on Friday, the Bureau of Economic Analysis released the first estimate of Gross Domestic Product for the 1st Quarter of this year; against expectations of an annual growth rate of 3.0% or more, the reported growth rate of 2.5% over the first three months of this year was a disappointment, but nonetheless it was still better than the anemic growth rate of 0.4% in the 4th quarter of last year...remember that all data in this release are quoted at a seasonally adjusted annual rate, so that actual 3 month growth rates are approximately one-fourth of the figures given: components driving the growth in the 1st quarter included personal consumption expenditures, which increased 3.2% in the first quarter, compared with an increase of 1.8% in the fourth, and which contributed 2.24% to GDP overall, a 37% rate of increase in private inventories, mostly reversing the 47% rate of decline in the 4th quarter, which added 1.03% to the annual rate change in GDP, and a 2.9% increase in exports, which had declined 2.8% in Q4 2012, and which added .40% to the GDP change...these were offset by a 5.4% increase in imports, which subtracts from net exports and hence from GDP, to the tune of a .90% hit this quarter, and an 8.4% decrease in federal government outlays, led by the defense department pullback of 11.5% which, when combined with the 1.2% decrease in state and local government spending, clipped another .80% off the 1st quarter GDP figure...fixed private investment also added to the 1st quarter GDP, but at nowhere near the clip of the last quarter; nonresidential fixed investment increased 2.1% in the first quarter, compared with an increase of 13.2% in the fourth; investment in non-residential structures decreased 0.3%, compared to the 4th quarter increase at a 16.7% rate; while investment in equipment and software increased at a 3.0% rate, compared with an increase at a 11.8% clip; meanwhile, investment in residential structures increased at a 12.6% clip, compared with their increase at af 17.6% annual rate last quarter; thus the contribution to GDP from private investment fell in this recent quarter to .53%, from the lofty 1.69% increase it contributed in the last quarter of last year...all of this is shown graphically in the above bar graph from zero hedge, which shows quarterly contributions to GDP from each major sector since the last quarter of 2010, with additions to GDP above the dashed line and subtractions below it; change in personal consumption is in dark blue, private fixed investment is in red, change in private inventories is in green, change in exports is in purple while change in imports is in teal, the impact of government spending is in orange and the net quarterly annualized rate of change in GDP is tracked by the black line...looking at the graph, a few things are obvious; first, the swing from inventory draw down in the 4th quarter to inventory rebuilding made all the difference between the quarters; GDP less inventories, what BEA calls real final sales of domestic product, was up just 1.5% in the first quarter compared to an increase of 1.9% in Q4 of 2012; most of this was a rebuilding of farm inventories, which contributed 78% of the inventory change...also note how much of a drag the government cutbacks (orange) have been on the economy over the last two & a half years; while Q4 2010 and Q1 2011 cuts were mostly at the revenue restrained state and local level, the 2.21% hit to GDP over the most two recent quarters at the federal level amounted to the largest government cutbacks since the ending of the Korean War...it's also clear that personal consumption expenditures, aka consumer spending in blue, has been carrying what anemic recovery we have had, and despite the hit to paychecks from the expiration of the payroll tax cuts, still increased in the 1st quarter at the greatest pace since the end of 2010; with spending for durable goods up 8.1%, spending for nondurables up 1.0%, and spending for services up 3.1%.. however, as real disposable personal income decreased at a 5.3% rate in the first quarter, dropping the savings rate to 2.6% over the quarter, the lowest since 2007, it would seem that consumers are about tapped out and will be unable to sustain the pace much longer...
the BEA also announced this week that there will be a major revision to the way it calculates GDP that will add approximately 3% to the national accounts starting in July...what the BEA will be adding which was previously not accounted for is what is known as intangible assets; including things like long running TV shows, art, films, music and books....research & development, previously expensed as a cost of business, will now be capitalized, in effect placing a value on patents and copyrights, and underfunded pension plans will be shown as a liability...a long time in planning, this is a once in every five year revision, the largest since computer software was added to the national accounts in 1999, and will involve rewriting US economic history to include these changes back to 1929...we will likely cover this in more detail when it happens, but the announcement does serve to highlight the inadequacy of economic data that captures only what is monetarily accounted for; volunteer work, work in the home, parenting and other work that doesnt have a cash value aren't included...
