4th quarter GDP; 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; other widely watched reports included the advance report on durable goods for December and the December report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for November from S&P Case-Shiller, which indicated that their national home price index for September, October and November averaged 3.8% higher than it was for prices of the same homes that sold during the same 3 month period a year earlier, which was the same as the 3.8% year over year index increase indicated by their October report, which indexed home sales prices over August, September and October against those of the same three months of a year ago….

This 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 +0.15 in December, from -0.01 in November, which was revised from the –0.12 reading reported a month ago…as a result, the 3 month average of the CFNAI rose to –0.13 in December, up from a revised –0.26 in November, which, as a negative reading, still indicates that national economic activity was below the historical trend over the 4th quarter months…

In addition, the week also saw the last two regional 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 rose to -4 in January. up from -10 in December and from −14 in November, indicating that a smaller plurality of Fifth District manufacturers saw conditions worsen during the month than during the prior two months, and the Dallas Fed Texas Manufacturing Outlook Survey, which covers Texas and adjacent western Louisiana and southeastern New Mexico, reported their general business activity composite index rose to +14.1, up from November’s –2.7 and its highest reading since October 2021, meaning that a majority of Texas manufacturing executives saw improving business conditions for the just second time in over the past three years…

4th Quarter GDP Grew at a 2.3% Rate on Growth of PCE and Government

The Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 2.3% annual rate from the output of the 3rd quarter, when our real output grew at a 3.1% real rate, as growth in personal consumption of goods and services and by all branches of government were offset by shrinking private investment and inventories… For the entire year, our economy grew at a 2.8% rate, down from the 2.9% growth rate of 202, but a bit faster than the 2.5% growth rate of 2022.  In current dollars, our fourth quarter GDP grew at a 4.51% annual rate, increasing from what would work out to be a $29,374.9 billion a year rate in the 3rd quarter to a $29,700.6 annual rate in the 4th quarter, with the headline 2.3% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 2.2%, known in aggregate as the GDP deflator, were computed from the price changes 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 for GDP is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now.. Also note that December’s construction, trade in services, and non-durables factory inventory data have yet to be reported or formally estimated, and that the BEA assumed an annualized $3.9 billion increase in exports of services, an annualized $15.2 billion increase in imports of services, a $1.8 billion monthly increase in residential construction, a $1.4 billion monthly decrease in non-residential construction, a $0.2 billion monthly increase in public construction, and a $1.2 billion monthly increase in nondurable manufacturing inventories for December before they estimated the 4th quarter’s output (see the Key source data and assumptions (xls) for more details).

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 compounded 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 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 actual dollar amounts, since 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 4th quarter GDP, which we find linked on the BEA GDP landing page, which also offers 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 2021, 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 2017 dollars of each of those components back to the 4th quarter of 2023, 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 in the computation of roughly 70% of GDP, grew at a 6.58% rate in current dollars in the 4th quarter, and were then deflated to indicate a 4.2% real growth rate of goods and services consumed, after an annualized PCE price index increase averaging 2.3% was computed to adjust that consumer spending for inflation.. Consumers outlays for durable goods rose at a 12.4% rate in current dollars, and prices for those durable goods averaged 0.3% higher, and thus the BEA found that the real consumption of consumer durable goods grew at a 12.1% rate, as real growth in consumption of recreational goods and vehicles at an 16.2% rate accounted for about half of the durable goods growth... AT the same time, consumer spending for non-durables increased at a 2.8% rate, and that was adjusted for weighted non-durable goods prices that fell at a 0.9% rate to show that that real output of consumer non-durable goods grew at a 3.8% rate, as real consumption of non-durable goods other than food, clothing and gasoline accounted for nearly 60% of the growth of non-durable goods. Meanwhile, the 7.0% nominal dollar growth rate of consumer outlays for services was deflated by an average 3.5% increase in prices for personal services to show that the real output of consumer services grew at a 3.1% annual rate, as a 4.1% real growth rate for health care services accounted for about a third of the 4th quarter’s growth in services. As a result of those changes in growth from the 3rd to the 4th quarter, the increase in our output of durable goods indicated by our spending on them added 0.85 percentage points to the GDP growth rate, the increase in the output of non-durable goods added 0.52 percentage points to GDP, and increased personal services added 1.45 percentage points to the growth rate of the economy in the 4th quarter..

