the key economic release of this week was the Advance estimate of Gross Domestic Product for the 4th quarter, in which the BEA (Bureau of Economic Analysis) estimated that our seasonally adjusted real output of goods and services rose at a 3.2% annual rate for the last three months of 2013, and, when aggregated with the growth for the preceding 3 quarters, showed that our economic output grew 1.9% over the year just ended….in current dollars, the value of our output topped $17 trillion for the first time, at $17,102.5 billion, up from $16,912.9 billion at the end of the 3rd quarter and up 4.2% from $16,420.3 billion at the end of 2012…however, since the change in GDP being reported here is not a measure of the dollar value of our GDP but a measure of the change in our output, it’s adjusted for inflation using chained 2009 dollars, from which all percentage calculations in this report are based….thus any dollar amounts we’ll refer to are used for perspective only, as what is reported here, although denominated in dollars, is not a dollar measurement but is in fact a measurement of the relative change in each of the components of our real quarterly output, annualized….also recall that all quarter over quarter percentage changes are given at an annual rate, which means that when it’s said that GDP grew at a 3.2% rate in the quarter, it means the actual quarter over quarter growth was a bit less than 0.8%…as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to further revision by other reporting agencies; more specifically, December trade and inventory data have yet to be reported, and BEA assumed exports and imports had fallen for the month, while wholesale and retail inventories had increased and nondurable manufacturing inventories increased…as a result, advance estimates such as this are often revised substantially as additional or revised input data becomes available; in the 3rd quarter, for instance, the advance estimate had the economy growing at a 2.8% rate; by the final revision, the 3rd quarter growth rate was at 4.1% annualized…

4th Quarter GDP Grows at 3.4% Rate on Consumer Spending and Exports

seasonally adjusted growth in real personal consumption expenditures, which accounted for less than half of GDP growth in the third quarter, accounted for 2.26% of the fully computed 3.23% growth rate in the 4th quarter, as they grew at a 3.3% annual rate….inflation adjusted personal outlays for goods grew at a 4.9% annual rate in the 4th quarter and 3.7% for the year; with 4th quarter spending for durable goods growing at a 5.9% annual rate and adding 0.44% to GDP, and real spending for non-durable goods growing at a 4.4% annual rate and adding 0.68% to the GDP growth figure…nearly half the real increase in durable goods outlays in the 4th quarter was for recreational goods and vehicles, as outlays for motor vehicles, which had grown solidly in the 3rd quarter, fell to less than 2% of the 4th quarter durables goods increase…nearly 30% of the growth in 4th quarter outlays for non-durable goods was for food, while over 1/4th of it was an increase in outlays for clothing and footware…meanwhile, real personal consumption expenditures for services grew at a 2.5% annual rate in the 4th quarter and added 1.14% to 4th quarter GDP; increased outlays for food services and accommodations accounted for 1/3rd of the 4th quarter growth in services, with greater outlays for health care, housing and utilities, and financial services each accounting for more than 10% of the 4th quarter increase in services…for the entire year, inflation adjusted personal consumption expenditures for services were just 1.2% higher than those of 2012…

seasonally adjusted gross private domestic investment, which had increased at a 17.2% annual rate in the 3rd quarter on a huge inventory buildup, only grew at a 3.4% rate in the 4th quarter, as almost every category of investment grew slower or contracted in the 4th quarter…real nonresidential fixed investment increased at a 3.8% rate, down from the 4.8% rate of increase in the third quarter, as private investment in non-residential structures fell at a 1.2% rate and subtracted .03% from 4th quarter GDP, after growing at a 13.4% rate and adding .35% to 3rd quarter GDP; investment in equipment, the only investment component to see greater growth in the 4th quarter, increased at a 6.9% annual rate and added 0.38% to 4th quarter growth, as investment in transport and other equipment more than offset slight contractions in industrial equipment and information processing equipment investment….in addition, investment in intellectual property increased at a 3.2% annual rate and added 0.12% to GDP; half of that growth was in software, while half was in R&D; investment in entertainment, literary, and artistic originals saw no increase from the 3rd to the 4th quarter…meanwhile, residential investment took a tumble, contracting at a 9.8% rate and knocking .32% off the GDP top line, after rising at a 10.3% rate and adding .31% to GDP in the 3rd quarter..residential investment in 2013 was still 12.1% above that of 2012 and added .33% to GDP for the year…the other component of gross private investment, the change in private inventories, was again positive, as inflation adjusted inventories grew by $11.5 billion and added .42% to GDP…however, that was not at as massive as the $59.1 billion real inventory increase in the 3rd quarter, which boosted that quarter’s GDP by 1.67%….as a result, 4th quarter real final sales of domestic product, which is GDP less the contribution of private inventories (which are products not sold), increased by 2.8%, in contrast with the smaller increase of 2.5% in real final sales in the third….

