Written by rjs, MarketWatch 666
First quarter GDP; March incomes & outlays, and March durable goods
The key economic releases from the past week that we’ll review today are the advance estimate of 1st quarter GDP and the concurrent March report on Personal Income and Spending, both from the Bureau of Economic Analysis. Other widely watched releases included the March advance report on durable goods and , and the February Case-Shiller Home Price Index from S&P Case-Shiller, which reported that the relative average of December, January and February home prices was 12.0% higher than average prices for the same homes that sold during the same 3 month period a year earlier.
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This week also saw the release of the last two regional Fed manufacturing surveys for April: the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas, western Louisiana and eastern New Mexico, reported their general business activity composite index rose to +37.3 in April, up from +28.9 in March, indicating that a large majority of Texas business have been reporting expansion during April, while 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 remained at +17 in April, indicating an ongoing expansion among that region’s manufacturing firms.
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First Quarter GDP Grew at a 6.4% Rate on Government Stimulus Spending
Our economy grew at a 6.4% rate in the 1st quarter, quite a bit stronger than during the fourth quarter, as stimulus supported growth in personal consumption of goods and increased federal government consumption outlays more than offset weaker private investment. shrinking inventories, falling exports, and the negative impact of rising imports…the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 6.4% annual rate from the output of the 4th quarter of 2020, when our real output grew at a 4.3% real rate…in current dollars, our first quarter GDP grew at a 10.72% annual rate, increasing from what would work out to be a $21,494.7 billion a year output rate in the 4th quarter of last year to a $22,048.9 billion annual rate in the 1st quarter of this year, with the headline 6.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.1%, 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….note that March construction, March trade in services, and non-durables inventory data have yet to be reported, and that the BEA assumed a $15 billion increase in exports of services, a $2.5 billion increase in imports of services, a $7.6 billion increase in residential construction, a $1.2 billion decrease in non-residential construction, a $2.9 billion increase in public construction, and a $34.5 billion decrease in nondurable manufacturing inventories for March before they estimated 1st quarter output (see the Key source data and assumptions excel file that accompanies this report for more specific details)..
While we cover the details on the 1st 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 1st quarter GDP, which we find on the BEA GDP landing page, where you can also find 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 2nd 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 14.6% rate in current dollars in the 1st quarter, which worked out to a real growth rate of 10.7% in consumed goods and services after an annualized PCE price index increase averaging 3.5% was used to adjust that personal spending for inflation….consumer outlays for durable goods grew at a 42.8% rate in current dollars while prices of those durable goods were on average 5.4% higher, and as a result the BEA found that real growth in output of consumer durables grew at a 41.4% rate, as an increase in real consumption of motor vehicles and parts at a 51.5% rate accounted for about a third of the growth in durable goods output….the BEA also found that real output of consumer non-durable goods grew at a 14.4% rate after an increase in consumer spending for non-durable goods at a 23.5% rate was adjusted for an average jump in non-durable prices at a 8.0% rate, as increased real consumption of food and beverages accounted for 35% and increased real consumption of clothiing and footware accounted for 30% of the quarter’s nondurable growth… meanwhile, the 7.3% nominal growth in consumer outlays for services was deflated by a 2.6% increase in prices for services to show that real output of consumer services grew at a 4.6% annual rate, as 25.8% real growth of food services and accommodations accounted for 35% of the quarter’s growth in services….as a result of these changes in growth from the 4th to the 1st quarter, the increase in outlays for durable goods added 2.95 percentage points to 1st quarter GDP, the increased consumption of non-durable goods added 2.00 percentage points to the growth of GDP, and increased consumption of services added 2.07 percentage points to the growth rate of the 1st quarter economy..