another release of this past week was the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for March (pdf) from the Commerce Dept, which is usually watched for the forward looking new orders for durable goods; like GDP, March orders for durable goods were impacted by defense dept budget cuts and fell a seasonally adjusted $13.1 billion or 5.7% to $216.3 billion, the largest drop in seven months, and the second worst since January 2009...new orders for defense capital goods decreased $2.5 billion or 33.2%, to $5.0 billion; excluding defense, new orders still fell 4.7%, as orders for transportation equipment were especially weak, with orders for nondefense aircraft and parts down $8.5 billion from the order level of February; excluding both transportation and defense, durable goods were up 0.4%; year over year, so called "core" durable goods are up 2.6%...orders for non defense capital goods were also weak, falling $8.3 billion to $70.2 billion, a level 10.6% below February orders...orders for computers and electronic products were an isolated bright spot, with seasonally adjusted orders at $20.1 billion, up 1.0% from February's $19.9, largely driven by a 5.0% increase in orders for computers... without the seasonal adjustments, March real durable goods orders were still down 1.5%, and March is normally a seasonal peak… confirming the weakness in manufacturing overall, an early "flash" reading of the Markit manufacturing PMI fell to 52.0 in April from a final reading of 54.6 in March, the lowest in 6 months....included to the left is a chart from Doug Short which shows the correlation between orders for consumer durable goods such as appliances and unemployment, which is inverted to better show the relationship; interesting in that it seems that changes in orders for consumer durable goods precedes a change in employment, and not the other way around……
we also saw reports on existing and new home sales this week; on Monday, the National Association of Realtors posted their Existing Home Sales news release for March; which showed that sales of existing homes fell from a downwardly revised seasonally adjusted annual rate of 4.95 million in February to an annual rate of 4.92 in March, which the NAR blamed on a shortage of homes for sale...nonetheless, March sales were still running 10.3% over the 4.46 million-unit clip that they were being moved at last year, and they were pretty close to the pre-bubble level of early last decade, which you can see on the adjacent chart from Bill McBride, so the NAR doesn't really have anything to complain about...homes available for sale rose 1.6% from February to 1.93 million, which NAR says is a 4.7 month supply at the current sales pace; although that's less than the 6.2 months worth of unsold homes of a year ago, this supply inventory doesn't include the majority of foreclosed homes owned by the banks that are being held off the market...with realtors reporting homebuyer traffic up 25% from a year ago, the median home price again rose in March to $184,300, which was the 13th consecutive median price increase, matching the longest string of price increases, from May 2005 through May 2006, at the height of the bubble; this left median home prices 11.8% above those of a year ago, and average prices, which were at $233,200, 9.9% over those of last March...with the Fed's mortgage bond buying contributing to home affordability at these lofty levels, the average 30 year fixed mortgage rate remained at a low 3.57%, down from 3.95% last year, and with banks reluctant to hold mortgages any longer than it takes to bundle them into a MBS, and with private investors all but having abandoned the MBS market, government agencies are now responsible for nearly 100 percent of the securitization market...of those homes sold in March, 13% were of foreclosed homes, which were said to be discounted 15% below market value, while 8% were short sales, which were discounted 13%; the total distressed sales at 21% of sales were an improvement over the 25% distressed sales seen in February and the 29% distressed sales during March a year ago...investors bought 19% of all homes sold in March, which was down from the 22% they bought in February and below the 21% they purchased last March; the type of investor has changed this year, however, from those who bought an extra house or two to rent, to large institutional buyers who are buying quantities of houses at higher price points...all cash buyers accounted 30% of sales overall, the same as February but down from the 32% all cash buyers in March of last year...just 30% of homes were purchased by first time buyers, unchanged from February and down from 33% a year ago, so like the small investors, they appear to being squeezed out by higher prices and short supply...
on Tuesday, the Census Bureau reported on New Residential Home Sales for March (pdf); as you should all know by now, these census reports on new housing have such a large monthly margin of error as to render the data useless on a monthly basis, but since they're widely covered without noting that, we feel compelled to set the record straight again...and the range of variables in these reports over a year's time does also give us an idea what the new home situation is like; for March, Census reported that sales of new single-family houses were estimated to be at a seasonally adjusted annual rate of 417,000; the MoM change in sales is estimated to be 1.5% (±16.9%)* higher than February's revised annual rate of 411,000, and the asterisk points us to a census footnote whereby they explain such an expression as 1.5% (±16.9%) means that census was 90% confident that new home sales for March were at a seasonally adjusted annual rate of between 347,706 and 486,624; the actual estimates on which those seasonally adjusted projections are based are in Table 2 of the release; actual new home sales were estimated to be at 40,000 in March, up from 33,000 in February; 13,000 were contracted for but not yet started, 14,000 were under construction, and another 13,000 were already completed...on a year over year basis, March's sales are said to be 18.5 percent (±17.2%) above the 352,000 sales rate of last March; last March's actual sales rose 4,000 to 34,000, and March 2011's sales rose 6,000 to 28,000; the reported 352,000 and 417,000 numbers are projections of what those single month sales would be if seasonally adjusted and extended out to 12 months...census also estimates there were 153,000 seasonally adjusted homes for sale at the end of March, which is a 4.4 month supply at March's sales rate; the median length of time they'd been available was 5 months...the median price for new homes sold in March was $247,000, 6.8% lower than the median price realized in February the average home sales price fell 10.8% from $310,000 to $279,900; prices are not seasonally adjusted...our FRED graph shows monthly new home sales at an annual rate in blue, with the scale on the left side; median prices received monthly are in green, and the average new home price each month is tracked in red with the prices scale in the right margin...
(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…)