Numbers

A look at the economy’s changes, by the numbers.

the key reports this past week were the 3rd estimate of first quarter GDP, which showed our economy actually shrank at a 2.9% rate in the first quarter, and the May report on personal income and outlays, which indicated another monthly decrease in inflation adjusted personal spending; there were also reports on new and existing home sales for May, and the release of Case-Shiller home price index for April…for manufacturing, we saw the advance report on durable goods, and two regional Fed manufacturing surveys; the Richmond Fed, reporting for a District that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported somewhat slower growth in June as the Fifth District manufacturing composite index slipped to 3, down from a reading of 7 in May, in a diffusion index where numbers above zero indicate expanding activity…similarly, the Kansas City Fed, surveying an region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, also reported that Growth in Tenth District Manufacturing Activity Slowed Somewhat as their June composite index slipped to 6 from 10 in May…this week also saw the release of the Chicago Fed National Activity Index for May, a composite index of 85 different economic metrics grouped into four broad categories of data, each constructed to have an average value of zero, such that a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend…their national index increased to +.21 in May from –0.15 in April as 52 of the 85 indicators were positive, with production-related indicators adding 0.20 to the overall index, employment-related indicators adding 0.10, the sales, orders, and inventories category adding 0.04, while the consumption and housing metrics subtracted 0.12 from the overall reading for May..

1st Quarter GDP Revised to –2.9% as Investment, Exports Tumble

the Third Estimate of our 1st quarter GDP from the Bureau of Economic Analysis showed that our economy shrank at a 2.9% rate in the first quarter, revised from the 1.0% rate reported last month, which revised the growth of 0.1% reported in the 1st estimate…this was the largest revision of the 2nd estimate to the 3rd estimate in BEA records going back to 1976, and except for the 4th quarter of 2008 and the 1st quarter of 2009 at the depth of the recession, our worst quarterly economic contraction in 24 years…in current dollars, our 1st quarter GDP would extrapolate to $17,016.0 billion annually, down 1.7% from the $17,089.6 billion annualized figure of the 4th quarter…however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, it’s adjusted for inflation using chained 2009 dollars, resulting in the reported 2.9% annualized decrease in the output of goods and services produced by labor and property in the US….the inflation adjustment used in the first quarter, aka the “GDP deflator”, implies annual inflation at a 1.3% rate, unchanged from the 2nd estimate, and down from 1.6% GDP deflator applied to GDP in the 4th quarter…while we cover the details below, recall that all quarter over quarter percentage changes in this report are all given at an annual rate, which means that they’re expressed as a rate of change a bit over 4 times the change that actually occurred over the 3 month period…

the revision to seasonally adjusted real personal consumption expenditures (PCE) was by far the largest factor in the downward revision to 1st quarter growth…originally reported to growing at a 3.1% rate, the BEA has revised growth in real personal consumption expenditures to just 1.0%, the the slowest growth of personal spending since the last quarter of 2009…as a result, real PCE only added .71% to first quarter GDP, vis a vis the 2.09% contribution from personal spending that was shown in the 2nd estimate…thus, with all other major components of GDP already shrinking, the revision to PCE accounted for 1.38% of the overall downward revision of 1.9%…real personal outlays for durable goods rose at an annual 1.2% rate in the quarter, rather than the 1.4% rate previously reported, even though the current dollar spending for durable goods fell by over 1.0%, as the price deflator for durable goods was negative 2.5%…deflation adjusted outlays for motor vehicles accounted for more than half of the increase in consumer spending for durables, while real outlays for durable household equipment and furniture shrunk at a 1.6% annual rate…meanwhile, real personal spending for non-durable goods fell at a 0.3% rate, reversing the previous estimate of a 0.4% increase, as inflation adjusted food and beverage outlays fell at an inflation adjusted 1.3% rate and seasonally adjusted real purchases of clothing and footwear fell at a 4.2% rate…so, while the increase in real durable goods spending added 0.9% to GDP, the contraction in real outlays for non-durables subtracted 0.5% …the major revision to real PCE, however, was in real consumer outlays for services, as they were originally estimated to have grown at a 4.3% rate and have now been revised to indicate 1st quarter growth at a 1.5% rate…within those services, the major revision was to consumption of health care, which was previously seen growing at a 9.1% rate and now is seen as contracting at a 1.4% rate…apparently the BEA encountered some difficultly in estimating the contribution from Obamacare, which was ultimately corrected by a subsequent Census report…real outlays for recreation services and food services and accommodation were also down fractionally; however, with real spending for housing and utilities up at a 9.4% rate due to the colder than normal winter, the services component of real PCE still managed the gain of 1.5% that raised GDP .67% from what it otherwise might have been…

