2nd quarter GDP revision; July’s income and outlays, durable goods and new home sales; June’s Case-Shiller, et al

the key releases of the past week were the 2nd estimate of 2nd quarter GDP from the BEA on Thursday, and the BEA report on personal Incomes and spending for July on Friday, which gives us the largest component of 3rd quarter GDP for the month….other widely watched reports included new home sales for July released on Monday, and the Case-Shiller house price indexes and the Census report on orders, shipments, and inventories of durable goods, both released on Tuesday….other reports included the the Chicago Fed National Activity Index for July (pdf), a composite index of 85 different economic metrics grouped into four broad categories of data, which rose to +0.39 in July from +0.21 in June.as 53 of the indicators were positive, indicating growth above trend….three of the four broad categories of indicators that make up the index made positive contributions in July: production related indicators added .0.31 to the index, employment-related indicators added 0.13, sales, orders, and inventories added 0.05, while the the consumption and housing category subtracted 0.10 from the overall reading for July…we also saw the release of three regional Fed manufacturing surveys; the August Texas Manufacturing Outlook Survey from the Dallas Fed indicated somewhat slower expansion in the district as its broadest business index slipped from 12.7 in July to 7.1 in August as the production index fell from 19.1 to 6.8, in indices where positive readings indicate expansion….then the Richmond Fed, reporting for a District that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported slightly faster growth in August as the Fifth District manufacturing composite index rose to 12, up from a reading of 7 in July, as new orders and shipments both rose…in addition, the Kansas City Fed, surveying an region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported that Growth in Tenth District Manufacturing Activity Slowed Slightly (pdf) as their August composite index fell to 3 in August from 9 in July as manufacturers of non-durable goods slowed somewhat…

2nd Quarter GDP Growth Rate Revised to 4.2%

the Second Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our economy grew at a 4.2% rate in the first quarter, revised from the 4.0% rate reported last month, as fixed investment and net exports were revised up and inventories were revised down…in current dollars, our 2nd quarter GDP would extrapolate to $17,311.3 billion annually, up 1.57%, or at a 6.4% annual rate from the $17,044.0 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, the current dollar value of output is adjusted for inflation based on prices chained from 2009 , from which all percentage calculations in this report are based….the resulting inflation adjustment used in the second quarter, aka the “GDP deflator”, implies annual inflation at a 2.1% rate, up from the annualized 2.0% inflation factor previously reported for the second quarter, and up from 1.3% GDP deflator applied to GDP in the 1st quarter…while we cover the details below, recall that all quarter over quarter percentage changes reported in this release are given at an annual rate, which means that they’re expressed as a change a bit over 4 times of the change that actually occurred over the 3 month period…

while the net growth of real personal consumption expenditures was unchanged from the 2.5% annual rate of increase reported in the first estimate, that was a coincidence of the downward revision of real non-durable goods consumption balancing the revised increase in real outlays for services….even so, real personal outlays for durable goods rose at an 14.3% annual rate in the quarter and added 1.00% to GDP, up from the 14.0% growth rate first reported, boosted in part by a negative 1.8% price deflator…deflation adjusted consumption of motor vehicles, which grew at a 19.9% annual rate, accounted for almost half of the increase in consumer spending for durables and added 0.47% to 2nd quarter growth, while real outlays for durable household equipment and furniture rose at a 12.6% annual rate and added 0.20% to GDP, and real spending for recreational goods and vehicles rose at a 8.9% rate and contributed 0.26% to the quarter’s growth rate…meanwhile, real personal spending for non-durable goods rose at a 1.9% rate, down from the previous estimate of a 2.5% growth rate, as inflation adjusted food and beverage outlays fell at an inflation adjusted 1.5% annual rate and inflation adjusted energy goods consumption fell at a 9.6% annual rate…so while the increase in real consumption of clothing and all other core non-durable goods added .46% to GDP, the decrease in real outlays for food subtracted .08% and the decrease in energy goods consumption subtracted .09%…real consumption of services, however, grew at an 0.8% rate and added 0.40% to the quarter’s growth, revised from the 0.7% growth rate and 0.31% addition reported last month, as real outlays for housing and utilities contracted at a 3.4% rate but only partially offset modest growth in real outlays for health care, financial services, transportation services, food services, recreation and other services..

