2nd estimate of 1st Quarter GDP; April’s income and outlays, durable goods, & new home sales

The key economic reports released last week were the second estimate of 1st quarter GDP and the April report on Personal Income and Spending, both from the Bureau of Economic Analysis, and the April advance report on durable goods and the April report on new home sales, both from the Census bureau….This week also saw the release of the widely watched March Case-Shiller Home Price Index from S&P Case-Shiller, an index which is computed from the relative average of January, February & March home sales prices as compared to home sales prices of the same homes when they sold during previous 3 month periods; the Case Shiller index indicated that home prices nationally for those 3 months averaged 0.7% higher than prices for the same homes that sold during the same 3 month period a year earlier, down from the 0.8% year over year increase they reported for their February national index, covering home prices for December, January and February…

In addition, the last two regional Fed manufacturing surveys for May were also released last week: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported that their broadest composite index increased increased to +13 in May from +3 in April, indicating that a considerably larger plurality of Fifth District manufacturing firms reporting improving business conditions in May than did in April; while the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas, western Louisiana and eastern New Mexico, reported their general business activity composite index rose from –2.3 in April in April to +0.4 in May, with the near-zero reading indicating almost no change in activity from April, when a small plurality of Texas businesses had reported worsening business metrics than in March..

1st Quarter GDP Revised to Show Our Economy Grew at a 1.6% Rate

The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 1.6% rate in the 1st quarter, revised from the 2.0% growth rate reported in the advance estimate last month, as maj0r downward revisions to growth of real personal consumption expenditures for services, and to growth of inventories, more than offset smaller upward revisions to growth of real personal consumption expenditures for goods, to growth of fixed investment, to growth of exports, and a downward revision cogrowth of imports, which is a positive for GDP ….in current dollars, our first quarter GDP grew at a 5.15% 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 $31,819.5 billion annual rate in the 1st quarter of this year, with the headline 1.6% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 3.5%, 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…a downward revision of that GDP deflator from the 3.6% reported last month boosted GDP by 0.1%…

As we review this month’s revisions, 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 from one 3 month period to the next, 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 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 National Income and Product Accounts Data Tables…

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 1.6% growth rate reported last month to indicate real PCE grew at a 1.4% rate with this estimate…that real growth rate figure is the result of deflating the 6.02% growth rate in the dollar amount of consumer spending with the PCE price indices, which in aggregate indicated consumer goods and services inflation grew at a 4.5% annual rate in the 1st quarter, which was unrevised from the PCE inflation rate published a month ago….real consumption of durable goods grew at a 0.4% annual rate, which was revised from the unchanged growth rate shown in the advance report, and added 0.03 percentage points to GDP, as a decrease in real consumption of recreational goods and vehicles at a 7.5% rate was more than offset by increased consumption of motor vehicles and parts, furnishings, durable household equipment, and other durable goods….at the same time, real consumption of nondurable goods by individuals grew at a 0.5% annual rate, revised from the 0.2% nondurables contraction figure shown in the 1st estimate, and added 0.06 percentage points to the 1st quarter’s economic growth, as increases in real consumption of clothing and footwear, gasoline and other energy goods, and “other” nondurable goods offset a small drop in real consumption of food and beverages….….meanwhile, consumption of services rose at a 1.8% annual rate, revised from the 2.4% growth rate reported last month, and added 0.86 percentage points to the final GDP tally, as growth of real consumption expenditures of nonprofit institutions serving households accounted for about half of the quarter’s growth in services….