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, after inflation adjustments, real gross private domestic investment, which had grown at a 27.8% annual rate in the 4th quarter of 2020, shrunk at a 5.0% annual rate from there in the 1st quarter…however, that gross decrease was due to falling inventories; real fixed investment still grew at a 10.1% annual rate in the 1st quarter, after growing at a 18.6% rate in the 4th quarter…among fixed investments, real non-residential fixed investment grew at a 9.9% rate as real investment in non-residential structures shrunk at a 4.8% rate and subtracted 0.12 percentage points from 1st quarter GDP, while real investment in equipment grew at a 16.7% rate and added 0.93 percentage points to 1st quarter GDP, and real investment in intellectual property grew at 10.1% rate and added 0.65 percentage points to GDP….at the same time, real residential investment grew at a 10.8% rate and added 0.49 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, a contraction of real inventories reduced overall gross investment and hence GDP, as real private inventories shrunk by an inflation adjusted $85.5 billion in the quarter, after growing at an inflation adjusted $62.1 billion in the 4th quarter…as a result, the rounded $147.5 billion negative change in real inventory growth subtracted 2.64 percentage points from the 1st quarter’s growth rate, after a $65.8 billion increase in real inventory growth in the 4th quarter had added 1.37 percentage points to that quarter’s GDP….however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $147.5 billion reversal of their growth conversely means real final sales of GDP were actually greater by that amount, and hence real final sales of GDP grew at a 9.2% rate in the 1st quarter, up from the real final sales growth rate of 2.9% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was smaller than that of the quarter’s GDP…
Meanwhile, our real exports of goods and services shrunk at a 1.1% rate in the 1st quarter, after growing at a 22.3% rate in the 4th quarter of 2020, while our real imports grew at a 5.7% rate in the 1st quarter, after rising at a 29.8% rate in the 4th quarter….as you’ll recall, real increases in exports add to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP figures elsewhere), so conversely that 1.1% decrease in 1st quarter exports subtracted 0.10 percentage points from 1st quarter GDP, after exports had added 2.04 percentage points to 4th quarter GDP….on the other hand, real increases in imports subtract from GDP because they are 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 not part of our national product…hence, the 5.7% decrease in real imports in the 1st quarter subtracted 0.77 percentage points from 4th quarter GDP, after the greater increase in imports had subtracted 3.57 percentage points from 4th quarter GDP…. hence our worsening trade imbalance subtracted a net of 0.87 percentage points from 1st quarter GDP, after our worsening trade deficit had subtracted a rounded 1.53 percentage points from GDP in the fourth quarter…
Finally, real consumption and investment by all branches of government grew at a 6.3% annual rate in the 1st quarter, after decreasing at a 0.8% rate in the 4th quarter, as federal government consumption and investment grew at a 13.9% rate, after shrinking at a 0.9% rate in the 4th quarter, while state and local consumption and investment grew at a 1.7% rate, after also shrinking at a 0.9% rate in the 4th quarter….at the federal level, inflation adjusted spending for defense shrunk at a 3.4% rate and subtracted 0.14 percentage points from 1st quarter GDP growth, while real non-defense federal consumption and investment grew at a 44.8% rate and added 1.07 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 goods or services….meanwhile, state and local government investment and consumption expenditures grew at an 1.7% annual rate and added 0.19 percentage points to the quarter’s growth rate, even as a contraction of real state and local investment at an 6.5% rate subtracted 0.14 percentage points from the quarter’s growth rate.
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March Personal Income Rose 21.1%, Personal Spending Rose 4.2% , PCE Price Index Rose 0.5%
Friday’s release of the March 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 first 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 March’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 February to March….thus, when the opening phrase of the press release for this report tell us “Personal income increased $4.21 trillion (21.1 percent) in March…“, it means that the annualized figure for all types of personal income in March, $24,207.7 billion, was roughly $4.21 trillion, or statistically 21.1% more than the annualized personal income figure $19,994.9 for February; the actual increase in personal income from February to March is not given….similarly, disposable personal income, which is income after taxes, rose by almost 23.6%, from an annual rate of $17,721.0 billion in February to an annual rate of $21,902.4 billion in March…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…thus, we can see the reason for the $4.21 trillion annual rate of increase in personal income in March was a $3,985.5 billion annualized increase in government social benefits to individuals; the $296.1 billion increase in wages and salaries and the $145.2 billion increase in proprietor’s income were minor contributors by comparison…
At the same time, seasonally adjusted personal consumption expenditures (PCE) for March, which were included in the change in PCE in the 1st quarter GDP report, rose at a $616.0 billion annual rate to a $15,401.6 billion pace of consumer spending annually, almost 4.2% above that of February’s, after February’s PCE was revised from the previously reported annual rate of $14,790.1 billion to $14,785.5 billion…the current dollar increase in March’s spending included a $213.1 billion annualized increase to an annualized $10,001.3 billion in spending for services and a $403.0 billion increase to a record high $5,400.3 billion in annualized spending for goods….total personal outlays for March, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $616.4 billion to $15,866.1 billion, which left personal savings, which is disposable personal income less total outlays, at a $6,036.3 billion annual rate in March, up from the revised $2,471.3 billion in annualized personal savings in February…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 27.6%, up from 13.9% in February, and the highest personal savings rate since April 2020..
