Written by rjs, MarketWatch 666
4th quarter GDP report; December’s personal income and outlays, durable goods, and new home sales
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.
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The week also saw the release of the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions increased from a revised reading of +9.1 in December to +26.5 in January, indicating a return to faster growth for that region’s manufacturing firms during this month.
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 rose to +0.52 in December, up from +0.31 in November, which was revised up from the +0.27 reported last month … as a result, the 3 month average of the CFNAI rose to +0.61 in December, up from a revised +0.59 in November, which indicates that national economic activity continued at a pace above the historical trend over the 4th quarter months.
Finally, this week also saw the last three 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 +14 in January from +19 in December and from +29 in November, suggesting less robust growth of Fifth District manufacturing; 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 +17 in January, up from +14 in December and +11 in November, indicating a faster growth rate of that region’s 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 fell to +7.0, down from last month’s +10.5, indicating a smaller plurality of the region’s manufacturers felt business activity had improved than had indicated so a month earlier.
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4th Quarter GDP Grew at 4.0% Rate; 2020 Growth was Still Down 3.5%
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 4.0% annual rate over the output of the 3rd quarter of 2018, when our real output grew at a 33.4% real rate, as stronger private domestic investment more than offset a deteriorating foreign trade balance, which subtracted more than a percentage point…for the entire year, our economy shrunk at a 3.5% rate, down from the the 2.2% growth of 2019, and the 3.0% growth rate of 2019….in current dollars, our fourth quarter GDP grew at a 6.0% annual rate, increasing from what would work out to be a $21,170.3 billion a year output rate in the 3rd quarter to a $21,479.5 annual rate in the 4th quarter, with the headline 4.0% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.0%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change…. as is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now…see the Key source data and assumptions(xls) for the December estimates..
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 reality based dollar amounts, because 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 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 2017, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters and years, table 3, which shows both the current dollar value and the inflation adjusted value in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components….
Our Personal consumption expenditures (PCE), which are used to compute almost 70% of GDP, grew at a 4.05% rate in current dollars in the 4th quarter, which were then subsequently deflated after an annualized PCE price index increase of 1.5% was used to adjust that consumer spending for inflation to indicate a 2.5% real growth rate of goods and services consumed for GDP purposes …consumer outlays for durable goods fell at less than a 0.1% rate in current dollars, while prices for those durable goods were statistically unchanged, and thus the BEA found that the real change in the output of consumer durables was also statistically unchanged, as real growth in consumption of motor vehicles was offset by lower consumption of furniture, appliances and recreational goods and vehicles …the BEA also found that real output of consumer non-durable goods shrunk at a 0.7% rate, after decreased consumer spending for non-durables at a 0.35% rate was adjusted for weighted non-durable goods prices that fell at a 0.3% rate, as modest growth in real consumption of clothing, footwear, and other non-durable goods was more than offset by lower consumption of food, gasoline and other energy goods….meanwhile, the 6.5% nominal growth in consumer outlays for services was deflated by an average 2.4% increase in prices for personal services to show real output of consumer services grew at a 4.0% annual rate, as a 12.1% growth rate in real health care services accounted for about 80% of 4th quarter services growth…as a result of those changes in growth from the 3rd to the 4th quarter, the change in real outlays for durable goods had no impact on the GDP growth rate, the decrease in non-durable goods subtracted 0.10 percentage points from GDP, while increased services added 1.80 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 grown at a real 86.3% annual rate in the 3rd quarter, grew at a real 25.3% annual rate from those levels in the 4th quarter, as the real growth rate of fixed investments grew at a 18.4% annual rate in the 4th quarter, after growing at a 31.3% rate in the 3rd quarter…among fixed investments, real non-residential fixed investment grew at a 13.8% rate as real investment in non-residential structures grew at a 3.0% rate and added 0.08 percentage points to 4th quarter GDP, real investment in equipment grew at a 24.9% rate and added 1.30 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 7.5% rate and added 0.35 percentage points to GDP….at the same time, real residential investment grew at a 33.5% rate and added 1.29 percentage points to GDP….for an easy to read table as to what’s included in each of those GDP investment categories, seethe NIPA Handbook, Chapter 6, page 3…..
