…in addition, the week also saw the Case-Shiller Home Price Index for December from S&P Case-Shiller, which reported that home prices nationally during October, November and December averaged 3.8% higher than prices for the same homes that sold during the same 3 month period a year earlier…since last month’s Case-Shiller report indicated that home prices for September, October and November averaged 3.5% higher than September, October and November of 2018, this month’s jump means that the implied but unpublished one month year over year index has risen ~0.9% between September and December…
This week also saw the release of the last three regional Fed manufacturing surveys for February: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index rose to +1.2 from last month’s -0.2, possibly suggesting a return to expansion in the Texas area economy; 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 -2 in February from +20 in January, suggesting an end to the expansion in that region’s manufacturing, and the Kansas City Fed manufacturing survey for February, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +5 in February, up from -1 in January and -5 in December, suggesting a return to slow growth for that region’s manufacturing.
See also:
- January 2020 CFNAI Super Index Moving Average Again mproved
- February 2020 Chicago Purchasing Managers Barometer Improves But Remains In Contraction
- February 2020 Texas Manufacturing Improves Again
- February 2020 Richmond Fed Manufacturing Survey Significantly Declined
- February 2019 Kansas City Fed Manufacturing Improved
4th Quarter GDP Grew at a 2.1% Rate, Unchanged from Advance Estimate
The Second Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.1% rate in the quarter, statistically unchanged from the 2.1% growth rate reported in the advance estimate last month, as slower growth of personal consumption and shrinkage in fixed investment was offset by greater growth of exports and inventory investment….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 1.3%, known in aggregate as the GDP deflator, was computed and applied to the current dollar change of each of the GDP components….
Remember that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 2nd estimate of 4th quarter GDP, which can be accessed directly on the BEA’s GDP landing page, which also offers links to just the tables on Excel and other technical notes…specifically, we reference table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2016; table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the components…the pdf for the 4th quarter advance estimate, which this estimate revises, is here…
Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from 1.8% to an overall 1.7% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 3.06% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 1.3% annual rate in the 4th quarter, which was revised from the 1.6% PCE inflation rate reported a month ago…real consumption of durable goods grew at a 2.6% annual rate, which was revised from the 2.1% growth rate shown in the advance report, and added 0.18 percentage points to GDP, as real consumption of motor vehicles and parts grew at a 5.5% rate and accounted for nearly 65% of the durable goods increase….however, real consumption of nondurable goods by individuals shrunk at a 0.3% annual rate, revised from the 0.8% growth rate reported in the 1st estimate, and subtracted 0.04 percentage points from the 4th quarter’s economic growth rate, as a 0.9% contraction in real consumption of food and beverages accounted for the shrinkage in non-durables….at the same time, consumption of services grew at a 2.2% annual rate, revised from the 2.0% growth rate reported last month, and added 1.03 percentage points to the final GDP tally, as real consumption of health care services grew at a 5.7% rate and accounted for more than half of the quarter’s growth in services…
Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 6.0% annual rate in the 4th quarter, revised from the original 6.1% contraction estimate reported last month, as real private fixed investment shrunk at a 0.5% rate, revised from the 0.1% growth rate reported in the advance estimate, while inventory growth was greater than previously estimated…investment in non-residential structures was revised to show contraction at a 8.1% rate, not as deep as the 10.1% contraction rate previously reported, and real investment in equipment contracted at 4.4% rate, revised from the 2.9% contraction rate shown a month ago…meanwhile the quarter’s investment in intellectual property products was revised from growth at a 5.9% rate to growth at a 5.1% rate, while at the same time real residential investment was shown to be growing at a 6.2% annual rate, revised from 5.8% in the previous report….after those revisions, the decrease in investment in non-residential structures subtracted 0.24 percentage points from the 3rd quarter’s growth rate and the decrease in investment in equipment subtracted 0.26 percentage points from the quarter’s growth rate, while growth in investment in intellectual property added 0.19 percentage points to the growth rate of 4th quarter GDP and growth in residential investment added 0.22 percentage points to the growth of GDP…..for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…..
At the same time, growth in real private inventories was revised from the originally reported $6.5 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $13.0 billion rate….that came after inventories had grown at an inflation adjusted $69.4 billion rate in the 3rd quarter, and hence the (rounded) $56.5 billion negative change in real inventory growth from the 3rd to the 4th quarter subtracted 0.98 percentage points from the 4th quarter’s growth rate, revised from the 1.09 percentage point subtraction from GDP due to the slower inventory growth reported in the advance estimate….however, since a smaller growth of inventories indicates that less of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their decrease at a $56.5 billion rate conversely meant that real final sales of GDP were actually greater by that much, and hence real final sales of GDP grew at a 3.1% rate in the 4th quarter, revised from the 3.2% growth rate shown in the advance estimate, compared 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…..