last month we noted the second estimate of GDP showed the worst slowdown in investment since 2009, and this final revision didnt change that much, as it was estimated 1st quarter gross private domestic investment shrunk at an 11.7% rate, same as the second estimate, while it subtracted 1.97% from the rate of GDP change rather than the 1.98% hit reported last month…the lion’s share of the contraction in investment resulted from a slowdown in the growth of inventories, as they grew by $45.9 billion, an inflation adjusted $65.8 billion less than the $111.7 billion increase in inventories in the 4th quarter, and revised down from the $49 billion indicated by the second estimate…as a result, the inventory growth contraction subtracted 1.70% from 1st quarter GDP rather than the 1.62% reported last month…. fixed investment declined as well, subtracting 0.27% from GDP, as fixed investment fell by $11.3 billion, or at a 1.8% annual rate vs the 2.3% rate estimated last month; investment in non-residential structures fell at a 7.7% rate, revised from the 7.5% rate of decline previously reported, investment in equipment fell at a 2.8% rate, revised from a 3.1% decrease, as investment in information processing equipment fell by an inflation adjusted $8.6 billion, while real investment in intellectual property increased by an inflation adjusted $9.7 billion or at a 6.3% rate, revised from a 5.1% increase, as research and development spending was up $7.4 billion….on net, the reduced investment in non-residential structures subtracted 0.22% from GDP, lower equipment investment took off 0.16% the final figure, while the increase in intellectual property investment added 0.24% to GDP…meanwhile, the contraction in investment in residential structures was revised from a 5.0% rate to a 4.2% annualized decline and subtracted 0.13% from the final rate of GDP change…

the real 1st quarter net trade figures were revised down as well, as we expected in noting the revision to March trade when the April trade report was released….the BEA originally estimated that our 1st quarter exports had dropped at an inflation adjusted 6.0% annual rate while imports increased at a 0.7% rate, for an increase in the trade deficit over the 4th quarter that subtracted 0.95% from the 2nd estimate of GDP….with the revised data for March trade now available, they now show that real exports of goods and services fell at a 8.9% rate, $47.4 billion inflation adjusted dollars less than the 4th quarter, while real imports increased by an inflation adjusted $11.0 billion, or at a 1.8% rate…as you should recall, exports add to gross domestic product because they are that part of our products that are not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here…thus the increase in real imports subtracted 0.29% from GDP, rather than the .12% previously estimated, while the 8.9% decline in exports subtracted 1.25% from GDP, up from 0.83%…hence, with the change in both exports and imports both subtracting more from GDP that previously estimated, the 1st quarter growth rate of our output took a 1.53% hit from the 1st quarter increase in the trade deficit…

meanwhile, there were only minor revisions to real government consumption and investment in this third  estimate…real federal government consumption and investment grew at a 0.7% rate over the first quarter, as real federal spending for defense fell at a 2.5% rate rather than the 2.4% rate previously recorded, while the defense spending contraction still subtracted 0.11% from GDP, which was unchanged from the last report…all other federal consumption and investment rose at a 5.9% rate, which was unrevised, and added 0.16% to GDP…real state and local consumption expenditures rose at an adjusted $2.4 billion rate, rather than the the $2.5 billion increase previously reported, while real state and local investment outlays fell at a $9.6 billion rate, not by $10.1 billion as previously estimated; hence, while state and local consumption added 0.06% to GDP, the contraction in state and local investment outlays subtracted 0.18% from 1st quarter growth, a bit less than the 0.20% reported last month…

