1st Quarter GDP; March’s income and outlays, durable goods, and housing starts

The key economic releases from government agencies during 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 Residential Construction, both from the Census bureau…

Major privately issued reports released during the week included the February Case-Shiller Home Price Index from S&P Case-Shiller, which indicated that their index of the relative average of December, January and February home prices was 0.7% higher than their index of average prices for the same homes that sold during the same 3 month period of a year earlier; the light vehicle sales report for April from Wards Automotive, which estimated that vehicles sold at a 16.4 million annual rate in April, up from the 16.3 million sales rate in March, but down from the 17.27 million annual sales rate reported for April a year ago, and the widely followed manufacturing purchasing manager’s survey from the Institute for Supply Management (ISM): the April 2023 Manufacturing Report On Business, which indicated that the manufacturing PMI (Purchasing Managers Index) remained at 52.7% in April, unchanged from March, which means that a small plurality of purchasing manufacturing managers continued to see improving manufacturing metrics during the month…

The week also saw the release of the last two regional Fed manufacturing surveys for April: the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas, western Louisiana and eastern New Mexico, reported their general business activity composite index fell to –2.3 in April, down from -0.2 in March, indicating that a small plurality of Texas manufacturers reported deteriorating business conditions during April, while the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to +3 in April from 0 in March, indicating that a small plurality of that region’s manufacturers were seeing improving conditions from a month ago, when outlooks were evenly divided between those who saw improvement and those who saw deterioration..

1st Quarter GDP Grew at a 2.0% Rate on Increased Personal Services, Fixed Investment, etal

Our economy grew at a 2.0% rate in the 1st quarter, somewhat stronger than during the fourth quarter, as growth in personal consumption of services, fixed investment, inventories, imports and government were partly offset by the negative impact of much 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 2.0% annual rate from the output of the 4th quarter of 2020, when our real output grew at a 0.5% real rate…in current dollars, our first quarter GDP grew at a 5.64% annual rate, increasing from what would work out to be a $31,422.5 billion a year output rate in the 4th quarter of last year to a $31,856.3 billion annual rate in the 1st quarter of this year, with the headline 2.0% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 3.6%, 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 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 an annualized $4.1 billion decrease in exports of services, an annualized $21.2 billion decrease in imports of services, a $6.4 billion decrease in residential construction, a $3.5 billion decrease in non-residential construction, a $0.3 billion decrease in public construction, and a $4.5 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….

Our personal consumption expenditures (PCE), which are used to compute almost 70% of GDP, grew at a 6.13% annual rate in current dollars in the 1st quarter, which worked out to represent a rounded real growth rate of 1.6% of consumed goods and services after an annualized PCE price index increase averaging 4.5% was used to adjust that personal spending for changes in prices….consumer spending on durable goods grew at a 6.64% rate in current dollars, while prices of those durable goods were on average a rounded 6.7% higher, and from that the BEA figured that the output of consumer durables was statistically unchanged, as a decrease in real consumption of recreational goods and vehicles offset growth in consumption of motor vehicles and parts, furnishings, durable household equipment, and other durable goods….at the same time, the BEA found that the real output of consumer non-durable goods fell at an 0.2% rate in the first quarter, after an annualized 4.5% increase in consumer spending for non-durable goods was adjusted for an average increase in non-durable prices at a 4.7% rate, as modest decreases in real consumption of food and beverages and clothing and footwear offset growth in consumption of gasoline and other energy goods and “other” nondurable goods …meanwhile, a 6.54% nominal dollar growth in consumer outlays for services was deflated by a 4.1% increase in prices for services to show that real output of consumer services grew at 2.4% annual rate, as real growth of health care at a 8.3% rate accounted for almost 55% of the quarter’s growth in services….as a result of those changes in growth from the 4th to the 1st quarter, the net flat output of durable goods had no noticeable impact on 1st quarter GDP, while the decreased real consumption of non-durable goods subtracted 0.03 percentage points from the growth of GDP, while increased consumption of services added 1.11 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 2.2% annual rate in the 4th quarter of 2025, grew at a 8.7% annual rate from there in the 1st quarter, as real fixed investment grew at an 6.2% annual rate in the 1st quarter, after growing at a 1.5% rate in the 4th quarter, and as inventories also saw positive growth…among fixed investments, real non-residential fixed investment grew at a 10.4% rate, even as real investment in non-residential structures shrunk at a 6.7% rate and subtracted 0.19 percentage points from 1st quarter GDP growth, as real investment in equipment grew at 17.2% rate and added 0.88 percentage points to 1st quarter GDP, and real investment in intellectual property grew at 13.0% rate and added 0.70 percentage points to GDP….at the same time, real residential investment shrunk at a 8.0% rate and subtracted 0.31 percentage points from 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 modest positive change in the change of real inventories increased overall gross investment and hence GDP, as real private inventories shrunk by an inflation adjusted $7.5 billion over the quarter, after shrinking at an inflation adjusted $15.6 billion over the 4th quarter…as a result, the $8.1 billion positive change in real inventory growth added 0.40 percentage points to the 1st quarter’s growth rate, after a $8.3 billion positive change in real inventory growth in the 4th quarter had added 0.14 percentage points to that quarter’s GDP….however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $8.1 billion increase in their growth conversely means real final sales of GDP were lower by that amount, and hence real final sales of GDP rose at a 1.6% rate in the 1st quarter, compared to the real final sales growth rate of 0.3% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was less 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 big subtraction from GDP…Our real exports of goods and services rose at a 12.9% rate in the first quarter, after falling at a 3.2% rate in the 4th quarter, while our real imports, which are ~50% larger, rose at a 21.4% rate in the 1st quarter, after falling at a 1.0% 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 1.32 percentage points to 1st quarter GDP, after the 4th quarter decrease in exports had subtracted a rounded 0.35 percentage points from fourth quarter GDP. On the other hand, since imports subtract from GDP, their increase at a 21.4% rate subtracted 2.62 percentage points from first quarter GDP, after the 4th quarter import decrease had added 0.13 percentage points to that quarter’s growth.. Hence, our deteriorating trade imbalance subtracted a net of 1.30 percentage points from 1st quarter GDP, after our weak trade deficit had subtracted 0.22 percentage points from GDP in the fourth quarter…