net exports provided the boost to 4th quarter GDP that was lost in the lower investment figures, as they were less negative than in the 3rd, mostly on higher exports…you should recall that real exports add to GDP (as they are production that is not consumed or invested domestically) and imports subtract from it (as consumption of those are not domestic products), so as long as we continue to run a trade deficit, the net effect of our trade will be to subtract from GDP…however, what these quarterly reports are telling us is the change in product from quarter to quarter, so in any quarter where our trade deficit shrinks, the net effect is to add to the increase in GDP, while an increase in our trade deficit subtracts from GDP…in the 4th quarter, our real (inflation adjusted) exports of goods and services increased by 11.4% and added 1.48% to GDP by themselves…real imports, on the other hand, only increased by 0.9% and thus subtracted just 0.15% from the final growth tally….for the entire year, exports increased 2.8% and contributed .38% to 2013′s  anemic GDP, while imports increased by 1.4% off a larger base and subtracted .23% from GDP…

the shutdown of Federal government in October appears to be at least partially responsible for clipping nearly a full percent off the annualized increase for the quarter, although the BEA advises that the effects “cannot be quantified because they are embedded in the regular source data that underlie the estimates and cannot be separately identified“…federal government gross investment and consumption expenditures fell at an annual rate of 12.6% in the third quarter and subtracted .93% from the 4th quarter growth rate…spending for defense was off at a 14.0% rate and accounted for .68% of that hit; non-defense outlays fell at a 10.3% clip and accounted for the remainder…we should note that federal government outlays for social insurance are not included in these totals; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services…the other government contribution to GDP comes from state and local government investment and consumption expenditures, which were up 0.5% in the 4th quarter; both state and local investment and state and local spending each added 0.03% to 4th quarter growth…

our FRED graph below shows the change, in billions of chained 2009 dollars, in each of the major components of GDP, over each quarter for the last eleven quarters, and gives us a visualization of the magnitude of the impact of each on the quarterly change.…those components that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they’ll appear below the zero line..in each quarterly grouping of seven bars on this graph, real personal consumption expenditures are shown in blue, gross private investment, including structures, equipment and intangibles, is shown in red, imports are shown in green, exports are shown in purple, and the change in private inventories is in yellow…lastly, the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey…clearly, it’s been consumer spending in blue and business investment in red that have been driving economic growth, with growth exports in purple contributing increasingly over the last three quarters, while increasing imports and cuts to federal spending have been the largest economic drags…

FRED Graph

 

Savings Rate Near 5 Year Low as December Spending Increases 0.4% on Lower Real Income

the major monthly report released this week, also from the BEA, was on Personal Income and Outlays for December, which, in addition to giving us the month’s details about our personal consumption expenditures (PCE) that were just included in the 4th quarter GDP (and which accounted for 23% of GDP), also gives us December details on our personal income and disposable personal income (after taxes), personal savings and the national savings rate, as well as the price index for PCE, which is the inflation gauge the Fed targets and which is used in this report to adjust both personal income and consumption expenditures for inflation…like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; however, the month over month percentage changes are not annualized and are typically used in the same sentence with and referring to the annualized dollar amounts, often leading to significant misreporting of the results here, despite the recently added footnote to this report clarifying that standard…

so, when the BEA opens by telling us that “personal income increased $2.3 billion, or less than 0.1 percent”, they mean that seasonally adjusted and annualized personal income, which was at a $14,304.8 billion annual rate in November, rose to an annual rate of $14,307.1 billion in December, which is not only less than a 0.1% increase, but also statistically insignificant….even the change in personal income from September’s annual rate of $14,291.9 billion is barely an increase of 0.1%….meanwhile, disposable personal income (DPI), which is income after taxes, decreased at an annual rate of $3.8 billion in December, also well less than 0.1%…for the three month period, disposable personal income fell $18.1 billion, or about 0.15%…adjusted for inflation in chained 2009 dollars, real DPI was down 0.2% for December and is down $41.2 billion for the quarter to an annualized $11,711.8 billion, or roughly 0.35%…

most of the change in personal income was not in wages and salaries…among sources of personal income in December, all quoted at seasonally adjusted annual rates, private wages and salaries increased just $0.7 billion, in contrast with an increase of $35.0 billion in November; that was largely because service industries’ payrolls decreased $3.6 billion, compared to the November increase of $24.4 billion…government payrolls were also weak, increasing only $0.9 billion for the month….the increase in supplements to wages and salaries, which includes employer contributions to pensions and social insurance, was greater than that to payrolls at $1.7 billion…income to business proprietors increased by $6.0 billion in December, while income to farm owners fell by $14.3 billion, the same income decrease farmers saw in November income…in addition, rent income of individuals increased $2.1 billion and income on assets, such as personal interest income and personal dividend income, increased $3.1 billion…and income received from government programs, such as social security, medicare and unemployment comp, increased $2.9 billion, while the increase of $0.7 billion in employees contributions to government social insurance was subtracted from that in the personal income calculation…