our FRED bar graph below, which can also be viewed as an interactive, has been updated with these latest GDP revisions…each color coded bar shows the change, in billions of chained 2009 dollars in one of the major components of GDP over each quarter since the beginning of 2012…in each quarterly grouping of seven bars on this graph below, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the change in imports are shown in green, the change in exports are shown in purple, while 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…those components of GDP 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 that 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…you can clearly see the widespread weakness in all components of GDP in the far right group representing the first quarter of 2014, with personal consumption expenditures in blue, gross private investment in red, and exports in purple all posting their worst quarter since the recession in 2009..

1st quarter 2014 GDP 3rd estimate

Personal Income Increases 0.4% in May; Real Personal Outlays Drop 0.1%

the major monthly release of the week, also from the Bureau of Economic Analysis, was on Personal Income and Outlays for May, which in addition to the important personal income data, also reports the monthly data on our personal consumption expenditures (PCE), which as we just saw is the major component of GDP…from that data, the BEA also computes personal savings and the national savings rate, as well as the price index for PCE, which is the inflation gauge the Fed says it 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; so the monthly dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts… however, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, often leading to confused media coverage…

total personal income increased at a seasonally adjusted and annualized $58.8 billion rate in May, to $14,587.3 billion annually, which was 0.4% higher than in April, when personal income increased by 0.3%….disposable personal income (DPI), which is income after taxes, increased at an annualized rate of $55.6 billion to $12,877.2 billion, which was also a 0.4% increase over April, while April’s DPI was up 0.4% over March, revised from the 0.3% increase in DPI reported last month…increases in private wages and salaries of $27.8 billion accounted for less than half of the personal income increase in May, but that increase was nonetheless higher than the $17.9 billion increase in April payrolls; increases in service industry payrolls accounted for $20.4 billion of the May wages and salaries increase…increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.7 billion of May’s annualized income increase, while employee contributions for government social insurance, which are subtracted from the personal income figure, increased at a $4.0 billion annual rate…other sources of the May income increase included proprietors’ income, which increased at a $3.4 billion rate, with $2.2 billion of that increase going to farm owners and $1.1 billion to individual proprietors of other types of business, rental income of individuals, which increased at a $2.2 billion rate, and personal interest and dividend income, which increased at a $13.5 billion rate…in addition, increases in personal transfer payments from government programs, which have been a major factor in the personal income increases since the beginning of the year, increased by $10.7 billion in May, with $8.6 billion of that increase coming from programs other than Social Security, Medicare, Medicaid, Veterans benefits or unemployment comp….

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which are the basis for the change in real PCE in the GDP data we reviewed earlier, rose at a $18.3 billion annual rate in May to $11,830.8 billion, 0.15% higher than April, which was itself up $2.3 billion, or less than 0.1%, from March….the current dollar increase in May spending included a $9.4 billion annualized increase to $1,303.9 billion in outlays for durable goods, mostly reversing the 11.1 billion decline in April, a $4.8 billion increase to $2,678.7 billion annualized in spending for non-durable goods, and an annualized $4.1 billion increase to an annual rate of $7,848.2 billion in spending for services…total personal outlays for March, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $$18.0 billion to $12,256.9 billion, which left personal savings, which is disposable personal income less total outlays, at $620.3 billion for the month, up from $582.7 billion in personal savings in April… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.8% in March, up from 4.5% in April and 4.2% in March and the highest savings rate so far this year…

