1st quarter GDP; March income & outlays, durable goods, and new home sales

The key economic releases from the past week were 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 the March report on new home sales, both from the Census bureau…also released this week was the Chicago Fed National Activity Index (CFNAI) for March, a weighted composite index of 85 different economic metrics, which increased to +0.15 in March from +0.09 in February, after February’s index was revised from the +0.05 reported in last month’s report…however, the more often cited 3 month average of that index increased to –0.19 in March from -0.28 in February, which would indicate that national economic activity has been below the historical trend over recent months, as would any negative ​index value…

This week also saw the release of two more regional Fed manufacturing surveys for April: the Kansas City Fed manufacturing survey for April, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to -8 in April, down from -7 in March and -4 in February, indicating that a slightly larger plurality of that region’s manufacturers were seeing worse conditions than a month ago, 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 rose from −11 in March to −7 in April, conversely indicating that a smaller plurality of that region’s manufacturers were seeing worse conditions than a month ago..

1st Quarter GDP Grew at a 1.6% Rate on Increased Personal Services

Our economy grew at a 1.6% rate in the 1st quarter, ​considerably weaker than during the fourth quarter, as stronger growth in personal consumption of services, fixed investment, and state and local government were partly offset by reduced growth of inventories and the negative impact of ​higher 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 1.6% annual rate from the output of the 4th quarter of 2020, when our real output grew at a 3.4% real rate…in current dollars, our first quarter GDP grew at a 4.77% annual rate, increasing from what would work out to be a $27,957.0 billion a year output rate in the 4th quarter of last year to a $28,284.5 billion annual rate in the 1st quarter of this year, with the headline 1.6% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 3.1%, known in aggregate as the GDP deflator, were computed from the price changes of each of the GDP components and applied to their current dollar change….

As is usual with an advance estimate, the BEA cautions that the source data 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 about 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 $10.5 increase in exports of services, a $4.9 billion decrease in imports of services, a $3.7 billion increase in residential construction, a $4.0 billion decrease in non-residential construction, a $2.5 billion increase in public construction, and an $0.8 billion increase 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 four 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 2017 prices, and then that all percentage changes in this report are calculated from those ‘2017 dollar’ figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts, because the change in 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 the link to on the BEA’s 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 2020, 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 ​roughly 70% of GDP, grew at an 5.99% annual rate in current dollars in the 1st quarter, which worked out to represent a real growth rate of 2.5% of consumed goods and services, after an annualized PCE price index increase averaging 3.4% was used to adjust that personal spending for changes in prices….consumer spending on durable goods shrunk at a 2.5% rate in current dollars while prices of those durable goods were on average 0.5% lower, and from that the BEA figured that the output of consumer durables shrunk at a 1.2% rate, as a decrease in real consumption of motor vehicles and parts at a 9.0% rate more than offset growth in output of furnishings, durable household equipment, and other durable goods….at the same time, the BEA found that the real output of consumer non-durable goods was unchanged in the first quarter, after an annualized 0.6% decrease in consumer spending for non-durable goods was adjusted for an average decrease in non-durable prices at a 0.6% rate, as a decrease in real consumption of gasoline and other energy goods offset higher consumption of groceries, clothing and “other” nondurable goods …meanwhile, the 9.6% nominal growth in consumer outlays for services was deflated by a 5.4% increase in prices for services to show that real output of consumer services grew at 4.0% annual rate, as real growth of health care at a 5.5% rate accounted for more almost a third of the quarter’s growth in services….as a result of those changes in growth from the 4th to the 1st quarter, the decrease in the output of durable goods subtracted 0.09 percentage points from 1st quarter GDP, the ​unchange​d real consumption of non-durable goods had no impact on the growth of GDP, while increased consumption of services added 1.78 percentage points to the growth rate of the 1st quarter economy..

The change in the other components of the change in GDP is computed by the BEA in the same manner that we have just illustrated for computing real PCE; ie, the annualized increase 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 0.7% annual rate in the 4th quarter of 2023, grew at a 3.2% annual rate from there in the 1st quarter…that was as real fixed investment grew at an 5.3% annual rate in the 1st quarter, after growing at a 3.5% rate in the 4th quarter…among fixed investments, real non-residential fixed investment grew at a 0.7% rate, as real investment in non-residential structures shrunk at a 0.1% rate and had a negligible impact on 1st quarter GDP​ growth, real investment in equipment grew at 2.1% rate and added 0.20 percentage points 0.10 percentage points to 1st quarter GDP, and real investment in intellectual property grew at 5.4% rate and added 0.29 percentage points to GDP….at the same time, real residential investment grew at a 13.9% rate and added 0.52 percentage points to GDP….for an easy to understand table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…

