Showing all posts tagged #national-accounts:

Latest CFNAI print suggests GDP running just above 2%

Posted on October 26th, 2015

Filtering US GDP noise using CFNAI

Main takeaways:

“Potential" GDP growth (the one associated with CFNAI at zero) is close to 2.7% using the sample since 1985.
Latest CFNAI reading of -0.09 in Sep/2015 is usually associated with GDP growth at 2.3%.

Introduction

The Chicago Fed publishes monthly the CFNAI - Chicago Fed National Activity Index, and index designed to gauge overall economic activity and inflation pressure.

The CFNAI is a weighted average of 85 monthly indicators of economic activity, covering four broad categories: production and income; employment; personal consumption & housing; and sales, orders & inventories. A complete list of the variables included can be seen here. The CFNAI is the first principal component (common trend) of the 85 time series.

The CFNAI is constructed to have an average value of zero and a standard deviation of one. A positive reading means the economy is growing above trend. The 3-month moving average of the index is often used to filter monthly noise. According to Chicago Fed research, moving from an expansion period to a reading below -0.7 suggests a recession has begun. A reading above +0.2 suggests the recession has ended, and above +0.7 suggests a period of sustained increasing inflation has begun.

The chart below shows the CFNAI from Mar/1967 to Sep/2015.

The CFNAI has a positive correlation with GDP growth. The chart below shows that GDP trend growth (as measured by a CFNAI at zero) is around 2.8% for the full sample (when based on a linear regression). When looking at a local linear regression (loess) model, GDP trend growth is estimated at 2.7%, and the latest CFNAI printed -0.09 (3mma, Sep/2015) is associated with GDP growth at around 2.5%.

Checking for parameter stability

Formal tests for structural breaks in the relationship between GDP growth and CFNAI (not shown) do not suggest a statistically significant break in the parameters,i.e., the GDP growth rate equivalent to CFNAI at zero can be assumed constant for the whole sample period.

One way to illustrate that is to plot the intercept \(\alpha\) for the rolling linear regression \(GDP_t = \alpha + \beta \times CFNAI_t + \epsilon_t\) starting with the first 10 years of data up to the most recent quarter. The dotted lines represent one standard deviation of the coefficient estimate and show that there’s no structural break in the coefficient \(\alpha\). However, there is a (not statistically significant) jump in the intercept by mid-1980s, which coincides with the period when inflation finally moderated after the oil shock.

Using data since 1985

The chart below plots CFNAI and GDP growth restricting the sample to start in 1985. GDP trend growth (as measured by a CFNAI at zero) is around 2.8% for the sample since 1985 (when based on a linear regression). When looking at a local linear regression (loess) model, GDP trend growth is estimated at 2.7% in the same period. The latest print of CFNAI is associated with GDP growth at around 2.3% (chart).

Using data since 2000

Restricting the sample to start in 2000 we obtain:

GDP trend growth (as measured by a CFNAI at zero) is around 2.5% for the sample since 2000 (when based on a linear regression). When looking at a local linear regression (loess) model, GDP trend growth is estimated at 2.4% in the same period. The latest print of CFNAI is associated with GDP growth at around 2% (chart).

Dr. Paulo Gustavo Grahl, CFA (2015-10-26)

US Personal Income and Outlays (Aug/15 chart pack)

Posted on September 28th, 2015

Main takeaways:

No sign of a slowdown on either income or spending in August - despite the tightening of financial conditions and drop in consumer confidence. However, it might be too early to gauge the full effect of financial conditions on economic activity.
Household consumption was up 0.4% in June and income rose 0.3%.
Nominal (real) disposable income trend growth in the last 12 months growing at 3.3% (3.0%) and consumption trend growth at 3.4% (3.0%).
Core nominal (real) consumption (ex food and energy) growing at 4.4% (3.3%) in the last 12 months.

Personal spending rose 0.4 in August and household income rose 0.3% in the month.

The charts below shows that consumption has catch up and seem to be back to its previous trend before the slowdown in the first quarter. Savings rate remained moved down a bit to 4.7% (from 4.8%) in the month (the average rate observed since 2013 is 5%).

Disposable income seems to be in a steady trend, while household consumption rebounded from the lows early in the year and is back to its previous trend growth.

