3rd estimate 4th quarter GDP; February’s income and outlays, durable goods, and new home sales

The key reports released​ last week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis….in addition, the week also saw the advance report on durable goods for February and the February report on new home sales, both from the Census bureau, and the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which rose to +0.15 in February from +0.07 in January..…with that February increase, the more widely watched 3 month average of the CFNAI increased to increased to +0.16 in February from +0.08 in January, which indicates that national economic activity has been above the historical trend over the winter months, as would any positive reading…

th​e week also saw the results of two more regional Fed manufacturing surveys for March…the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell from +6 in February to −11 in March, indicating that a significant plurality of that region’s manufactures saw deteriorating conditions in March, after seeing improvement a month earlier….meanwhile, the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index came in at -2 in March, up from -5 in both February and January, indicating that a smaller plurality of that region’s manufactures saw deteriorating conditions than in the earlier months…

4th Quarter GDP Grew at a 2.4% Rate, Revised from 2.3%, as Net Exports and Fixed investment were Revised Higher

The Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our output of goods and services grew at a 2.4% rate ​durung the quarter, revised from the 2.3% growth rate reported in the second estimate last month, as upward revisions to net exports, to fixed investment, and to government more than offset downward revisions to inventories and ​to personal consumption expenditures for services …in current dollars, our fourth quarter GDP grew at a 4.84% annual rate, increasing from what would work out to be a $29,374.9 billion a year rate in the 3rd quarter to a $29,723.9 annual rate in the 4th quarter, with the headline 2.4% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 2.3%, 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…that composite GDP deflator was revised from the 2.4% rate reported in the second estimate, and hence underpinned the upward reversion to the growth of 4th quarter GDP…

Remember that the GDP press release 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 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….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 4th quarter GDP, which can be accessed directly on the BEA’s GDP landing page, ​which also includes links to the tables on Excel and other technical notes about this release…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; and table 4, which shows the change in the price indexes for each of the components…the pdf for the 4th quarter second estimate, which this estimate revises, is here…

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the growth rate of 4.2% reported a month ago to an overall 4.0% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating components of the 6.51% growth rate in the dollar amount of consumer spending with components of the PCE price index, which indicated inflation of goods and services bought by individuals increased at a 2.4% annual rate in the 4th quarter, which was unrevised from the PCE inflation rate reported a month ago….

Real consumption of durable goods grew at a 12.4% annual rate, revised from the 12.1% growth rate shown in the​ 2nd estimate, and added 0.87 percentage points to GDP, as real consumption of motor vehicles and parts grew at a 19.7% rate and accounted for more than 40% of the durable goods growth….at the same time, real consumption of nondurable goods by individuals grew at a 3.1% annual rate, revised from the 3.0% growth rate reported in the 2nd estimate, and added 0.42 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…..meanwhile, consumption of services grew at a 3.0% annual rate, revised from the 3.3% growth rate reported last month, and added 1.41 percentage points to the final GDP tally, as real health care services grew at a 4.7​% rate and accounted for more than 40% the 4th quarter services growth…

Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 5.6% annual rate in the 4th quarter, revised up from the 5.7% contraction ​rate esti​mated last month, as real private fixed investment shrunk at a 1.1% rate, revised up from the 1.4% contraction rate reported in the second estimate, while inventory growth shrunk more than was previously estimated… Real investment in non-residential structures are now shown to have grown at a 2.9% rate, revised up from the 1.1% growth rate previously reported, while real investment in equipment shrunk at 8.7% rate, revised up from the 9.0% contraction rate shown a month ago…meanwhile, the quarter’s investment in intellectual property products was revised ​d​own from a 0% growth rate to shrinking at a 0.5% rate, while at the same time real residential investment was shown to be growing at a 5.5% annual rate, up a bit from the 5.4% growth rate shown in the previous report….after those revisions, the increase in investment in non-residential structures added 0.09 percentage points to the 4th quarter’s growth rate, while the decrease in investment in equipment subtracted 0.47 percentage points from the quarter’s growth rate, and the decrease in investment in intellectual property subtracted 0.03 percentage points from the growth rate of 4th quarter GDP, while the increase in residential investment added 0.22 percentage points to the growth rate 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 previously reported $10.2 billion in inflation adjusted growth to show that inventories grew at an inflation adjusted $8.9 billion rate…since that came after inventories had grown at an inflation adjusted $57.9 billion rate in the 3rd quarter, the change in real inventory growth from the 3rd to the 4th quarter was revised from a rounded $47.6 billion negative change, which had subtracted 0.81 percentage points from the 4th quarter’s growth rate, to an $49.0 billion negative change, which subtracted 0.84 percentage points from the 4th quarter’s growth rate…. however, since lower 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 $49.0 billion rate indicates that real final sales of GDP were actually greater by that amount, and hence real final sales of GDP grew at a 3.3% rate in the 4th quarter, revised from the real final sales 3.2% growth rate shown in the second estimate, and matching the real final sales growth rate of 3.3% in the 3rd quarter, when decreased inventory growth was less of a factor ​in  the quarter’s 3.1% GDP growth rate…

The previously reported decrease in real exports was revised lower with this estimate, while the previously reported decrease in real imports was greater than previously reported, and as a result our net trade improvement was a greater addition to GDP growth than previously reported…our real exports shrunk at a 0.2% rate, revised up from the 0.5% contraction rate reported in the second 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 and hence not captured by another GDP metric, that decrease in 4th quarter exports subtracted 0.01 percentage points from the 4th quarter’s GDP growth rate, revised from the 0.05 percentage point subtraction from GDP due to lower exports shown in the 2nd estimate….meanwhile, the previously reported 1.2% decrease in our real imports was revised to a 1.9% decrease, 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 domestically, their decrease conversely added ​a rounded​ 0.27 percentage points to 4th quarter GDP, revised from the rounded​​ 0.17 percentage point addition shown last month… thus, our improving trade imbalance added a net 0.26 percentage points to 4th quarter GDP, revised from the​ rounded 0.12 percentage point addition that had been indicated by the second estimate..

Finally, there was also an upward revision to government consumption and investment in this 3rd estimate, as the overall government sector grew at a 3.1% rate, revised from the 2.9% growth rate show a month ago….real federal government consumption and investment was seen to have grown at a 4.0% rate from the 4th quarter in this estimate, unchanged from the 4.0% growth rate reported in the advance estimate, as real federal outlays for defense grew at a 4.8% rate, revised from the 4.7% growth rate shown previously, and added 0.18 percentage points to 4th quarter GDP, while all other federal consumption and investment grew at a 2.9% rate, statistically ​unrevised from the 2.9% growth rate shown previously, and added 0.08 more percentage points to 4th quarter GDP growth….meanwhile, overall real state and local consumption and investment was revised from growing at a 2.2% rate in the second estimate to growing at a 2.5% rate in this estimate, as state and local investment spending grew at a 4.3% rate and added 0.09 percentage points to 4th quarter GDP, while state and local consumption spending grew at a 2.1% rate and added 0.18 percentage points to GDP….note that government outlays for social insurance are not included in this government GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating there had been an increase in the output of those goods or services…

Personal Income Rose 0.8% in February, Personal Spending Rose 0.4%, Savings Rate rose to 4.6%, PCE Price Index Rose 0.3%

The February report on Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 1st quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and 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….this report also provides us with the nation’s personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds into GDP and other national accounts data, the change reported for each of those metrics are not the current monthly change; rather, they’re seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase in a year if February’s adjusted income and spending were extrapolated over an entire year….

