4th quarter GDP revision; January’s income and outlays, durable goods, and new home sales

The key economic reports released during the past week were the 2nd estimate of 4th quarter GDP and the January report on Personal Income and Spending, both from the Bureau of Economic Analysis; other widely watched releases included the Advance Report on Durable Goods Manufacturers’ Shipments Inventories and Orders for January, and the January report on new home sales, both from the Census Bureau, and the Case-Shiller Home Price Index for December from S&P Case-Shiller, which reported that​ that their national​ home price index ​f​or homes that sold October, November and December averaged 3.9% higher than ​their price​ index for the same homes that sold during the same 3 month period a year earlier, which was up from the 3.8% year over year increase that they reported a month ago for the months of September, October and November…

This week also saw the release of the Chicago Fed’s National Activity Index (CFNAI) for January, a weighted composite index of 85 different economic metrics, which fell to –0.03 in January from +0.18 in December, which was revised from the +0.15 reported for December last month… after revisions, the 3 month average of the CFNAI ​that they focus on fell to +0.03 in January from +0.19 in December, which, as a reading close to zero, indicates that national economic activity has been close to the historical trend over the recent months…

In addition, this week also saw the release the last three regional Fed manufacturing surveys for February: the Kansas City Fed manufacturing survey for February, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index was unchanged at -5 in February for the third straight month, indicating that a small plurality that region’s manufacturers continued to see deteriorating business conditions in February​; 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 −4 in January to +6 in February, indicating that a plurality of that region’s manufactures saw improving conditions in February after a small plurality saw deteriorating conditions a month earlier, while the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas and adjacent counties in northwest Louisiana and southeast New Mexico, reported their general business activity composite index rose to +14.1, up from last month’s revised +4.5, indicating that a larger plurality of that region’s manufactures saw improving conditions of the Texas area economy in February than in January…

4th Quarter GDP Grew at a 2.3% Rate, Revised but Unchanged from the Advance Estimate

The Second Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.3% rate ​o​ver the quarter, unchanged from the 2.3% growth rate reported in the advance estimate last month, as personal consumption expenditures for goods and fixed investment grew less than was previously reported, offsetting upward revisions to personal consumption expenditures for services, inventories, net exports, and government…In current dollars, our fourth quarter GDP grew at a 4.78% annual rate, increasing from what would work out to be a $29,374.9 billion a year rate in the 3rd quarter to a $29,719.6 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 2.4%, known in aggregate as the GDP deflator, were computed from the price changes of the GDP components and applied to their current dollar changes….that composite GDP deflator was revised from the 2.3% rate reported in the advance estimate, and hence current dollar GDP was actually revised up around 0.1% from the advance estimate..

Remember that the news release for the second estimate GDP reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change that’s roughly 4 times of that what actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2017, 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, since the change in real GDP is not a monetary metric….for our purposes, the data that we’ll use in reporting the changes here comes directly from the full pdf for the 2nd estimate of 4th quarter GDP, which can be accessed directly on the BEA’s GDP landing page, which also provides links to the source data, the tables on Excel and other technical notes…specifically, we reference table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2021, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components over the last 5 quarters; and table 4, which shows the change in the price indexes for each of the components…the pdf for the 4th quarter’s advance estimate, which this estimate revises, is here…

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised but ​was statistically unchanged from the overall 4.2% growth rate reported in the advance estimate, as downward revisions to goods were offset by upward revisions to services…that aggregate 4.2% growth rate figure is the result of deflating the 6.67% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 2.4% annual rate in the 4th quarter, which was revised from the 2.3% PCE inflation rate reported a month ago….after revised inflation adjustments, real consumption of durable  goods grew at a real 12.1% annual rate, unchanged from the aggregate 12.1% real growth rate shown in the advance report, and added 0.86 percentage points to GDP, as real growth in consumption of motor vehicles and parts at a 19.2% rate accounted for more than 40% of the durable goods growth….meanwhile, real consumption of nondurable goods by individuals grew at an 3.0% annual rate, revised from the 3.8% growth rate reported in the 1st estimate, and added 0.41 percentage points to the 4th quarter’s economic growth rate, as growth in real consumption of non-durable goods other than food, clothing and gasoline accounted for nearly two-thirds of the growth of non-durable goods…at the same time, consumption of services grew at a 3.3% annual rate, revised from the 3.1% growth rate reported last month, and added 1.53 percentage points to the final GDP tally, as a 3.8% growth rate in real health care services accounted for about a third of the 4th quarter’s broad based services growth…