Finally, the total of real consumption and investment by all branches of government increased at a 4.4% annual rate in the 1st quarter, after decreasing at a 5.6% rate in the 4th quarter, as federal government consumption and investment grew at a 9.3% rate, after shrinking at a 16.6% rate in the fourth quarter, while state and local consumption and investment grew at a 1.6% rate, after growing at a 1.5% rate in the fourth quarter.  Inflation adjusted federal spending for defense grew at a 2.3% rate and added 0.08 percentage points to the 1st quarter’s GDP growth, while real non-defense federal consumption and investment grew at a 20.3% rate and added 0.48 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 1.6% annual rate and added 0.17 percentage points to the growth of 1st quarter GDP, as a real increase in state and local investment at a 7.5% annual rate added 0.05 percentage points to the state and local contribution to GDP…

March Personal Income Rose 0.6%, Personal Spending Rose 0.9%, PCE Price Index Rose 0.7%, Savings Rate at 41 Month Low

Thursday’s release of the March Income and Outlays report from the Bureau of Economic Analysis was concurrent with the GDP release on the same day, 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 $149.2 billion (0.6 percent at a monthly rate) in March“, it means that the annualized figure for all types of personal income in March, $26,844.5 billion, was $149.2 billion, or almost 0.6% more than the seasonally adjusted annualized personal income figure of $26,695.3 billion for February; the actual increase in personal income from February to March, roughly one-twelfth of those figures, is not given….similarly, disposable personal income, which is income after taxes, rose by almost 0.6%, from an annual rate of $23,459.3 billion in February to an annual rate of $23,601.9 billion in March…the monthly contributors to the change in personal income, which can be seen in NIPA Table 2.6 for this release, are also annualized….the main contributors to the $149.2 billion annualized increase in personal income in March were a $56.1 billion annual rate of increase in income from wages and salaries, a $60.2 billion annualized increase in farm proprietors’ income, and a $17.4 billion annualized increase in interest and dividend income…

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 $195.4 billion annual rate to a $ 21,860.5 billion pace of consumer spending annually, roughly 0.9% above that of February’s rate, after February’s PCE rate was revised from the previously reported annual rate of $21,615.1 billion to $21,665.1 billion, a revision which was also included in the GDP report….total personal outlays for March, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $198.5 billion to $ 22,744.5 billion, which left personal savings, which is disposable personal income less total outlays, at a $857.3 billion annual rate in March, down from the revised $913.4 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 3.6%, down from a revised 3.9% savings rate in February, and the lowest personal savings rate since October 2022…

While our personal consumption expenditures were used to represent 69.2% 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 NIPA Table 2.8.4., we find that that price index rose to 130.344 in March from 129.484 in February, giving us month a over month inflation rate of 0.6641747% in March, which the BEA reports as an 0.7% PCE price index increase in their tables….at the same time, NIPA Table 2.8.11 gives us a year over year PCE price index increase of 3.5% in March, up from 2.8% in February, and a core PCE price index increase, excluding food and energy, of 3.2% for the past year, both well above the Fed’s 2.0% inflation target….applying the March inflation adjustment to the change in March PCE shows that real PCE was up 0.236168% in March, which BEA reports as a 0.2% increase in their press release and in the tables, following a February real PCE increase reported at 0.3%…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 NIPA Table 2.8.6., where the monthly figures given are identical to the quarterly figures shown in NIPA Table 1.1.6 from 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 0.8%, Shipments up 0.7%;  Inventories up 0.2%