while personal consumption expenditures accounted for 68.6% of our first quarter GDP, before they were included in the computation of real GDP they were first adjusted for inflation…that’s done with the price index for personal consumption expenditures which is computed here, which is a chained index based on 2009 prices = 100….that index rose to 108.660 in May from 108.407 in April, giving us a month over month inflation rate of 0.23% and a year over year PCE price index increase of 1.71%; as a result, inflation adjusted or real personal consumption expenditures fell by 0.1% May after falling 0.2% in April, which would seem to indicate a negative PCE contribution to GDP for the coming second quarter; however, as March real PCE was up 0.6% over February which was in turn was 0.3% above January, the April and May personal consumption expenditures are still running at an annual rate slightly above the 1st quarter overall, and baring a significant downturn in June should still make a small contribution to 2nd quarter GDP…using the same PCE price index, disposable personal income is deflated to show that real disposable personal income, or the purchasing power of disposable income, rose by 0.2% in May, the same increase as in April…also note that even with the annual increase in the PCE price index to 1.77% and the core PCE price index to 1.49%, both still remain below the 2.50% PCE inflation target the Fed has been trying to hit…..

the picture of our interactive 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 shown in the current datat box and on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right…the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; 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 19.7% over the span of this graph

May 2014 real income and outlays

New Orders for Durable Goods Fell 1.0% in May While Unfilled Orders Rose 0.6%

in another report out on the same day as the GDP release, the Census Bureau released the May Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf), which estimated that the widely watched new orders for manufactured durable goods fell by a seasonally adjusted $2.4 billion or 1.0% to $238.0 billion, the first decrease in new orders since January…however, the decrease was largely the result of a 31.4% drop in new orders for defense capital goods to $8,785 million; excluding defense, new orders actually rose 0.6% in May; furthermore, new orders for transportation equipment also fell for the first time in 4 months, by $2.3 billion or 3.0 percent to $74.4 billion, on a pullback in orders for commercial and defense aircraft; thus, excluding both the volatile transport and defense sectors, orders for all other durable goods rose 2.5%…..meanwhile, seasonally adjusted April shipments of durable goods, which will be reflected in 2nd quarter GDP, rose for the fourth consecutive month, increasing $0.6 billion or 0.3% to a record $238.6 billion; the strongest increase was a 1.6% jump in shipments of primary metals to $26,998 million, while a 5.9% decrease in shipments of commercial aircraft limited the increase in transportation sector shipments to 0.1%…in addition, seasonally adjusted inventories of durable goods, which have been up 13 out of the last 14 months, rose $3.8 billion in May to a record $397.8 billion, a 1.0% increase, in part driven by a 2.3% increase to $72,207 million in inventories of commercial aircraft and parts, while a decrease in motor vehicle inventories to $26,243 million limited the increase in transport sector inventories, which are up 10.6% over last year, to 1.1% in May….finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were up $6.6 billion or 0.6% to $1,087.4 billion, also a new record for unfilled orders…unfilled orders for transportation equipment, up $4.6 billion or 0.7% to $675.8 billion, were again a major factor, as the $504,698 million order backlog for non-defense aircraft is always the largest line item….except for the 0.4% decrease in unfilled orders for defense capital goods, increases in the unfilled order book were seen across the board by all other categories of durable manufacturers in May…

New and Existing Home Sales increase in May

according to the National Association of Realtors, seasonally adjusted existing home sales rose by 4.9% in May to an annual rate of 4.89 million completed transactions, from an revised annual rate of 4.66 million in April, but home sales still remained 5.0% below the annual sales rate of 5.15 million-units sold last May…before the annualization and seasonal adjustment, an estimated 472,000 homes sold in May, up 11.8% from the 422,000 homes that sold in April, but still down 8.2% from the 514,000 homes that sold in May a year ago…both seasonally adjusted and unadjusted data (pdf) indicate that homes sales increased in every region of the country, ranging from a seasonally adjusted 0.9% increase in the West to an 8.7% increase in the Midwest…the median home selling price for all housing types was $213,400, up from $201,500 in April and 5.1% higher than the $203,100 median sales price in May of last year, in home price data that is not seasonally adjusted…the average home sales price was $260,700, up from $260,700 in April and $241,700 a year ago, with regional average home prices ranging from $339,900 in the West to the average of $197,900 for homes sold in the Midwest….foreclosed homes, which sold for an average of 18% below the market, accounted for 8% of May sales, while short sales, at 3% of the total, were discounted by an average of 11%…the median time on the market for all homes was 47 days in May, down from 48 days in April, but up a from 41 day median in May a year ago…those who bought houses with cash accounted for 32% of transactions in May, unchanged from April and down from 33% in May of 2013; those identified as investors accounted for 16% of all transactions, down from 18% in April and 18% a year earlier…mortgage rates averaged 4.19% in May, down from 4.34% in April; nonetheless, the share of first time home buyers fell to 27%, down from 29% in April and 29% in May of last year…