Hence, when the opening line of the press release for this report tell us “Personal income increased $194.7 billion (0.8 percent at a monthly rate) in February“, they mean that the annualized figure for US personal income in February, $25,441.5 billion, was a rounded $194.7 billion, or nearly 0.8% greater than the annualized personal income figure of $25,246.8 for January; the actual change in personal income from January to February​, which is on  the order of one-twelfth of that, is not provided…similarly, annualized disposable personal income, which is income after taxes, rose by nearly 0.9%, from an annual rate of $22,108.9 billion in January to an annual rate of $22,300.5 billion in February…the components of the monthly increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures…in February, the main contributors to the net $194.7 billion annualized increase in personal income were a $55.8 billion annual rate of increase in income from wages and salaries, an $81.7 billion annualized increase in government social benefits to individuals, and a $15.2 billion annualized increase in interest and dividend income…

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, the BEA reports that they increased at a $87.8 billion annual rate, or by more than 0.4 percent, rising from an annual rate of $20,351.5 billion in January to an annual rate of $20,439.3 in February, after the January PCE rate was revised up from the originally reported $20,381.8 billion annually…the current dollar increase in February spending resulted from a $31.5 billion annualized increase to $14,061.5 billion in annualized​ in spending for services, and a $56.3 billion increase to $6,377.8 billion in spending for goods….total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $118.4 billion to $21,280.7 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,019.8 billion annual rate in February, up from the revised $946.5 billion in annualized personal savings in January… as a result, the personal savings rate, which is personal savings as a percentage of disposable personal income, rose to 4.6% in February​, up from January’s savings rate of 4.3%, and was the highest personal savings rate since June…

Before personal consumption expenditures are used in the 1st quarter GDP computation, they are 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 2017 prices = 100, ​the history of which is included in Table 5 in the pdf for this report….that PCE price index rose from 125.189 in January to 125.600 in February, a month over month inflation rate that’s statistically 0.3283%, which BEA reports as an increase of 0.3 percent, following the smaller PCE price index increase of 0.3% that they reported for January…then, applying that 0.328304% inflation adjustment to the nominal increase in February PCE shows that real PCE rose by 0.10278% in February, which the BEA reports as a 0.1% increase…notice 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 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 February’s chained dollar consumption total works out to 16,274.2 billion annually in 2017 dollars, 0.1021% more than January’s 16,257.6 billion, or a change that’s statistically equivalent to the real PCE increase we just computed from the index values…

Finally, to estimate the impact of the change in PCE on the change in GDP, we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter….while this report shows PCE for all those months on a monthly basis, the BEA also provides the annualized chained dollar PCE on a quarterly basis in table 3 of the pdf for the 4th quarter GDP report, where we find that annualized real PCE for the 3 months of the 4th quarter was represented by 16,273.2 billion in chained 2017 dollars…then, by averaging the annualized chained 2017 dollar PCE figures for January and February, 16,257.6 billion and 16,274.2 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have the data for so far….when we compare that 1st quarter 2017 dollar PCE average of 16,265.9 to the 4th quarter chained dollar PCE of 16,273.2, we find that 1st quarter real PCE has shrunk at a 0.179% annual rate for the two months of the 1st quarter that are included in this report (note the math to get that annual rate: (((16,257.6 +16,274.2)/2) / 16,273.2) ^ 4 = 0.998206846.…2 months contraction at that rate means that if March real PCE does not improve from the average of January and February, the contraction in real PCE would subtract about 0.12 percentage points from the growth rate of the 1st quarter…

February Durable Goods: New Orders Up 0.9%, Shipments Up 1.2%, Inventories Up 0.1%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $2.7 billion or 0.9 percent to $289.3 billion in February, the third increase in seven months, after the value of January’s new orders was revised from the $286.0 billion reported last month to $286.6 billion, now a 3.3% increase from December’s new orders, revised from the 3.1% increase reported a month ago…with January’s big increase, year to date new orders are now 2.3% higher than those of the first two months of 2022…

The volatile monthly new orders for transportation equipment accounted for more than half of February’s new orders increase, with the value of new transportation equipment orders rising $1.4 billion or 1.5 percent to $98.3 billion, on an 4.0% increase to $61,912 million in the value of new orders for motor vehicles and parts, and a 9.3% increase to $6,349 million in the value of new orders for defense aircraft, even as the value of new orders for commercial aircraft fell 5.0% to $19,164 million…excluding orders for transportation equipment, the value of other new orders was still 0.7% higher, while excluding just new orders for defense equipment, new orders rose 0.8%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were down by $205 million or 0.3% to $74,986 million…