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 (or decrease) 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 0.8% annual rate in the 3rd quarter, shrunk at a real 5.6% annual rate in the 4th quarter, as the real growth rate of fixed investments shrunk at a 0.6% annual rate in the 4th quarter, after growing at a 2.1% rate in the 3rd quarter, while growth in private inventories was much slower than in the 3rd quarter and hence subtracted from 4th quarter GDP... Among fixed investments, real non-residential fixed investment shrunk at a 2.2% rate as real investment in non-residential structures shrunk at 1.1% rate and subtracted 0.03 percentage points from 4th quarter GDP and real investment in equipment shrunk at 7.8% rate and subtracted 0.42 percentage points from 4th quarter GDP, while real investment in intellectual property grew at 2.6% rate and added 0.15 percentage points to GDP. Meanwhile, real residential investment grew at 5.3% rate and added 0.21 percentage points to 4th quarter GDP, after residential investment had shrunk at 4.3% rate in the 3rd quarter and subtracted 0.18 percentage points from that quarter’s growth. For an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…..

Meanwhile, real private inventories grew at an inflation adjusted $4.4 billion rate over the 4th quarter, after growing at an inflation adjusted $57.9 billion rate in the 3rd quarter, and as a result the rounded $53.5 billion negative change in real inventory growth subtracted 0.93 percentage points from the 4th quarter’s growth rate, after a $13.8 billion negative change in real inventory growth in the 3rd quarter had subtracted 0.22 percentage points from that quarter’s GDP. However, since negative growth in inventories indicates that less of the goods produced during the quarter were left in storage or sitting on a shelf, the $53.5 billion decrease in their growth in turn means real final sales of GDP were greater by that amount, and hence real final sales of GDP grew at a 3.2% rate in the 4th quarter, down from the real final sales growth rate of 3.3% in the 3rd quarter, when decreased inventory growth was less of a factor the quarter’s 3.1% GDP growth rate…

Real exports and real imports both decreased slightly in the 4th quarter, but our imports fell by a bit more, hence adding to 4th quarter GDP. Our real exports of goods and services grew shrunk at a real 0.8% annual rate in the fourth quarter, after our exports had increased at a 9.6% rate in the 3rd quarter, while our real imports also shrunk at a real 0.8% annual rate in the third quarter, after growing at a 10.7% 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 in the GDP computation elsewhere), 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 that portion of consumption or investment was not produced here. Thus the 4th quarter decrease in real exports conversely subtracted 0.08 percentage points from 4th quarter GDP, after the 3rd quarter increase in exports had added 1.01 percentage points to third quarter GDP. On the other hand, since imports subtract from GDP, their decrease at an 0.8% rate conversely added 0.12 percentage points to 4th quarter GDP, after the larger third quarter import increase had subtracted 1.44 percentage points from that quarter’s growth….As a result, our slightly better trade balance added a rounded net of 0.04 percentage points to the 4th quarter’s GDP growth, after our worse trade balance in the third quarter trade had subtracted 0.43 percentage points from GDP growth in that quarter..

Finally, real consumption and investment by all branches of government increased at a 2.5% annual rate in the 4th quarter, after growing at a 5.1% rate in the 3rd quarter, as federal government consumption and investment grew at a 3.2% rate, while state and local consumption and investment grew at a 2.0% rate. Inflation adjusted federal spending for defense grew at a 3.3% rate and added 0.12 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment grew at a 3.1% rate and added 0.09 percentage points to GDP. Note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services, less those imported. Meanwhile, state and local government investment and consumption expenditures grew at a 2.0% annual rate and added 0.22 points to the growth of 4th quarter GDP, as a real increase in state and local investment at a 1.9% annual rate accounted for 0.04 percentage points of that state and local addition to GDP…

December Personal Income Rose 0.4%, Personal Spending Rose 0.7%, PCE Price Index Rose 0.3%, Savings Rate at a 2 Year Low