Meanwhile, real private inventories grew by an inflation adjusted $44.6 billion in the 4th quarter, after shrinking at an inflation adjusted $3.7 billion in the 3rd quarter, and as a result the rounded $48.3 billion positive change in real inventory growth added 1.04 percentage points to the 4th quarter’s growth rate, after a $283.3 billion increase in real inventory growth in the 3rd quarter had added 6.57 percentage points to 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 $48.3 billion increase in their growth in turn means real final sales of GDP were less by that amount, and hence real final sales of GDP rose at a 3.0% rate in the 4th quarter, down from the real final sales growth rate of 25.9% in the 3rd quarter, when the greater inventory growth had reduced real final sales by as much as it added to the quarter’s GDP…
Real exports and real imports both increased in the quarter, but imports increased by more, thus decreasing the amount of our investment and consumption that was domestically sourced…..our real exports of goods and services grew at a 22.0% rate in the fourth quarter, after our exports had increased at a 59.6% rate in the 3rd quarter, while our real imports grew at a 29.5% rate in the fourth quarter, after growing at a 93.1% 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), while 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….thus the 4th quarter increase in real exports added 2.01 percentage points to 4th quarter GDP, while the greater increase in 4th quarter imports subtracted 3.53 percentage points from 4th quarter GDP, and hence our worsening trade imbalance subtracted a net of 1.52 percentage points from 4th quarter GDP, after our worsening trade deficit had subtracted a rounded 3.21 percentage points from GDP in the third quarter …
Finally, real consumption and investment by all branches of government decreased at a 1.2% annual rate in the 4th quarter, after shrinking at a 4.8% rate in the 3rd quarter, as federal government consumption and investment shrunk at a 0.5% rate, while state and local consumption and investment shrunk at a 1.7% rate….inflation adjusted federal spending for defense grew at a 5.0% rate and added 0.21 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 8.4% rate and subtracted 0.24 percentage points from GDP….note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services….meanwhile, state and local government investment and consumption expenditures shrunk at a 1.7% annual rate and subtracted a rounded 0.19 percentage points from the growth of 4th quarter GDP, as a real decrease in state and local consumption expenditures subtracted 0.25 percentage points from GDP, while real state and local investment grew at a 3.2% annual rate and added 0.07 percentage points to GDP.
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December Personal Income Rose 0.6%, Personal Spending Fell 0.2%, PCE Price Index Up 0.4%
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 $116.6 billion (0.6 percent) in December...“, they mean that the annualized figure for all types of personal income in December, $19,568.5 billion, was $116.6 billion, or roughly 0.6% greater than the annualized personal income figure of $19,451.9 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 more than 0.6%, from an annual rate of $17,227.0 billion in November to an annual rate of $17,338.6 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 $116.6 billion annual rate of increase in personal income were an annualized $85.2 billion increase in personal current transfer receipts from government programs, and a $57.8 billion increase in dividend and interest income, while wages and salaries rose at a $47.1 billion rate and proprietor’s income fell at a $78.1 billion rate on a $70.0 billion decrease in nonfarm 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 $27.9 billion annual rate to a $14,493.7 billion pace of consumer spending annually, almost 0.2% below that of November, after November’s PCE was revised down from the previously reported annual rate of $14,566.8 billion to $14,521.6 billion, now down 0.4% from October…the current dollar decrease in December spending was due to a $40.9 billion decrease to $4,810.2 billion in annualized spending for goods, and was partly offset by a $13.0 billion annualized increase to an annualized $9,683.6 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 $14,960.8 billion in December, which left personal savings, which is disposable personal income less total outlays, at a $2,377.7 billion annual rate in December, up from the revised $2,226.9 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 13.7%, up from 12.9% in November, and resulting in a 2020 savings rate of 16.2%,the highest annual savings rate on record..
While our personal consumption expenditures accounted for 69.2% 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 111.694 in November to 112.169 in December, giving us a month over month inflation rate of 0.42527%, which the BEA reports as an increase of +0.4%…at the same time, Table 11 reports a year over year PCE price index increase of 1.3%, and a core price increase, excluding food and energy, of 1.5% for the year, both still below the Fed’s inflation target….applying the December inflation adjustment to the change in December’s PCE shows that real PCE was down 0.6148%, which BEA reports as a 0.6% 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 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.