Meanwhile, a decrease in the growth of real inventories reduced overall gross investment and hence GDP, as real private inventories grew by an inflation adjusted $35.4 billion in the quarter, after growing at an inflation adjusted $54.9 billion in the 4th quarter…as a result, the $19.5 billion negative change in real inventory growth subtracted 0.35 percentage points from the 1st quarter’s growth rate, after a $22.9 billion decrease in real inventory growth in the 4th quarter had subtracted 0.47 percentage points from that quarter’s GDP….however, since growth in inventories would indicate that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $19.5 billion decrease in 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 2.0% rate in the 1st quarter, down from the real final sales growth rate of 3.5% in the 4th quarter, when the decrease in inventory growth meant that the quarter’s growth in real final sales was greater than that of the quarter’s GDP…

Both real exports and real imports increased during the first quarter, but our imports increased by a quite bit more, and hence the net of our international trade was a subtraction from GDP…Our real exports of goods and services rose at a 0.9% rate in the first quarter, after rising at a 5.1% rate in the 4th quarter, while our real imports rose at a 7.2% rate in the 1st quarter, after rising at a 2.2% rate in the 4th 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 in the GDP computation elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was ​included ​in another GDP component that shouldn’t have been, because it was not produced here. Thus the first quarter increase in real exports added 0.10 percentage points to 1st quarter GDP, after the 4th quarter increase in exports had added 0.55 percentage points to fourth quarter GDP. On the other hand, since imports subtract from GDP, their increase at a 7.2% rate subtracted 0.96 percentage points from first quarter GDP, after the 4th quarter import increase had subtracted 0.30 percentage points from that quarter’s growth.. Hence, our deteriorating trade imbalance subtracted a net of 0.86 percentage points from 1st quarter GDP, after our improving trade deficit had added 0.25 percentage points to GDP in the fourth quarter…

Finally, the total of real consumption and investment by all branches of government increased at a 1.2% annual rate in the 1st quarter, after increasing at a 4.6% rate in the 4th quarter, ​even though federal government consumption and investment shrunk at a 0.2% rate, ​as state and local consumption and investment grew at a 2.0% rate. Inflation adjusted federal spending for defense grew shrunk at a 0.6% rate and subtracted 0.02 percentage points from the 1st quarter​'s GDP growth, while real non-defense federal consumption and investment grew at a 0.3% rate and added 0.01 percentage points to GDP​ growth….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 a 2.0% annual rate and added 0.22 percentage points to the growth of 1st quarter GDP, as a real increase in state and local investment at a 1.6% annual rate accounted for 0.03 percentage points of that addition to GDP…

March Personal Income Rose 0.5%, Personal Spending Rose 0.8%, PCE Price Index Rose 0.3%, Savings Rate at a 17 Month Low

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 seasonally adjusted and at an annual rate, 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….

Hence, when the opening phrase of the press release for this report tell us “Personal income increased $122.0 billion (0.5 percent at a monthly rate) in March…“, it means that the annualized figure for all types of personal income in March, $23,826.0 billion, was $122.0 billion, or almost 0.5% more than the seasonally adjusted annualized personal income figure $23,704.0 billion 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 about 0.4%, from an annual rate of $20,718.9 billion in February to an annual rate of $20,822.9 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….the main contributors to the $122.0 billion annualized increase in personal income in March were a $84.9 billion annual rate of increase in income from wages and salaries, a $16.2 billion annualized increase in rental income of persons, and an $13.3 billion annualized increase in government social benefits to persons…

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 $160.9 billion annual rate to a $19,350.9 billion pace of consumer spending annually, more than 0.8% above that of February’s rate, after February’s PCE rate was revised from the previously reported annual rate of $19,189.0 billion to $19,190.0 billion, a revision which was also included in the GDP report…the current dollar increase in March’s spending included a $80.6 billion annualized increase to an annualized $13,040.6 billion in spending for services, and a $80.3 billion increase to $6,310.3 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 $172.1 billion to $20,151.9 billion, which left personal savings, which is disposable personal income less total outlays, at a $671.0 billion annual rate in March, down from the revised $739.1 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, fell to 3.2%, down from a revised 3.6% in February, and the lowest personal savings rate since October 2022…

While our personal consumption expenditures accounted for 68.9% 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 an average price index for all personal consumption expenditures, which is a chained price index based on 2017 prices = 100, which is then applied to the current dollar spending….from Table 5 in the pdf for this report, we find that that index rose to 122.769 in March from 122.374 in February, giving us month a over month inflation rate of 3.2278% in March, which the BEA reports as a PCE price index increase of 0.3% in their tables….at the same time, Table 7 gives us a year over year PCE price index increase of 2.7% in March, up from 2.5% in February, and a core PCE price index increase, excluding food and energy, of 2.8% for the past year, both above the Fed’s 2% inflation target….applying the March inflation adjustment to the change in March PCE shows that real PCE was up 0.514017% in March, which BEA reports as up 0.5% in their press release and in the tables, following a February real PCE increase also reported at 0.5%…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 2017 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 table 4 of the PDF, where the monthly figures given are identical to the quarterly figures shown in table 3 in the GDP report, and which were thus used to compute the contribution of real personal consumption of goods and services to GDP…