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 from data developed for 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 whole 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 $92.0 billion (0.4 percent at a monthly rate) in December,“, that means that the annualized figure for all types of personal income in December, $25,170.5 billion, was $92.0 billion, or almost 0.4% more than the annualized personal income figure of $25,078.5 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 almost 0.4%, from an annual rate of $21,976.6 billion in November to an annual rate of $22,056.3 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 major reasons for the $92.0 billion annual rate of increase in personal income were an annualized $54.4 billion increase in wages and salaries, an annualized $10.9 billion increase in proprietors' income, and an annualized $11.8 billion increase in personal interest income…

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for December, which were used to compute the change in real PCE in the 4th quarter GDP report, rose at a $133.6 billion annual rate to a $20,387.2 billion pace of consumer spending annually, almost 0.7% above that of November, after November‘s PCE was revised up from the previously reported annual rate of $20,195.5 billion to $20,253.6 billion, now up 0.6% from October…the current dollar increase in December spending included a $55.4 billion annualized increase to an annual rate of $6,418.6 billion in spending for goods, and a $78.2 billion annualized increase to an annualized $13,968.5 billion in spending for services….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $129.5 billion to $21,213.1 billion in December, which left personal savings, which is disposable personal income less total outlays, at a $843.2 billion annual rate in December, down from the revised $893.0 billion in annualized personal savings in November… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.8% in December, down from 4.1% in November, and the lowest personal savings rate since December 2022…

While the output of goods and services implied by our personal consumption expenditures accounted for 69.2% of our fourth quarter GDP, before they could be used in that quarterly computation 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 2017 prices = 100….from Table 5 in the pdf for this report, we find that the PCE price index rose from 124.387 in November to 124.705 in December, giving us a month over month inflation rate of 0.255654%, which the BEA reports as an increase of +0.3%…at the same time, Table 7 reports a rounded year over year PCE price index increase of 2.6%, and a core price increase, excluding food and energy, of 2.8% for the past year, both still above the Fed’s inflation target….applying the December inflation adjustment to the nominal change in December’s PCE shows that real PCE was up 0.40295% for the month, which BEA reports as a 0.4% increase in their summary table…note that when those PCE price indexes are applied to a given month’s annualized current dollar PCE, it yields that month’s annualized real PCE in chained 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 quarterly results used to be shown in this report, but now they can only be found in table 3 of the current GDP report, where they were used to compute the contribution of real personal consumption of goods and services to GDP…

December Durable Goods: New Orders Fell 2.2%, Shipments Rose 0.9%, Inventories Rose 0.4%

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 fell by $6.3 billion or 2.2 percent to $276.1 billion in December, the fourth decrease in five months, after November’s new orders were revised from the $285.1 billion reported a month ago to $282.4 billion, now a rounded 2.0% decrease from October’s new orders, revised from the 1.1% decrease reported for November’s new orders last month…for the ​entire year, 2024’s new orders were valued at $3,382,207 million, which was 1.5% below the $3,435,097 million value of 2023’s orders, after the value of 2023’s durable goods orders had risen 4.4% from those of 2022….note that the 4th quarter GDP report indicated ​that average prices of durable goods fell ​2​.0% over the past year, after ​falling ​0​.8% in 202​3, so the durable goods orders ​d​ecrease in 20​24 was ​​essentially due to lower prices…

A decrease in the value of the volatile monthly new orders for transportation equipment was responsible for this December’s orders decrease, as the value of new transportation equipment orders fell $6.9 billion or 7.4 percent to $86.1 billion, led by a 45.7% decrease to $7,983 million in new orders for commercial aircraft and parts… excluding orders for transportation equipment, other new orders were up 0.3%, while excluding just new orders for defense equipment, new orders fell 2.4%….at the same time, the value of new orders for nondefense capital goods less aircraft, a proxy for new equipment investment orders, rose $389 million or by 0.5% to $74,834 million, after rising by an upwardly revised 0.9% in November…