On the other hand, seasonally adjusted real gross private domestic investment shrunk at a 5.7% annual rate in the 4th quarter, revised down from the 5.6% contraction estimate reported last month, as real private fixed investment shrunk at a 1.4% rate, revised down from the 0.6% contraction rate reported in the advance estimate, while the decrease in inventory growth was not as great as in the first estimate…real investment in non-residential structures now indicates growth at a 1.1% rate, revised up from the 1.1% contraction rate previously reported, while real investment in equipment shrunk at 9.0% rate, revised down from the 7.8% contraction rate shown a month ago….meanwhile the quarter’s investment in intellectual property products was revised to indicate no change, down from the 2.6% growth rate previously reported, while at the same time real residential investment was shown to be growing at a 5.4% annual rate, up ​a bit from the 5.3% growth rate shown in the previous report….after those revisions, the increase in investment in non-residential structures added 0.04 percentage points to the 4th quarter’s growth rate, but the decrease in investment in equipment subtracted 0.49 percentage points from the quarter’s growth rate, and investment in intellectual property had no impact on the growth rate of 4th quarter GDP, while the increase in residential investment added 0.21 percentage points to the growth of GDP…..for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…..

At the same time, growth in real private inventories was revised from the originally reported $4.4 billion in inflation adjusted growth to show that inventories grew at an inflation adjusted $10.2 billion rate…that came after inventories had grown at an inflation adjusted $57.9 billion rate in the 3rd quarter, and hence the change in real inventory growth from the 3rd to the 4th quarter was revised from a rounded $53.5 billion negative​ change, which ​had subtracted 0.81 percentage points from the 4th quarter’s growth rate, to an $47.6 billion negative change, which subtracted 0.81 percentage points from the 4th quarter’s growth rate​….however, since negative growth of inventories indicates that less of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their decrease at a $47.6 billion rate meant that real final sales of GDP were actually greater by that amount, and hence real final sales of GDP grew at a 3.2% rate in the 4th quarter, ​statistically ​t​he same as the real final sales 3.2% growth rate shown in the advance estimate, ​b​ut barely 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..

The previously reported decrease in real exports was revised a bit lower with this estimate, while the real decrease in real imports was greater than previously reported, and as a result our net trade was a greater addition to GDP growth than previously reported…our real exports shrunk at a 0.5% rate, revised from the 0.8% contraction rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their contraction subtracted 0.05 percentage points from the 4th quarter’s growth rate, less than the 0.08 percentage point subtraction shown in the previous report….meanwhile, our real imports decreased at a 1.2% rate, revised from the advance estimate’s 0.8% negative figure, and since imports are subtracted 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 here, their decrease conversely added 0.17 percentage points to 4th quarter GDP, revised from the 0.12 percentage point addition ​from falling imports shown last month….thus, our improving trade imbalance added a net 0.12 percentage points to 4th quarter GDP, revised from the 0.04 percentage point addition that had been indicated by the advance estimate..

Finally, there was also an upward revision to real government consumption and investment in this 2nd estimate, as the growth rate for the entire government sector was revised from a 2.5% rate to a 2.8% rate…real federal government consumption and investment was seen to have grown at a 4.0% rate from the 3rd quarter in this estimate, revised up from the 3.2% growth rate reported in the advance estimate, as real federal outlays for ‘defense’ grew at a 4.7% rate, revised from the 3.3% growth rate shown previously, and added 0.17 percentage points to 4th quarter GDP, while all other federal consumption and investment grew at a 2.9% rate, revised from the 3.1% growth rate shown previously, and added 0.08 more percentage points to 4th quarter GDP growth…note that 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, real state and local consumption and investment grew at a 2.2% rate in the quarter, which was revised up from the 2.0% growth rate reported in the 1st estimate, and added 0.24 percentage points to the growth of 4th quarter GDP, as a real increase in state and local investment at a 2.7% annual rate accounted for 0.06 percentage points of that addition to GDP….