  even with disposable personal income declining, seasonally adjusted personal consumption expenditures (PCE) increased 0.4% in December and were up at an annual rate of $44.1 billion to an annualized $11,707.4 billion; from  September, PCE has increased by more than 1.1%, as we saw in the GDP report…in keeping with the weakness in auto sales that we saw in the retail sales report, spending for durable goods fell at a $23.8 billion annual rate to $1,276.3 billion, while spending on non-durable goods increased by $39.1 billion to an annualized $2,686.2 billion…our spending for services was also up in December, at a $28.3 billion rate to $7,744.9 billion…..total personal outlays during December, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $42.0 billion to $12,121.2 billion, which left personal savings, which is disposable personal income less total outlays, at $495.2 billion for the month, which was the lowest monthly savings since January… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.9% in December, down from 4.3% in November and from 5.1% in September and also the lowest since January, when disposable personal incomes collapsed 4.0%, after the expiration of the payroll tax cut and year end tax shenanigans that pulled normal bonuses and dividends back in to December 2012…except for that aberration, December’s savings rate was the lowest since August 2008…

the price index for personal consumption expenditures, based on 2009 = 100, was at 107.726 in December, which was a 0.2% increase from November’s 107.505 reading, which itself was virtually unchanged from September’s 107.502…on a year over year basis, this price index, which the Fed has targeted to rise 2.5%, has now risen to 1.07%, up from last month’s 0.87%…the price index for durable goods expenditures fell 0.4% in December, has fallen every month this year and is now at 93.535 based on 2009=100; the price index for non-durable goods, on the other hand, rose 0.5% in December after falling 0.3% in November and 0.4% in October…meanwhile, the price index for services was up 0.2% in December, as was up 0.5% over three months…our FRED graph below shows the track of these three components of the PCE price index since 2000, with all three set to 100 in 2009; note that prices for durable goods shown in blue have been falling over the entire period, while the price index for non-durable goods show in red and the price index for services in green have been moving up slowly at the same pace except for the brief slowing of non-durables during the recession marked by the grey bar…the price index for food, which is a non-durable good, was up 0.1% in December, mirroring the CPI index for food, while the index for energy goods and services rose 2.2% largely on higher gasoline prices….the Core PCE price index, which excludes food and energy from the index computation, was at 106.470 in December, up 0.1% from November and up just 1.16% from a year earlier..

FRED Graph

it is this price index for personal consumption expenditures that is used to adjust the other metrics in this report for inflation; as noted earlier, adjusting disposable personal income with the 0.2% PCE price index increase left us with real disposable personal income down 0.2% for December; similarly. real PCE, which is personal consumption expenditures adjusted for inflation using the PCE price index, was up just 0.2% in real terms…our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale as a percentage of DPI on the right…the recent spike in income and savings was a result of the aforementioned fiscal cliff income manipulations; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 18.5% over the span of this graph…and we already know from seeing how little of that is in wages and salaries that the lion’s share of that increase has gone to the rentier class… 

FRED Graph

 

South in Deep Freeze as Alaska Sees Record Heat

lastly, for our friends in the Southeast who’ve been paralyzed by the snow and ice storm that moved out of Texas into the Carolinas during midweek, we’re going to include a picture of an earth projection from January 29th that shows the temperature anomalies as they occurred on our half of the globe on that date (source)…the bar on the right indicates the color coding for the temperature difference from normal, in both Centigrade and Fahrenheit, as shown on the map; generally, the lighter blues indicate areas where the temperature was 10F below normal, while 20F below normal is shown in darker blue-violet, and the brighter violet areas were 30 degrees below normal on that date; similarly, the orange colors are areas that saw temperatures 10F above normal, the brown areas were 20F above normal, and the red areas on the map are areas where the temp was 30F above normal…so it appears that while a large portion of the eastern continental US was seeing temperatures 25F below normal, Alaska, much of the Arctic, and the west coast of Greenland all basked in temperatures 30F to 35F above normal for that date, while much of Siberia was 35F below normal…

January 29th temp anomolies

this unusual pattern, which has persisted for much of the winter, is the result of a meandering jet stream that runs north off the pacific coast and then dives to the south east of the Rockies, which has also been the cause of an unprecedented drought in California…so while Detroit was 10F below zero, many parts of Alaska were 60 to as much as 72 degrees warmer…Port Alsworth, in the southwest part of the state, reported a high temperature of 62°F, the highest January temperature ever recorded in Alaska; Nome, on the northern west coast, hit 51 degrees, the highest mid winter temperature ever recorded there, while Seward hit 58°F, Anchorage recorded 15 consecutive days with temperatures above freezing, and there were news photos of raspberries leafing out in Alyeska, where the ski resort was closed indefinitely…. meanwhile, snow was falling along the Gulf Coast from Houston to Mobile and east to the Carolinas, and 525 record low temperatures were recorded in the lower 48 states, most in the Southeast, from Texas to the Florida panhandle and points north, including 26.1°F at Beaumont Texas and 21.9°F at Biloxi Mississippi on the Gulf Coast, with single digit record lows set inland over much of the region

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)