At the same time, seasonally adjusted real gross private domestic investment grew at a 7.0% annual rate in the 1st quarter, revised from the 8.7% growth rate estimate reported last month, as real private fixed investment grew at a 6.4% rate, rather than at the 6.2% rate reported in the advance estimate, while the positive change in private inventories was considerably less than had been previously estimated….real investment in non-residential structures was revised from shrinking at a 6.7% rate to shrinking at a 5.4% rate, while real investment in equipment grew at a 17.2% rate, statistically unrevised from the growth rate previously reported…at the same time, the first quarter’s investment in intellectual property products was revised from real growth at a 13.0% rate to real growth at a 11.6% rate, while the change in real residential investment was revised from shrinking at a 8.0% annual rate to shrinking at a 6.2% rate….after those revisions, the decrease in investment in non-residential structures subtracted 0.15 percentage points from the 1st quarter’s growth rate, while the increase in investment in equipment added 0.88 percentage points to the quarter’s growth rate, and growth in investment in intellectual property added 0.63 percentage points to the growth rate of 1st quarter GDP, while the drop in residential investment subtracted 0.24 percentage points from 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, the change in real private inventories was revised from the originally reported $19.4 billion inflation adjusted contraction to show that inventories contracted at an inflation adjusted $40.2 billion rate…since that came after inventories had contracted at an inflation adjusted $46.2 billion rate in the 4th quarter, the change in real inventory growth from the 4th quarter to the first quarter was revised from a rounded $26.8 billion positive change to a $6.0 billion positive change, which thus added 0.08 percentage points to the 4th quarter’s growth rate, revised from the 0.40 percentage point addition to GDP from positive inventory growth reported in the advance estimate….however, since a positive change in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $6.0 billion increase in their growth conversely means real final sales of GDP were actually smaller by that amount, and therefore the BEA found that real final sales of GDP grew at a 1.5% rate in the 1st quarter, revised from the 1.4% real final sales growth rate shown in the advance estimate, while they still were greater 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…

The previously reported increase in real exports was revised higher with this estimate, while the previously reported increase in real imports was revised lower, and as a result the previously reported hit to GDP from the net of our trade was a bit smaller in this estimate…our real exports of goods and services grew at a 13.1% rate in the 1st quarter, revised from the 12.9% growth shown in first estimate, and since exports are an addition to GDP because they are that part of our production that was not previously added to consumption or investment in our country, their increase added 1.34 percentage points to the 1st quarter’s growth rate, up from the 1.32 percentage point export addition due to rising exports shown last month…on the other hand, the previously reported 21.4% increase in our real imports was revised to a 21.1% increase, and since imports subtract from GDP because they represent either consumption or investment that was added to GDP with those figures but was not produced in the US, their increase subtracted 2.59 percentage points from 1st quarter GDP, revised from the 2.62 percentage point subtraction due to rising imports shown a month ago….thus, our deteriorating trade balance in the first quarter subtracted a net 1.25 percentage points from 1st quarter GDP, revised from the 1.30 percentage point subtraction from GDP that had been indicated by the advance estimate..

Finally, there was also a small net upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown to have grown at a 4.4% rate, statistically unchanged from the 4.4% growth rate for government indicated by the 1st estimate….however, real federal government consumption and investment is now seen to have grown at a 9.5% rate from that of the 4th quarter in this estimate, which was revised from the 9.3% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 2.3% rate, statistically unrevised from the growth rate shown previously, and added 0.08 percentage points to 1st quarter GDP, while all other federal consumption and investment was 20.7% higher, revised from the 20.3% growth rate shown previously, and added 0.49 percentage points to 1st quarter GDP growth….meanwhile, real state and local consumption and investment grew at a 1.5% rate in the quarter, revised from the 1.6% growth shown in the 1st estimate, and added 0.16 percentage points to 1st quarter GDP, which was revised from the 0.17 percentage point addition shown in the advance estimate, as state and local investment grew at a 7.5% rate and accounted for 0.06 percentage points of the state and local addition to GDP….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, thereby indicating an increase in the output of those goods or services…

Personal Income Fell in April, Personal Spending Rose 0.5%, PCE Prices Rose 0.4%, Savings Rate at 2.6%, Lowest since June 2022

Thursday’s release of the April report on Personal Income and Outlays from the Bureau of Economic Analysis included the month’s data for our personal consumption expenditures (PCE), which accounts for almost 70% of the month’s GDP, and with that, 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 reported our national totals for personal income, disposable personal income, which is income after taxes, and our national 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 April’s change in seasonally adjusted income and spending were extrapolated over an entire year…..