While our personal consumption expenditures accounted for 69.9% of our first quarter GDP, before they were included in the measurement of the change in our output they were first 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…..the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is then applied to the current dollar spending….from Table 9 in the pdf for this report, we find that that index rose to 113.285 in March from 112.704 in February, giving us month a over month inflation rate of 0.51551% in March, which the BEA reports as a PCE price index increase of 0.5% in their tables….at the same time, Table 11 gives us a year over year PCE price index increase of 3.3% in March, up from 1.5% in February, and a core PCE price index increase, excluding food and energy, of 1.8% for the past year, both in line with the Fed’s inflation target….applying the March inflation adjustment to the change in March PCE shows that real PCE was up 3.6329% in March, which BEA reports as a 3.6% increase in their press release and in the tables, following a February real PCE decrease of 1.2%…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 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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March Durable Goods: New Orders Up 0.5%, Shipments Up 2.5%, Inventories Up 1.0%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $1.4 billion or 0.5 percent to $256.3 billion in March, after February’s new orders were revised from the $254.0 billion reported last month to $254.9 billion, now down by 0.9% from January’s new orders, revised from the 1.1% drop originally reported….however, with a 3.6% increase in January, year to date new orders are now up by 10.9% from those of 2020…
The volatile monthly new orders for transportation equipment limited this month’s orders increase, as new transportation equipment orders fell $1.4 billion or 1.7 percent to $81.9 billion, on a 46.9% decrease in new orders for commercial aircraft….excluding orders for transportation equipment, other new orders were up 1.6%, led by a $1.2 billion or 3.6 percent increase to $35.4 billion in new orders for fabricated metal products, while excluding just new orders for defense equipment, new orders rose 0.5%….at the same time, new orders for nondefense capital goods less aircraft, a category that’s a proxy for equipment investment, rose 0.9% to $73,211 million, led by a 4.3% increase in new orders for communications equipment…
Meanwhile, the seasonally adjusted value of March shipments of durable goods, which were ultimately included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, rose for the sixth time in seven months, increasing by $6.4 billion or 2.5 percent to $257.0 billion, after the value of February shipments was revised from $250.9 billion to $250.7 billion, now down 3.6% from January….higher shipments of transportation equipment led the March increase, increasing by $3.7 billion or 4.8 percent to $82.1 billion, on a 10.1% increase to $6,266 million in the value of shipments of commercial aircraft and on an 5.8% increase to $60,237 million in the value of shipments of motor vehicles and parts….meanwhile, the value of shipments of nondefense capital goods less aircraft rose 1.3% to $72,068 million, after the value of February’s capital goods shipments was revised down from $71,281 million to $71,168 million…
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $4.2 billion or 1.0 percent to $431.8 billion, after the value of end of February inventories was revised from $427.3 billion to $427.6 billion, still up 0.7% from January….the value of inventories of transportation equipment accounted for half of the March inventory increase, rising $2.1 billion or 1.4 percent to $149.0 billion, led by a 3.3% increase to $43,129 in inventories of motor vehicles and parts, while the value of all other inventories rose 0.8% to $282,821 million…
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often volatile new orders, rose for the 3rd consecutive month, after failing to rise over the prior ten, increasing by $4.4 billion or 0.4 percent to $1,087.7 billion, after the February unfilled orders increase was revised from $8.4 billion to $9.4 billion, now up 0.9% from January…a $2.3 billion or 2.8 percent increase to $83.0 billion in unfilled orders for fabricated metal products led the increase, while unfilled orders for transportation equipment orders were down $207 million, statistically a 0.0% change….the unfilled order book for durable goods is still 3.2% below the level of last March, with unfilled orders for transportation equipment now 8.2% below their year ago level, mostly on a 11.5% decrease in the backlog of orders for commercial aircraft.
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