Personal Income Rose 0.9% in January, Personal Spending Fell 0.2%, PCE Price Index Rose 0.3%; Highest Savings Rate Since June

The January report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month’s data for our personal​ consumption expenditures (PCE), which accounts for ​a​round 70% of the month’s GDP, and with it the PCE price index,​ the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated…in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they’re reporting seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if January’s change in seasonally adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from December to January..

Hence, when the opening line of the news release for this report tells us “Personal income increased $221.9 billion (0.9 percent at a monthly rate) in January..“, they mean that the annualized figure for seasonally adjusted personal income in January, $25,345.5 billion, was $221.9 billion higher, or nearly 0.9% higher than the annualized personal income figure of $25,123.6 billion extrapolated for December; the actual, unadjusted monthly change in personal income from December to January is not even given…at the same time, annualized disposable personal income, which is income after taxes, also rose by less than 0.9%, from an annual rate of $22,015.6 billion in December to an annual rate of $22,209.8 billion in January…the monthly contributors to the change in personal income, which can be viewed in detail in the Full Release & Tables (PDF) for this release, are also annualized…in January, the primary contributors to the seasonally adjusted $221.9 billion annual rate of  increase in personal income were an annualized $81.1 billion increase in government social benefits to persons, which included a $41.1 billion annualized increase in social security benefits, an annualized $49.6 billion increase in wages and salaries, an annualized $42.3 billion increase in interest and dividend income, and an annualized $30.0 billion increase in proprietors' income…

For the January personal consumption expenditures (PCE) that will be ​u​sed to figure 1st quarter GDP, the BEA reports that they decreased at an annual rate of $30.7 billion, or by less than 0.2%, from a $20,412.5 billion annual rate in December to a $20,381.8 billion annual rate in January; at the same time, the December PCE figure was revised up from the originally reported $20,387.2 billion annual rate, while November PCE was revised down from $20,253.6 billion to $20,242.7 billion, revisions that were already incorporated into this week’s 4th quarter GDP estimate (this report, although usually released a business day later than the GDP release, is computed concurrently)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $52.7 billion to a $21,196.1 billion annual rate in January, which left total personal savings, which is disposable personal income less total outlays, at a $1,013.7 billion annual rate in January, up from the revised $766.7 billion in annualized personal savings in December… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.6% in January, up from the December savings rate of 3.5%, and the highest personal savings rate since June..

As you know, before January’s personal consumption expenditures can be used in the 1st quarter GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is shown in Table 5 in the pdf for this report, which is a chained price index based on 2017 prices = 100….that PCE price index rose from 124.769 in December to 125.175 in January, giving us a month over month PCE inflation rate of 0.32540, which BEA rounds down to a 0.3% increase in reporting it in the text and tables here….then, applying that 0.3254% inflation adjustment to the decrease in January PCE shows that real PCE fell by 0.474256% in January, which the BEA reports as a 0.5%  decrease….note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it gives us that month’s annualized real PCE in those same chained 2017 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to that of another….that result is shown in table 4 of the PDF, where we see that January’s chained dollar consumption total works out to $16,283.6 billion annually, 0.474293% less than December’s $16,361.2 billion, statistically the equivalent of the real PCE increase we just computed…

However, to estimate the impact of the change in January PCE on the change in GDP, the change from December doesn’t help us much, since GDP is reported on a quarterly basis…thus we have to compare January’s real PCE to the the real PCE of the 3 months of the fourth quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 3 of the pdf for the 4th quarter GDP report, where we find that the annualized real PCE for the 4th quarter was represented by 16,278.5 billion in chained 2017 dollars)….when we compare January’s real PCE representation of 16,283.6 billion to the 4th quarter real PCE figure of 16,278.5 billion, we find that real PCE is growing at a 0.125% annual rate so far in the 1st quarter….that’s a rate that suggests that even if January’s real PCE does not improve during February and March, growth in PCE would still add 0.09 percentage points to the growth rate of 1st quarter GDP…

January Durable Goods: New Orders Rose 3.1%, Shipments Rose 0.4%, Inventories Rose 0.1%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for January (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose for the first time in three months, increasing by $8.7 billion or 3.1 percent to $286.0 billion in January, after the value of December’s new orders was revised from the $276.1 billion reported last month to $277.3 billion, now indicated to be 1.8% less than November’s new orders, revised from the 2.2% decrease previously reported….