Hence, when the opening line of the news release for this report tell us “Personal income decreased less than $0.1 billion (less than 0.1 percent at a monthly rate) in April, that means that the annualized figure for seasonally adjusted national personal income in April, $26,722.5 billion, was statistically unchanged from the annualized personal income figure of $26,722.5 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given…at the same time, annualized disposable personal income, which is income after taxes, fell by less than 0.1%, from an annual rate of $23,492.1 billion in March to an annual rate of $23,472.2 billion in April….the reasons for the decrease in personal income can be viewed in NIPA Table 2.6 for this release, also as annualized amounts, and primarily reflected a $61.7 billion decrease in farm proprietors’ income, that was mostly offset by  a $32.4 billion annual rate of increase in income from wages and salaries, an $11.6 billion annualized increase in dividend and interest income, and an $9.3 billion increase in government social benefits to persons

For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, the BEA reports that they rose at a $111.1 billion annual rate, or by more than 0.5%, as the annual rate of national PCE increased from $21,868.3 billion in March to $21,979.4 in April….March PCE was revised from $21,860.5 billion annually to $21,868.3 billion, while February PCE was revised from $21,665.1 billion annually to $21,655.8 billion, revisions that were already included in this week’s GDP report….total personal outlays for April, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $114.0 billion to a rate of $22,860.5 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $611.7 billion annual rate in April, down by $133.9 billion from the revised $745.6 billion in annualized personal savings in March…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 2.6%, down from a revised 3.2% saving rate in March, and the lowest personal savings rate since June 2022…

Before those personal consumption expenditures can be used in the 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 a chained price index based on 2017 prices = 100, which is computed from price changes of the components of PCE by the BEA and included in NIPA Table 2.8.4 for this report….that index rose from 130.381 in March to 130.902 in April, a month over month inflation rate that’s statistically 0.399598%, which BEA reports as an increase of 0.4 percent, following an increase of 0.7 percent in the PCE price index reported for March….applying that 0.399598% April inflation adjustment to the actual nominal change in PCE left real PCE up by 0.10801% in April, which the BEA reports as a 0.1% increase in their press release and in the tables, after real PCE had risen by a rounded 0.3% in March….note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in those familiar chained 2017 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another….that result is shown in NIPA Table 2.8.6, where we see that April’s chained dollar consumption total works out to 16,792.1 billion annually, 0.1073% more than March’s 16,774.1 billion, again an increase that the BEA reports as +0.1%…

However, to estimate the impact of the change in PCE on the change in GDP, that month over month PCE change doesn’t help us much, since GDP is computed & reported quarterly… thus we have to compare April’s real PCE to the real PCE of all 3 months of the first quarter….while this release reports PCE for all those amounts on a monthly basis, the easiest place to find the quarterly equivalent is in NIPA Table 1.1.6 from the GDP report,….when we compare April’s chained dollar PCE of 16,792.1 billion to the 1st quarter real PCE of 16,723.3 billion on an annual basis, we find that April’s real PCE has risen at a 1.66% annual rate from that of the 1st quarter….that would mean that even if real PCE does not appreciate during May and June from the April level, growth in real PCE would still add 1.15 percentage points to the growth rate of 2nd quarter GDP…

April Durable Goods: New Orders Rose 7.9%, Shipments Rose 0.5%, Inventories Rose 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $25.5 billion or 7.9 percent to $346.0 billion in April, the second increase in 5 months, after durable goods orders for March were revised to show a 1.3% increase to $320.5 billion, revised from the 0.8% increase to $318.9 billion that was reported for March a month ago…