March Durable Goods: New Orders Up 2.6%, Shipments and Inventories Flat

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 $7.3 billion or 2.6 percent to $283.4 billion in March, after February’s new orders were revised from the $277.9 billion reported last month to $276.1 billion, now only up 0.7% from January’s new orders, revised from the 1.4% increase originally reported….however, even after that revision and a 6.9% decrease in January, year to date new orders are now up by 0.3% from those of 2023…

New orders for transportation equipment led the new orders increase in March, rising $6.8 billion or 7.7 percent to $95.9 billion, on a 30.6% increase to $18,409 million in the value of new orders for commercial aircraft, a 2.8% increase to $4,746 million in the value of new orders for defense aircraft, and a 2.1% increase to $63,107 million the value of new orders for motor vehicles and parts.…excluding orders for transportation equipment, the value of other new orders rose 0.2%, while excluding just new orders for defense equipment, new orders rose 2.3%…at the same time, the value of new orders for nondefense capital goods less aircraft, a category that’s a proxy for equipment investment, rose 0.2% to $73,848 million…

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, fell for the third time in four months, but only by $0.1 billion to $282.4 billion, after the value of February shipments was revised from $282.7 billion to $282.5 billion, but was still up 1.2% from January….lower valued shipments of transportation equipment were responsible for the March decrease, falling by $0.5 billion or by 0.4 percent to $89.4 billion, on an 11.1% decrease to $10,770 million in the value of shipments of commercial aircraft….meanwhile, the value of shipments of nondefense capital goods less aircraft rose 0.2% to $74,464 million, after the value of February’s capital goods shipments was revised down from $74,424 million to $74,339 million…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, decreased by less than $0.1 billion to $527.9 billion, the 1st decrease in eight months, after the value of end of February inventories was revised from $528.7 billion to $527.9 billion, now up just 0.2% from January….lower value of inventories of electrical equipment, which were down $0.1 billion or 0.4 percent to $25.9 billion, accounted for the decrease, while inventories of transportation equipment were up $0.1 billion, or statistically unchanged at $170.0 billion, as greater inventories of aircraft were offset by a decrease in inventories of motor vehicles…

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 first time in three months, increasing by $5.9 billion or 0.4 percent to $1,397.2 billion, following a 0.1% or $1.5 billion decrease to $1,391.3 billion in February, which was revised from the $0.1 billion increase to $1,392.9 billion reported a month ago….a $6.5 billion or 0.7 percent increase to $903.2 billion in unfilled orders for transportation equipment led the increase, while unfilled orders for other durable goods were down 0.1% to $494,015 million….the unfilled order book for durable goods is now 8.8% above the level of last March, with unfilled orders for transportation equipment now 15.1% above their year ago level, largely due to a 22.7% increase in the backlog of orders for commercial aircraft…

New Home Sales Reported 8.8% Higher in March on Higher Prices

The Census report on New Residential Sales for March (pdf) estimated that new single family homes were selling at a seasonally adjusted annual rate of 693,000 homes during the month, which was 8.8 percent (±17.2 percent)* above the revised February annual sales rate of 637,000, and was 8.3 percent (±19.5 percent)* above the estimated annual rate that new homes were selling at during March of last year….the asterisks indicate that based on their small sampling, Census could not tell whether March new home sales rose or fell from home sales of February, or even from the sales of March of last year, with the figures in parenthesis representing the 90% confidence range for the 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 February were revised from the annual rate of 662,000 reported last month to an annual rate of 637,000, and new home sales in January, initially reported at an annual rate of 661,000 and revised to a 664,000 annual rate last month, were revised up to a 671,000 a year rate with this report, while December’s annualized new home sales rate, initially reported at an annual rate of 664,000 and revised from the initial revision of 651,000 to a 652,000 a year rate last month, were revised to a 654,000 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 67,000 new single family homes sold in March, up from the estimated 57,000 new homes that sold in both February and in January….the raw numbers from Census field agents were further used to estimate that the median sales price of new houses sold in March was $430,700, up from the median sale price of $406,500 in February but down from the median sales price of $438,900 in March a year ago, while the average new home sales price was $524,800, up from the $488,600 average sales price in February, and up from the average sales price of $519,600 in March a year ago….a seasonally adjusted estimate of 477,000 new single family houses remained for sale at the end of March, which represents a 8.3 month supply at the March sales rate, down from the revised 8.4 months of new home supply in February, which was originally reported at 8.8 months of supply…for graphs and additional commentary on this report, see the following blog posts by Bill McBride at Calculated Risk: New Home Sales Increase to 693,000 Annual Rate in March and New Home Sales Increase to 693,000 Annual Rate in March; Median New Home Price is Down 13% from the Peak, which in turn links to his lengthy real estate newsletter post on the same subject…

 

 

(the above is the synopsis that accompanied my regular sunday morning news links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most of which are picked from the aforementioned GGO posts, contact me…)