Chart 1a) Income and expenditures, nominal, since 2007

The growth trend in the last 12 months for disposable income went up to 3.3% in August from 3.2% in July and 3.1% in June, while the growth trend for consumption moved up to 3.4% from 2.8% and 2.6%, respectively.

Cart 1b) Income and expenditures, nominal, last 2 years

Chart 2a) Income and expenditures, volume, since 2007

When looking at volumes (constant prices) the trend growth in real disposable income slowed to 3.% in the last two years (from 3.2%), while real consumption rose 3% (from 2.8%).

Chart 2b) Income and expenditures, volume, last 2 years

The chart below shows slightly different measures of income. The green line shows private sector wages have clearly slowed down in recent months (from above average growth) and are now more aligned with the broader concept of disposable income.

Chart 3a) Different measures / concepts of household income, since 2007

Chart 3b) Different measures / concepts of household income, last 2 years

The chart below shows that almost all the recent stagnation in consumption was due to 'energy' consumption.

Chart 4a) Household consumption, core vs total, nominal, since 2007

Chart 4b) Household consumption, core vs total, nominal, last 2 years

Chart 4c) Household consumption, core vs total, volumes, since 2007

Chart 4d) Household consumption, core vs total, volumes, last 2 years

Breaking household consumption into goods and services show that the recent soft patch was entirely due to goods consumption -- but take a look in the chart of volumes: it shows goods consumption growing even faster than its recent growth trend.

Chart 5a) Goods and services consumption, nominal, since 2007

Chart 5b) Goods and services consumption, volume, since 2007

Digging further into goods consumption it is evident that most of the hit happened in nondurable (which includes gasoline), but when adjusting for prices nondurable goods seem to be back to the previous growth trend.

Chart 6a) Goods consumption (durables and nondurables), nominal, since 2007

Chart 6b) Goods consumption (durables and nondurables), volume, since 2007

Chart below focus only on nondurable goods (volume) to better spot the trends.

Chart 6c) Goods consumption (nondurables), volume, since 2007

US 2Q15 GDP (third release): revised up to 3.9% (from 3.7%); real GDI revised up a tenth to 0.7% in the quarter

Posted on September 25th, 2015

Main takeaways:

GDP keeps running above potential.
But GDI has been running very weak in the last two quarters. It may only be a 'catch-down' since GDI was running above GDP, but it bears watching.
Inventories are close to the highs -- this could trigger a short-term GDP slowdown.
Investments (ex. oil) are picking up.
The value of goods and services purchased by US residents, "private" GDP, private domestic demand, are all growing at or slightly above 3%.

Second quarter GDP was revised up by 0.2pp, above market consensus of no change.

Note that the contribution from inventories went down by 0.2pp.

Chart pack

GDP is running roughly 1pp above potential...

The average of GDP and GDI is running a bit below GDP. GDI has slowed in the last two quarters -- the statistical discrepancy is shrinking, since GDI is higher than GDP, but it is worth watching how GDI evolves in the coming quarters.

GDP excluding inventories is growing at 2.5%...

The value of goods and services purchased by US residents (regardless of where goods and services were produced) excluding inventories is growing at a healthy 3% since mid-2014...

... a similar growth pace is obtained if one looks only at "private GDP" (i.e., GDP excluding government consumption and investment)...

...and private domestic demand is growing at 3.5%.

Looking only at business value added, the growth pictures is similar to the whole GDP. It was very strong in 2Q (5.1%) and growing at around 3% since mid-2014.

GDP breakdown: Consumption

Consumption rebounded in 2Q and is growing a bit above 3%.

Excluding energy and food, consumption growth is even higher.

GDP breakdown: Investment

Overall investment growth rebounded in the last few quarters but the annual pace of growth is slowing...

...but recall that there is a collapse in investment in the oil sector.

Excluding oil sector, overall investment picture is improving, with annual growth rates at 6.9%. Note that this is not far away from the pace of investment growth before the great recession.

Nonresidential investment in structures excluding the oil sector is "booming"...

...and investment in intellectual property (R&D) is also booming...

...but traditional equipment investment is lagging well behind.

Housing investment has recovered from the taper tantrum and is growing at a pace comparable to before the great recession.

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