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 $2.6 billion or 0.8 percent to $318.9 billion in March, the first increase in four months, coming after February’s new orders were revised from the $315.5 billion reported last month to $316.2 billion, now down 1.2% from January’s new orders, revised from the originally reported 1.4% decrease….even with the recent weakness, year to date new orders are still up by 6.1% from those of 2025…

New orders for computers and electronic products led the new orders increase in March, rising $1.0 billion or 3.7 percent to $29.6 billion, while new orders for transportation equipment rose $0.8 billion or 0.8 percent to $106.7 billion, on a 16.9% increase to $6,019 million in the value of new orders for defense aircraft and a 1.2% increase to $72,101 million the value of new orders for motor vehicles and parts.…excluding orders for transportation equipment, the value of other new orders rose 0.9%, while excluding just new orders for defense equipment, new orders fell 0.3%…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 3.3% to $82,896 million…

Meanwhile, the seasonally adjusted value of March shipments of durable goods, which will be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, rose for the sixth time in the last seven months, increasing by $2.2 billion or 0.7 percent to $322.2 billion, after the value of February shipments was revised from $319.2 billion to $320.0 billion, and is now up 1.6% from January…..higher shipments of machinery led the March shipments increase, rising by $1.0 billion or 2.3 percent to $41.6 billion, while shipments of transportation equipment rose by $652 million or by 0.6 percent to $106,845 million, on a 1.2% increase to $72,112 million in the value of shipments of motor vehicles and parts….meanwhile, the value of shipments of nondefense capital goods less aircraft rose 1.2% to $80,765 million, after the value of February’s capital goods shipments was revised up from $79,449 million to $79,797 million, now a 1.3% increase from January…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major contributor to GDP, increased by $1.4 billion or 0.2 percent to $596.9 billion, the sixth consecutive increase, after the value of end of February inventories was revised from $595.7 billion to $595.5 billion, still a 0.1% increase from January….a higher value for inventories of transportation equipment, which were up $0.7 billion or 0.3 percent to $189.0 billion, led the increase, while inventories of primary metals were up $542 million, or 1.1% at $49,851 million….

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often volatile new orders, rose for the twentieth time in the past twenty-one months, increasing by $1.7 billion or 0.1 percent to $1,540.9 billion, following a 0.1% or $1.2 billion increase to $1,539,3 billion in February, which was revised from the $1.3 billion or 0.1% increase to $1,539.3 billion reported a month ago….a $1.3 billion or 0.9 percent increase to $152.8 billion in unfilled orders for computers and electronic products led the increase, while unfilled orders for transportation equipment were down $126 million to $969,033 million….the unfilled order book for durable goods is now 9.4% above the level of last March, with unfilled orders for transportation equipment now 13.9% above their year ago level, largely due to a 17.2% increase in the backlog of orders for commercial aircraft…

Housing Starts Reported 10.8% Higher in March; Building Permits 10.8% Lower

Note: This week's report on new housing construction for March also incorporates previously unpublished February figures, as the Census Bureau is still trying to catch up several reports the wake of the October government shutdown disruptions to data collection. We’ll include those new February figures here to the extent that we can do so coherently.

The March report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,324,000 in March, which was 10.8 percent (±16.3 percent)* above the estimated annual rate of 1,356,000 starts in February, and 10.8 percent (±15.3 percent)* above last March’s annual rate of 1,355,000 starts….the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell from February, or even from a year ago, with the figures in parenthesis representing the most likely range of the change indicated. In other words, March housing starts could have been down by 5.5% from those of February, or up by as much as 27.1%, with revisions of a greater magnitude in either direction also still possible…in this report, the annual rate for January housing starts was revised from the 1,487,000 reported last month to 1,398,000, while December’s starts, which were first reported at a 1,404,000 annual rate, were revised from last month’s initial revised figure of 1,387,000 to a 1,373,000 annual rate with this report….

These annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 126,300 housing units were started in March, up from the 98,500 units that were started in February, and up from the 97,600 units that were started in January….of those housing units started in March, an estimated 88,900 were single family homes and 35,400 were units in structures with more than 5 units, up from the revised 66,900 single family starts in February and up from the 31,000 units started in structures with more than 5 units in February…

The monthly data on new building permits, with a smaller margin of error, are usually a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in March, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,372,000, which was 10.8 percent below the February rate of 1,538,000 permits, and was 7.4 percent below the rate of building permit issuance in March a year earlier…the annual rate for housing permits issued in January was revised up from the originally reported 1,376,000 to 1,386,000…

Again, these annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 122,400 housing units were issued in March, up from the estimate of 113,700 new permits issued in February…of those permits issued in March, 82,000 were permits for single family homes and 36,200 were permits for units in structures of more than 5 units, up from the 69,800 single family permits issued in February, but down from the February’s 40,400 permits for units in structures of more than 5 units…

(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 chosen from the aforementioned GGO posts, contact me…)