meanwhile, the Census bureau report on New Residential Sales for May (pdf) also showed that home sales increased for the month, by even more than what is typically the largest margin of error of any census construction series…Census estimated that new single family homes were sold at a seasonally adjusted annual rate of 504,000 in May, which was 18.6 percent (±17.3%) above the revised April rate of 425,000…that means if May’s home sales were extrapolated out for an entire year at the normal seasonal rates of sales, Census figures something between 430,525 and 577,575 new homes would be sold….meanwhile, Census could not be certain that May’s new home sales rose from those of a year ago, as they were estimated at 16.9 percent (±19.6%)* above last year’s sales, a range which includes the possibility that they were 2.7% less than last years…the unadjusted data from Census field reps estimated that 49,000 homes sold in May, up from the revised sales of 40,000 in April and up from the revised sales of 40,000 new homes in May a year ago…of those 49,000 May home sales, 15,000 were completed, 16.000 were under construction, and 18,000 had not yet been started…the median new home sales price was $282,000 in May, up from $275,800 in April; while the average sales price was $319,200, up from April’s $320,100 average… the Census estimated that a seasonally adjusted 189,000 new homes remained unsold at the end of May, which was a 4.5 month supply at the May sales pace, down from a 5.3 month supply in April….the interactive FRED graph below show the historical data from this Census report, with the monthly sales reported as an annualized figure…although new homes sales are still well below those of the boom years, it’s clear that they have also risen well above the 400K annual level below which they were mired for 4 years…

May 2014 new home sales

Case-Shiller April Report Shows Home Prices Rising 10.8% Year Over Year

the Case-Shiller Home Price Index for April, tracking prices for repeat sales of homes over the three month period of February to April vis a vis the 3 month period from January to March, showed the 10-City Composite index with a 1.0% increase in home prices while the 20-City Composite Index was up 1.1% for the month, while both Composites posted annual home price increases of 10.8%, in contrast to year over year gains of 12.6% for the 10-City Composite and 12.4% for the 20-City Composite last month…all 20 cities saw home prices rise for the month; the largest one month home price increases were registered in Boston at 2.9%, in San Francisco and Seattle at 2.3%, and in Atlanta and Chicago at 2.0%, while New York at the low end eked out an increase of 0.1%…the largest year over year home price increases were seen in Las Vegas at 18.8%, San Francisco at 18.2%, San Diego at 15.3% and Detroit at 15.0%, while Cleveland, where prices rose 2.7%, was the only city showing an annual home price increase of less than 5%…it’s worth noting that the index is based on closing prices when they’re recorded in county records, and typically represent contract prices agreed to roughly 45 to 60 days before the closing; hence, the home price changes indicated by this report already average nearly 6 months old…

we’ll again include below screenshots of the pair of interactive FRED graphs we created to show the historical track of home price indexes for each of the cities in the 20 city index, all based on 2000 home prices equal to 100.0… in our first FRED graph, we show the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red… for the larger interactive view of this graph at FRED, click here; there you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below, just as we have included the index values for each of them for the April report in our screenshot…

April 2014 Case Shiller A-L

our second FRED graph of the Case-Shiller city indices shows the the historical price track of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…the S&P Case-Shiller index is not seasonally adjusted, but we notice that the seasonal home price swings have become more pronounced since the housing bust…again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and  the index values for each  viewed over time with their interactive tool…

April 2014 Case Shiller M-Z

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were 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 that accompanies these commentaries, most from the aforementioned GGO posts,contact me…)

Image by Michael Coghlan released under a Creative Commons Share Alike license.