The previously reported increase in real exports was revised somewhat higher with this estimate, while the previously reported decrease in real imports was revised just a bit lower, so on net the change in our net trade was a greater addition to GDP rather than was previously reported…our real exports grew at a 2.0% rate rather than the 1.6% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, that growth added 0.24 percentage points to the 4th quarter’s growth rate, revised from the 0.17 percentage point addition shown in the previous report….meanwhile, the previously reported 8.7% contraction in our real imports was revised to a 8.6% contraction, and since imports are subtracted from GDP because they represent either consumption or investment added to an other GDP component that was not produced here, their decrease conversely added 1.29 percentage points to 4th quarter GDP, rather than the 1.32 percentage point addition shown last month….thus, our improving trade balance added a net of 1.53 percentage points to 4th quarter GDP, rather than the rounded 1.48 percentage point addition that had been indicated by the advance estimate..
Finally, there was a small downward revision to real government consumption and investment in this 2nd estimate, as the real growth rate for the entire government sector was revised from a 2.7% rate to a 2.6% rate…however, real federal government consumption and investment was seen to have grown at a 3.8% rate in this estimate, revised from the 3.6% growth rate shown in the advance estimate, as real federal outlays for defense grew at a 5.3% rate and added 0.21 percentage points to 4th quarter GDP, revised from the 4.9% growth rate shown previously, while all other federal consumption and investment was revised from a 1.6% growth rate to growth at a 1.7% rate, which added 0.05 percentage points to 4th quarter GDP….meanwhile, real state and local consumption and investment was revised from growth at a 2.2% rate in the first estimate to growth at a 1.9% rate in this estimate, as state and local investment spending grew at a 5.2% rate and added 0.10 percentage points to 4th quarter GDP, while state and local consumption spending grew at a 1.3% rate and added 0.11 percentage points to GDP…note that government outlays for social insurance are not included in this government GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services.
See also:
- Second Estimate 4Q2019 GDP Growth Unchanged At 2.1 %
- New Estimate For 4Q 2019 GDP Growth: No Significant Changes
Personal Income up 0.6% in January, Personal Spending up 0.2%, PCE Price Index up 0.1%
The January report on Personal Income and Outlays from the Bureau of Economic Analysis includes 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 reports our personal income data, 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 January’s change in seasonally adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s 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 December to January..
Hence, when the opening line of the news release for this report tell us “Personal income increased $116.5 billion (0.6 percent) in January“, they mean that the annualized figure for seasonally adjusted personal income in January, $18,981.3 billion, was $116.5 billion higher, or a bit more than 0.6% higher than the annualized personal income figure of $18,864.9 billion extrapolated for December; the actual, unadjusted change in personal income from December to January is not given…at the same time, annualized disposable personal income, which is income after taxes, also rose by more than 0.6%, from an annual rate of $16,661.6 billion in December to an annual rate of $16,763.1 billion in January…the monthly contributors to the change in personal income, which can be viewed in detail in the Full Release & Tables (PDF) for this release, are also annualized…in January, there was a $116.5 billion annual rate of increase in personal income because there was $52.0 billion annual rate of increase in personal current transfer programs, including a 24.1 billion annualized increase in social security payouts, in addition to a $47.5 billion annual rate of increase in income from wages and salaries…
For the January personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased by $29.6 billion, or by 0.2%, from a $14,841.0 billion annual rate in December to a $14,870.7 billion annual rate in January; at the same time, the December PCE figure was revised down from the originally reported $14,852.6 billion annually, a revision that was already incorporated into this week’s 4th quarter GDP estimate (this report, although usually released a business day later than the GDP release, is computed concurrently)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $27.0 billion to $15,431.2 billion annually in January, which left total personal savings, which is disposable personal income less total outlays, at a $1,331.9 billion annual rate in January, up from the revised $1,257.5 billion in annualized personal savings in December… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to a nine month high of 7.9% in January, up from the December savings rate of 7.5% …
As you know, before January’s personal consumption expenditures can be used in the 1st quarter GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is shown in Table 9 in the pdf for this report, which is a chained price index based on 2012 prices = 100….that PCE price index rose from 110.501 in December to 110.615 in January, giving us a month over month PCE inflation rate of 0.10317%, which BEA rounds to a 0.1% increase in reporting it in text and tables here….then, applying that 0.10317% inflation adjustment to the increase in January PCE shows that real PCE rose by 0.09685% in January, which the BEA also reports as a 0.1% increase…note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it gives us that month’s annualized real PCE in those same chained 2012 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to that of another….that result is shown in table 7 of the PDF, where we see that January’s chained dollar consumption total works out to 13,444.1 billion annually, 0.096% more than December’s 13,431.2 billion, statistically the same as the real PCE increase we just computed..