The volatile monthly new orders for transportation equipment drove the January new orders increase, as new transportation equipment orders rose $8.6 billion or 9.8 percent to $96.5 billion, on a 93.9% increase to $20,278 million in the value of new orders for commercial aircraft, even as the value of new orders for motor vehicles and parts fell 2.5% to $59,126 million…. excluding orders for transportation equipment, other new orders were virtually unchanged, while excluding just new orders for defense equipment, new orders rose 3.5%….at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose 0.8% to $75,139 million…

Meanwhile, the seasonally adjusted value of January shipments of durable goods, which will be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased in value by $1.3 billion or 0.4 percent to $288.2 billion, the second consecutive increase, after the value of December shipments was revised from from $287.4 billion to $286.9 billion, now up 0.8% from November….an increase in the value of shipments of transportation equipment led the January shipments increase, as they rose $1.2 billion or 1.3 percent to $94.5 billion, due to a 18.3% increase in shipments of commercial aircraft….excluding shipments of transportation equipment, other shipments were virtually unchanged, while the value of shipments of nondefense capital goods less aircraft fell 0.3% to $74,772 million, after the value of December’s shipments of capital goods was revised from $74,534 million to $74,191 million, now 0.3% higher than in November…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the third consecutive month, increasing by $0.5 billion or 0.1 percent to $533.1 billion, after the value of  December’s inventories was revised from $533.0 billion to $532,651 billion, still up 0.4% from November….higher valued inventories of transportation equipment led the January increase, rising $0.3 billion or 0.2 percent to $174.9 billion, while the value of inventories other than transportation equipment was statistically 0.1% higher at $358.255 billion…

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but quite volatile monthly new orders, rose for the sixth of the last seven months, increasing by $2.7 billion or 0.2 percent to $1,400.6 billion…that increase followed a 0.3% decrease to $1,397,941 million in December, which was previously reported as a 0.5% decrease to $1,396.2 billion…a $2.1 billion or 0.2 percent increase to $902.3 billion in the value of unfilled orders for transportation equipment led the January unfilled orders increase, while the value of unfilled orders other than those for transportation equipment orders was 0.1% higher at $358,255 million…the unfilled order book for durable goods is still 0.8% above the level of last January, with unfilled orders for transportation equipment 0.9% above their year ago level, led by a 0.9% increase in the backlog of orders for commercial aircraft…

NB: for those who are interested in seeing graphs relating to this release, FRED at the St Louis Fed offers graphs of 445 different durable goods data sets…to change what is displayed on any graph, (ie, dollars, percent, etc) click the edit button and then click the edit line 1 tab and make your selection from the units menu…to change the displayed line graph into a bar graph, click the edit button and then click the format tab…

New Home Sales Reported Lower in January After Prior 3 Months Revised Higher

The Census report on New Residential Sales for January (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 657,000 homes annually in January, which was 10.5 percent (±19.9 percent)* below the revised December annual sales rate of 734,000, and 1.1 percent (±15.3 percent)* below the estimated 664,000 annual rate that new single family homes were selling at in January of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether January new home sales rose or fell from those of December, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….with this report; sales of new single family homes in December were revised from the annual rate of 698,000 reported a month ago to an annual rate of 734,000, while new home sales in November, initially reported at an annual rate of 664,000 and revised up to a 674,000 rate with the last report, were revised up to a 679,000 a year rate with this report, and while October’s new home sales rate, initially reported at an annual rate of 610,000 and revised from a 627,000 to a 615,000 a year rate last month, were revised to a 623,000 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 56,000 new single family homes sold in January, unchanged from the estimated 56,000 new homes that sold in December, but up from the 46,000 that sold in November….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in January was $446,300, up from the median sale price of $415,000 in December and up from the median sales price of $430,400 in January a year ago, while the average January new home sales price was at $510,000, up slightly from the $509,700 average sales price in December, but down 3.4% from the average sales price of $527,800 in January a year ago….a seasonally adjusted estimate of 495,000 new single family houses remained for sale at the end of January, which represents a 9.0 month supply at the January sales rate, up from the revised 8.0 months of new home supply in December, which had been reported at an 8.5 month supply before sales were revised higher….for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales Decrease to 657,000 Annual Rate in January and Newsletter: New Home Sales Decrease to 657,000 Annual Rate in January, which in turn links to his real estate newsletter post on 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…)