Second estimate sees GDP up 2.1% in Q4; pending home sales climb in January

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Real gross domestic product rose 2.1% in the fourth quarter of 2019, according to the second estimate released by the Bureau of Economic Analysis on Thursday.

The growth rate was the same as the 2.1% reading that was released in the advance estimate in January. In the third quarter, real GDP also increased 2.1%.

Economists surveyed by IFR Markets had expected fourth quarter GDP would still show 2.1% growth.

In the second estimate, an upward revision to private inventory investment was offset by a downward revision to non-residential fixed investment.

The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

"Consumer spending and business investment came in even weaker than initially reported. Trade and inventories offset those losses," said Diane Swonk, chief economist at GrantThornton. "Much weaker growth is expected in the first quarter as the disruptions associated with COVID-19 surface. Real GDP growth could easily slip to 1% in the first quarter."

Current dollar GDP in the fourth quarter rose 3.5% to $21.73 trillion. In the third quarter, that measure of GDP increased 3.8%.

The price index for gross domestic purchases gained 1.4% in the fourth quarter, the same increase as in the third quarter.

The PCE price index increased 1.3%, compared with a rise of 1.5% a quarter earlier. Excluding food and energy prices, the PCE price index increased 1.2%, compared with an increase of 2.1%.

Pending home sales surge
Pending home sales rebounded in January, ticking up following a decline in December, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 5.2% to 108.8 in January. An index of 100 is equal to the level of contract activity in 2001.

Economists polled by IFR Markets had expected a rise of 2.9%.

Year-over-year contract signings increased 5.7%.

Only the West region reported a minor drop in month-over-month contract activity, while the other three major regions each saw pending home sales grow. Year-over-year pending home sales activity was up in all four regions and thus up nationally compared to one year ago.

“This month’s solid activity — the second-highest monthly figure in over two years — is due to the good economic backdrop and exceptionally low mortgage rates,” said Lawrence Yun, NAR’s chief economist.

“We are still lacking in inventory,” he said, adding that December’s and January’s combined supply hit the lowest level since 1999. “Inventory availability will be the key to consistent future gains.”

Durable goods orders decline
New orders for manufactured durable goods fell 0.2% to $246.2 billion in January, the Census Bureau reported. The decrease followed a 2.9% increase in December.

Economists polled by IFR Markets had expected a 1.5% decline.

Excluding transportation, new orders increased 0.9%; excluding defense, new orders increased 3.6%.

Shipments of manufactured durable goods in January fell 0.2% to $250.1 billion after falling 0.1% in December. Declines in transportation equipment drove the decrease.

Unfilled orders for manufactured durable goods were about unchanged in January after a 0.4% rise in December.

“Core durable goods, which exclude defense and volatile aircraft orders, rose a much more respectable 1.1% in January. That largely reflects the bottoming in global growth and cessation in trade tensions we saw at the end of 2019,” Swonk said. “Unfortunately, those gains are expected to be derailed by plant closures and supply chain disruptions triggered by the outbreak of the novel coronavirus, now called COVID-19.”

She added it will take at least another month to see what the effects of the virus will be on the economy.

“There was the world before COVID-19 and the one after,” she said. “We will have to wait until well into March before we see the impact in the data from disruptions to the economy.”

Initial jobless claims rise
Initial jobless claims rose 8,000 to 219,000 in the week ended Feb. 22, up from a revised 211,000 in the prior week originally reported as 210,000, the Labor Department reported Thursday.

Economists surveyed by IFR Markets had expected claim to rise by 211,00.

The four-week moving average rose 500 to 209,750, from the previous week's revised average of 209,250, originally reported as 209,000.

The advance seasonally adjusted insured unemployment rate was 1.2% for the week ending Feb. 15, unchanged from the previous week's unrevised rate.

The advance number for seasonally adjusted insured unemployment in the week ended Feb. 15 was 1.724 million down from the previous week's revised level of 1.733 million, originally reported as 1.726 million.

The four-week moving average rose to 1.729 million, from the previous week's revised average of 1.724 million, originally reported as 1.722 million.

Kansas City Fed manufacturing activity up
Manufacturing activity in the Federal Reserve Bank of Kansas City District in February hit positive territory for the first time in eight months, according to the Fed’s manufacturing survey released Thursday.

“Regional factory activity finally expanded again in February,” said Chad Wilkerson, Kansas City Fed vice president. “This was despite over 40% of firms reporting some negative effect from the spread of coronavirus so far in 2020.”

Expectations for future activity remained at solid levels and the month-over-month price indexes increased at a moderate pace. District firms continued to expect higher prices in the next six months.

The month-over-month composite index increased to positive 5 in February, up from negative 1 in January and negative 5 in December, the Kansas City Fed said. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.

The increase in district manufacturing activity was driven by both durable and non-durable goods plants, particularly food and transportation equipment producers.

Most month-over-month indexes moved into positive territory in February, with many reaching their highest levels in over a year, the Kansas City Fed said. The order backlog and employment indexes continued to decline.

Year-over-year factory indexes rebounded strongly, with the composite index rising to positive 5 from negative 7. The future composite index remained solid, rising to 16 from 14.

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