However, to estimate the impact of the change in January PCE on the change in GDP, the change from December doesn’t help us much, since GDP is reported on a quarterly basis…thus we have to compare January’s real PCE to the the real PCE of the 3 months of the third quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 in this report, where we find that the annualized real PCE for the 4th quarter was represented by 13,410.4 billion in chained 2012 dollars..(ie, that’s the same as what’s shown in table 3 of the pdf for the 4th quarter GDP report)….when we compare January’s real PCE representation of 13,444.1 billion to the 4th quarter real PCE figure of 13,410.4 billion, we find that real PCE is growing at a 1.009% annual rate so far in the 1st quarter….that’s a rate that means that if January real PCE does not improve during February and March, growth in PCE would add just 0.70 percentage points to the growth rate of 1st quarter GDP.
See also:
- January 2020 Headline Income Growth Improves
- 4Q2019 Household Debt Shows Consumer Debt Tops $14 Trillion
January Durable Goods: New Orders Down 0.2%, Shipments Down 0.2%, Inventories Unchanged
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for January (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $0.4 billion or 0.2% to $246.2 billion in January, which was also 2.3% lower than those of January 2019… at the same time, December’s new orders were revised from the $245.5 billion reported last month to $246.6 billion, now indicated to be 2.9% greater than November’s new orders, revised from the 2.5% increase previously reported….the volatile monthly new orders for transportation equipment were responsible for the January decrease, as new transportation equipment orders fell $1.8 billion or 2.2% to $82.0 billion, on a 19.6% decrease to $4,705 million in new orders for defense aircraft….excluding orders for transportation equipment, new orders rose 0.9%, while excluding just new orders for defense equipment, new orders rose 3.6%….at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $735 million or 1.1% to $69,564 million…
Meanwhile, the seasonally adjusted value of January shipments of durable goods, which will included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, decreased in value by $0.5 billion or 0.2 percent to $250.1 billion, after the value of December shipments was revised from from $250.4 billion to $250.62 billion, now down just 0.1% from November…a drop in the value of shipments of transportation equipment caused the January decrease, as they fell $1.3 billion or 1.6 percent to $82.1 billion….meanwhile, shipments of nondefense capital goods less aircraft rose 1.1% to $69,680 million, after December’s capital goods shipments were revised fractionally higher…
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by less than $0.1 billion to $435.4 billion, which is considered statistically unchanged, after the value of December inventories was revised from $436.0 billion to $435.34 billion, now up 0.4% from November….inventories of transportation equipment rose $0.3 billion or 0.2 percent to $151.2 billion, while inventories of fabricated metal products rose $0.5 billion or 0.9 percent to $54.1 billion…
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but quite volatile monthly new orders, rose for the third time in 4 months, but only by $0.1 billion to $1,157.0 billion, which is considered ‘virtually unchanged’….that followed a statistically insignificant December increase of $170 million to $1,156,898 million, which was previously reported as a 0.1% decrease to $1,156.0 billion…a statistically insignificant decrease in unfilled orders for transportation equipment limited January the increase, while unfilled orders excluding transportation equipment orders were up 0.1% to $369,778 million…the unfilled order book for durable goods is now 2.2% below the level of last January, with unfilled orders for transportation equipment now 2.9% below their year ago level, led by a 5.1% decrease in the backlog of orders for commercial aircraft.
See also:
January’s New Home Sales, Prices Reported Higher Than in December and in January a Year Ago
The Census report on New Residential Sales for January (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 764,000 homes annually in January, which was the highest sales rate since July 2007, 7.9 percent (±17.8 percent)* above the revised December annual sales rate of 708,000, and 18.6 percent (±19.2 percent)* above the estimated 644,000 annual rate that new single family homes were selling at in January of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether January new home sales rose or fell from those of December, or even from January sales of a year ago, 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 December were revised from the annual rate of 694,000 reported last week to an annual rate of 708,000, while new home sales in November, initially reported at an annual rate of 719,000 and revised to a 697,000 rate last week, were revised down to a 692,000 a year rate with this report, and while October’s annualized new home sales rate, initially reported at an annual rate of 733,000 and revised from a 710,000 to a 705,000 a year rate last week, were again revised to a 707,000 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 48,000 new single family homes sold in January, down from the estimated 50,000 new homes that sold in December and the 55,000 that sold in November….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in January was $348,200, up from the median sale price of $324,100 in December and up from the median sales price of $305,400 in January a year ago, while the average January new home sales price was $402,300, up from the $373,300 average sales price in December, and up from the average sales price of $361,100 in January a year ago….a seasonally adjusted estimate of 324,000 new single family houses remained for sale at the end of January, which represents a 5.1 month supply at the January sales rate, down from the revised 5.5 months of new home supply now indicated for December and for November….for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 764,000 Annual Rate in January and A few Comments on January New Home Sales.
See also:
- January 2020 Pending Home Sales Growth Rebounds
- January 2020 Headline New Home Sales Improved?
- S and P CoreLogic Case-Shiller 20 City Home Price Index December 2019 Year-over-Year Growth Now 2.9%
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