Over the same period, the seasonally adjusted value of February’s shipments of durable goods, which will ultimately be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, rose for the third straight month, increasing by $3.4 billion or 1.2 percent to $292.3 billion, after the value of January’s shipments was revised from $288.2 billion to $288.9 billion, now up 0.7% from December, rather than the 0.4% increase reported a month ago….higher shipments of transportation equipment drove the February shipments increase, rising by $1.9 billion or 2.0 percent to $96.6 billion, on a 3.9% increase in the value of shipments of motor vehicles and parts, and a 2.0% increase in the value of shipments of defense aircraft….at the same time, the value of shipments of nondefense capital goods less aircraft rose by 0.9% to $74,689 million, after January’s capital goods shipments were revised up from $73,967 million to $74,020 million, now a 0.2% decrease from December…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $0.4 billion or 0.1 percent to $533.2 billion, the fourth consecutive increase, after the value of January inventories was revised from $533.1 billion to $532.755 billion, now a statistically insignificant increase from December….the value of inventories of transportation equipment drove the increase, rising $0.3 billion or 0.2 percent to $175.2 billion, on 1.0% higher inventories of motor vehicles and parts..

Finally, the value of unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but ​t​ypically very volatile new orders, rose for the seventh time in 8 months, increasing by $1.9 billion or 0.1 percent to $1,402.4 billion, following a 0.2% January increase to $1,400.5 billion, which was revised from the previously reported 0.2% increase to $1,400.6 billion….a $1.7 billion or a 0.2 percent increase to $904.2 billion in unfilled orders for transportation equipment was the reason for the February increase, while unfilled orders excluding transportation equipment orders were up slightly to $498.2 billion…the unfilled order book for durable goods is now 0.9% above the level of last February, with unfilled orders for transportation equipment 1.0% above their year ago level, mostly due to a 4.4% increase in the backlog of orders for defense aircraft…

February New Home Sales Little Changed, Average Sales Price 4.4% Lower than Last February

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 676,000 home sales per year during the month, which was 1.8 percent (±18.6 percent)* above the revised January annual sales rate of 664,000 new home sales, and was 5.1 percent (±13.9 percent)* above the estimated annual rate that new homes were selling at in February of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether February’s new home sales rose or fell from January, or even from February of last year, with the figures in parenthesis representing the 90% confidence range for the 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 January were revised from the annual rate of 657,000 reported last month to an annual rate of 664,000, while new home sales in December, initially reported at an annual rate of 698,000 and revised up to a 734,000 annual rate last month, were revised back to a 713,000 a year rate with this report, and November’s annualized new home sales rate, initially reported at an annual rate of 664,000 and revised from a 674,000 rate to a 679,000 a year rate last month, were revised to a 676,000 annual 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 59,000 new single family homes sold in February, up from the estimated 57,000 new homes that sold in January and up from the 54,000 that sold in December, and also up from the 58,000 new homes sold in February a year ago…the raw figures from Census field agents further estimated that the median sales price of new houses sold in February was $414,500, down 3.0% from the median sale price of $427,400 in January, and down from the median sales price of $420,900 in February a year ago, while the average February new home sales price was $487,100, down 4.1% from the $507,900 average sales price in January, and down 4.4% from the average sales price of $509,700 in February a year ago….a seasonally adjusted estimate of 463,000 new single family houses remained for sale at the end of February, which represents a 8.4 month supply at the February sales rate, up from the revised 8.3 months months of new home supply in January….for graphs and additional commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales Increase to 676,000 Annual Rate in February and Newsletter: New Home Sales Increase to 676,000 Annual Rate in February, which in turn links to his in-depth real estate newsletter article 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…)