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December Durable Goods: New Orders Up 0.2%, Shipments Up 1.4%, Inventories Down 0.2%
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 $0.4 billion or 0.2 percent to $245.3 billion in December, after November’s new orders were revised from the $244.2 billion reported a month ago to $244.9 billion, now a 1.2% increase from October’s new orders…for the year, 2020’s new orders were 7.0% below those of 2019, after 2019’s orders had fallen 1.5% from those of 2018….
An increase of $0.8 billion or 2.4 percent to $33.2 billion in new orders for machinery was responsible for the December new orders increase, while the volatile monthly new orders for transportation equipment fell $0.8 billion or 1.0 percent to $78.0 billion, as new orders for commercial aircraft fell 58.1% to $1,143 million….excluding orders for transportation equipment, other new orders rose 0.7%, while excluding new orders for defense equipment, new orders rose 0.5%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $414 million or 0.6% to $71,772 million…
Tie 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 $3.5 billion or 1.4 percent to $253.8 billion, the seventh increase in eight months, after the value of November shipments was revised from from $250.1 billion to $250.3 billion, now up 0.4% from October…shipments of transportation equipment, also up seven times in eight months, led the increase, rising $2.2 billion or 2.7 percent to $84.8 billion, on a 44.4% increase to $6,258 million in shipments of commercial aircraft…. in addition, the value of shipments of nondefense capital goods less aircraft rose 0.5% to $70,208 million, after November’s capital goods shipments were revised from $69,888 million to $69,892 million, still a 0.5% increase from October….for the year, shipments of durable goods were valued 5.0% lower than those of 2019, which in turn were just 0.9% greater than those of 2018 …
At the same time, the value of December’s seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in the past four months, decreasing by $0.7 billion or 0.2 percent to $425.9 billion, after November inventories were revised from $426.6 billion to $426,631 million, still up 0.9% from October….a $2.8 billion or 1.8 percent decrease to $148.0 billion in inventories of transportation equipment was responsible for the decrease, which in turn was driven by a 2.8 percent decrease to $78,582 million in inventories of commercial aircraft, which are still 8.3% higher than at the end of 2019…
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 ninth month out of the last ten, falling by $3.2 billion or 0.3 percent to $1,070.4 billion, after unfilled orders for November were revised from $1,072.9 billion to $1,073.6 billion, now a statistically insignificant decrease from October…a $6.8 billion or 0.9 percent decrease to $706.3 billion in unfilled orders for transportation equipment was responsible for the December decrease, as unfilled orders for durable goods other than transportation equipment rose 1.0% to $364,035 million…the unfilled order book for durable goods at the end of December was 6.6% below the level at the end of 2019, as the unfilled order book for transportation equipment fell 11.1%, while unfilled orders for nondefense capital goods less aircraft ended 4.3% above their year ago level.
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New Home Sales Little Changed in December, Up 18.8% 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 842,000 homes annually during the month, which was 1.6 percent (plus/minus 15.8 percent)* above the revised November annual rate of 829,000 new single family home sales, and was 15.2 percent (plus/minus 17.2 percent)* above the estimated annual rate that new homes were selling at in December of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, or even from 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 new single family homes in November were revised from the annual rate of 841,000 reported last month to an annual rate of 829,000, while home sales in October, initially reported at an annual rate of 999,000 and revised to 945,000 last month, were revised to a 949,000 a year rate with this report, while September’s home sale rate, initially reported at an annual rate of 995,000 and revised down from the initially revised 1,002,000 a year rate to a 965,000 a year rate last month, were revised but remained at a 965,000 annual rate with this release…an estimated 811,000 new homes were sold during the past year, which was18.8 percent (plus/minus 4.3 percent) more than the 683,000 new homes that sold during 2019…
The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 55,000 new single family homes sold in December, down from the estimated 59,000 new homes that sold in November and the 77,000 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 $355,900, up from the median sale price of $343,900 in November and up from the median new home sales price of $329,500 in December a year ago, while the average December new home sales price was $394,900, up from the $393,200 average sales price in November, and up from the average sales price of $377,700 in December a year ago, but still down from the $402,900 average sales price of three years earlier….a seasonally adjusted estimate of 302,000 new single family houses remained for sale at the end of December, which represents a 4.3 month supply of homes at the December sales rate, up from the revised 4.2 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 increase to 842,000 Annual Rate in December; Sales up 18.8% in 2020 and A few Comments on December New Home Sales.
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