As is often the case, the volatile monthly change in the value of April’s new orders for transportation equipment was responsible for this month’s headline change, as April transportation equipment orders rose $23.1 billion or 21.5 percent to $130.9 billion, on a 165.9% increase to $36,790 million in new orders for private and commercial aircraft….excluding new orders for transportation equipment, other new orders were still up 1.1% in April, while excluding new orders for defense equipment, new orders were up 8.1%….on the other hand, new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment orders, were down 1.1% to $82,426 million…

The seasonally adjusted value of April’s shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the seventh time in the last eight months, increasing by $1.7 billion or 0.5 percent to $324.3 billion, after March shipments were revised from an increase of 0.7% to $633.9 billion to an increase of 0.8% to $634.7 billion.…an increase in the value of shipments of transportation equipment led the April increase, rising $0.7 billion or 0.7 percent to $107.7 billion, on a 3.1% increase in value of shipments of commercial aircraft…excluding that, the value of other shipments of durable goods also rose 0.5%, and are 6.2% higher year to date than a year ago….meanwhile, the value of shipments of nondefense capital goods excluding aircraft, important in figuring equipment investment, rose 0.4% to $75,433 million in April, after rising a revised 0.5% in March…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the seventh consecutive month, increasing by $1.5 billion or 0.3 percent to $598.7 billion, after the value of end of March inventories was revised higher, from an increase of 0.2% to $596.9 billion to an increase of 0.3% to $597.2 billion….an $0.7 billion or 0.4 percent increase to $189.9 billion in the value of inventories of transportation equipment led the April inventory increase, while excluding inventories of transportation equipment, the value of other inventories was 0.2% higher..

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the twenty-first time in the last twenty-two months, increasing by $26.7 billion or 1.7 percent to $1,569.0 billion, following a March increase which was revised from the 0.1% increase to $1,540.9 billion reported last month to a 0.2% increase to $1,542.3 billion….a $23.2 billion or 2.4 percent billion increase to $993.1 billion in unfilled orders for transportation equipment was responsible for the April increase, as unfilled orders for commercial aircraft and parts rose 2.8% to $717,318 million…. compared to a year ago, the unfilled order book for durable goods is now 11.5% higher than the level of last April, with unfilled orders for transportation equipment 17.0% above their year ago level, on a 20.6% increase in the backlog of orders for commercial aircraft and a 9.1% increase in the backlog of orders for defense aircraft…without the backlog of orders for transportation equipment, the order book for other durable goods is 3.3% higher than last year at this time…

New Home Sales Reported Higher in April After Prior Months Sales Revised Lower

The Census report on New Residential Sales for April (pdf) estimated that new single family homes were selling at a seasonally adjusted annual pace of 622,000 homes during the month, which was 6.2 percent (±12.8 percent)* below the revised March annual rate of 663,000 new home sales, and 11.3 percent (±11.5 percent)* below the estimated annual rate that new homes were selling at in April of last year… the figures in parenthesis represent 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; seasonally adjusted estimates of housing units sold, housing units for sale, and the months’ supply of new housing have been revised back to January 2021; and with that, sales of new single family homes in March were revised from the annual rate of 682,000 reported last month to an annual rate of 663,000, and sales in February, initially reported at an annual rate of 635,000, were revised to an annual rate of 641,000, while new home sales in January, initially reported at an annual rate of 587,000 and revised to a 583,000 rate last month, were revised to a 576,000 a year rate with this release…

The annual rates of sales reported here are seasonally adjusted and extrapolated from the rough estimates of canvassing Census field reps, which indicated that approximately 58,000 new single family homes sold in April, down from the estimated 63,000 new homes that sold in March, but up from the 56,000 new homes that sold in February….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in April rose to $422,500, up from the median sales price of $391,100 in March and up from the median sales price of $413,600 in April a year ago, while the average new home sales price was at $508,800, up from the $505,200 average sales price in March, but down from the average sales price of $514,300 in April a year ago….a seasonally adjusted estimate of 489,000 new single family houses remained for sale at the end of April, which represents a 9.4 month supply at the April sales rate, up from the revised 8.7 months of new home supply now being reported for March…

(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…)