The seasonally adjusted value of December’s shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after being adjusted for changes in prices, rose by $2.6 billion or 0.9 percent to $287.4 billion, the first increase in five months, after the value of November shipments was revised from $285.1 billion to $284.7 billion, now down 0.2% from October.…the value of shipments of transportation equipment, also up for the first time in the last five months, drove the December increase, rising $2.4 billion or 2.8 percent to $93.2 billion, on a 20.7% increase to $15,340 million in the value of shipments of commercial aircraft… meanwhile, the value of shipments of nondefense capital goods less aircraft rose 0.6% to $74,534 million, after the value of November’s capital goods shipments was revised from $74,163 million to $74,102 million, now a 0.4% increase from October….for the year, shipments of durable goods were valued at $3,432,714 million, 1.8% more than the shipments of $3,372,626 in 2023, which in turn were valued 3.1% greater than those of 2022…

At the same time, the value of December’s seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for a second month following three decreases, increasing by $2.4 billion or 0.4 percent to $533.0 billion in December, after the value of November inventories w​as revised from $529.8 billion to $530.633 billion, now up 0.5% from October….increased inventories of transportation equipment led December’s increase, rising $1.9 billion or 1.1 percent to $174.6 billion, on a 2.0% increase to $85,899 million in inventories of commercial aircraft….excluding inventories of transportation equipment, the value of all other durable goods inventories rose 0.1%, while the value of inventories of capital goods less aircraft slipped by $47 million to $163,650 million….at year end, inventories of durable goods were valued 1.4% more than their value at year end of 2023, which in turn were were valued 1.3% more than those of at the end of 2022…

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, decreased for the first time of the last six months, falling by $6.4 billion or 0.5 percent to $1,396.2 billion, after unfilled orders for November were revised from $1,405.0 billion to $1,402.6 billion, now a 0.2% increase from October…a $7.1 billion or 0.8 percent decrease to $898.6 billion in unfilled orders for transportation equipment, led by a 1.1% drop in unfilled orders for commercial aircraft, was responsible for the December decrease, while the value of unfilled orders for durable goods other than transportation equipment was more than 0.1% higher at $497,664 million…the unfilled order book for durable goods at the end of December was valued 0.5% above that of the level at the end of 2023, as the value of the unfilled order book for transportation equipment rose 0.7% over the year, largely on a 0.7% increase in unfilled orders for commercial aircraft, while the value of unfilled orders for nondefense capital goods less aircraft ended 0.3% above its year ago level..

New Home Sales Probably Higher in December and for 2024

The Census report on New Residential Sales for December(pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 698,000 homes ​p​er year during the month, which was 3.6 percent (±19.7 percent)* above the revised November annual rate of 674,000 new single family home sales, and was 6.7 percent (±16.2 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 those of December 2023, 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 November were revised from the annual rate of 664,000 reported last month to an annual rate of 674,000, while home sales in October, initially reported at an annual rate of 610,000 and revised to 627,000 last month, were back to a 615,000 a year rate with this report, while September’s new home sales rate, initially reported at an annual rate of 759,000 and revised down from the initially unrevised 759,000 a year rate to a 736,000 a year rate last month, were again revised down to a 726,000 annual rate with this release…an estimated 683,000 new homes were sold during the past year, which was 2.5 percent (±4.5 percent)* more than the 666,000 new homes that sold during 2023…

The annual rates of sales reported here are seasonally adjusted after extrapolation from estimates of canvassing Census field reps, which indicated that approximately 52,000 new single family homes sold in December, up from the estimated 46,000 new homes that sold in November, and up from the 45,000 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 $427,000, up from the median sale price of $402,700 in November, and up 2.1% from the median new home sales price of $418,300 in December a year ago, while the average December new home sales price was $513,600, up from the $485,000 average sales price in November, and up 4.1% from the average sales price of $493,000 in December a year ago….a seasonally adjusted estimate of 494,000 new single family houses remained for sale at the end of December, which represents a 8.5 month supply of homes at the December sales rate, down from the revised 8.7 months of new home supply in November, which had been reported as a 8.9 month supply…for graphs and additional commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales Increase to 698,000 Annual Rate in December and Newsletter: New Home Sales Increase to 698,000 Annual Rate in December, which excerpts from and links to his in-depth newsletter coverage of this report..

 

 

(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…)