seasonally adjusted real gross private domestic investment grew at a 17.5% annual rate in the 2nd quarter, an even stronger clip than the 17.0% that was first estimated, as the growth rate of private fixed investment was revised to 8.1% from the 5.9% estimate of last month and thus added 1.25% to the 2nd quarter’s growth rate…real non-residential fixed investment grew at a 8.4% rate, rather than the 5.5% previously estimated, as investment in non-residential structures was revised from growth at a 5.3% rate to growth at a 9.4% rate, which added 0.26% to the quarter’s GDP growth…in addition, investment in equipment grew at a 10.7% rate, not the 7.0% rate previously reported, and added 0.59% to 2nd quarter growth, and the quarter’s investment in intellectual property products was revised from a growth rate of 3.3% to a 4.4% growth rate and added 0.17% to the annualized change in growth for the quarter…residential investment was the only category of fixed investment to see a slight downward revision, as it grew at a 7.2% rate, not the 7.5% reported last month, and as a result added 0.22% to economic growth in the 2nd quarter…

meanwhile, the real (inflation adjusted) change in private inventories was also revised down, as they grew by an inflation adjusted $83.9 billion, revised from the $93.4 billion increase reported previously, and hence there was a $48.7 billion change in inventory growth from the first quarter’s increase of $35.2 billion, which added 1.39% to the quarter’s growth rate…since higher inventories are indicative of produced goods that have not been shipped or sold, their increase by $47.8 billion means real final sales of GDP were less than the headline figure by that amount and thus are recorded rising at a 2.8% rate in the 2nd quarter..

the figures for the change in our real 2nd quarter net trade figures were revised as well, roughly in line with our estimates in reporting on the June trade report, which was released a week after the 1st estimate….the BEA originally estimated that our 2nd quarter exports had increased at an inflation adjusted 9.5% annual rate while imports rose at a 11.7% rate, for an increase in the trade deficit over the 1st quarter that subtracted 0.62% from the 1st estimate of 2nd quarter GDP…with the revision including corrected June data, we now find that 2nd quarter exports have increased at 10.1% rate, while growth in imports was slightly smaller than the original estimate at 11.0%…as you should recall, exports add to gross domestic product because they represent that part of our production that was 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 exports added 1.31% to 2nd quarter growth, while the nominally larger change in real imports subtracted 1.74% from the 2nd quarters’s GDP…  

finally, there were only minor revisions to real government consumption and investment in this 2nd estimate…real federal government consumption and investment shrunk at a 0.9% rate vis a vis the first quarter, revised from 0.8% lower, as real federal spending for defense grew at a 0.9% rate and added 0.04% to GDP, rather than the 1.1% growth rate and 0.05% addition previously published, while.all other federal consumption and investment fell at a 3.7% rate, which was unrevised, and which subtracted 0.10% from GDP…real state and local outlays rose at a seasonally adjusted 2.9% rate, rather than the the 3.1% increase previously reported, as real state and local investment rose at a 11.1% rate and added 0.20% to GDP while state and local consumption expenditures rose at a 1.3% rate and added 0.12% to 2nd quarter growth…

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 quarterly changes in gross private investment, including structures, equipment and intangibles, are shown in red, the change in imports are shown in green, the change in exports are shown in purple, while a component of investment, the quarterly change in private inventories is in yellow..then 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…. 

2nd quarter 2014 GDP 2nd estimate

Personal Income Rises 0.2% in July as Spending Falls 0.1%

the other key monthly release this week, also from the Bureau of Economic Analysis, was on Personal Income and Outlays for July, 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 a price index for PCE, the inflation gauge the Fed targets and which is used in this report to adjust both personal income and consumption expenditures for inflation to arrive at ‘real’ change figures….like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the actual monthly dollar changes, which are not reported, are thus 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, so it’s frequently misreported that way…

in July, total personal income increased at a seasonally adjusted and annualized $28.6 billion rate to what would be a gross national annual income of $14,799.0 billion, which was 0.2% higher than in June, when personal income increased by 0.5% over May…disposable personal income (DPI), which is total income after taxes, increased at an annualized rate of $17.7 billion to $13,061.1 billion annualized, which was also a 0.2% increase over June, while June’s DPI was also up 0.5% over May…increases in private wages and salaries accounted for $12.9 billion of the July personal income gain, with $12.3 billion of that increase seen in service industry payrolls, as manufacturing payrolls were unchanged…increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.7 billion of July’s annualized increase, while employee contributions for government social insurance, which is subtracted from the personal income figure, increased at a $2.0 billion rate…meanwhile, proprietors’ income decreased at a $2.7 billion rate in July, as a $9.0 billion decrease in farm owners incomes more than offset a $6.3 billion increase in incomes of individual proprietors of other types of business….other sources of the July personal  income increase included rental income of individuals, which increased at a $5.5 billion clip in July, personal interest and dividend income, which increased at a $1.4 billion rate, and personal transfer payments from government programs, which increased at a $8.1 billion rate..

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which were a major positive factor in the 2nd quarter GDP data we reviewed earlier, fell at a $13.6 billion annual clip to $11,900.5 billion in July, which was 0.1% lower than June and an ominous start to the 3rd quarter….personal outlays for services were down at a $1.1 billion rate to an annualized $7,923.4 billion, personal spending for durable goods fell at a $9.1 billion rate to $1,298.4 billion annually, while personal consumption of non-durable goods fell at a $3.4 billion annual rate to an annualized $2,678.7 billion…..total personal outlays, which includes interest payments, and personal transfer payments in addition to PCE, fell by an annualized $12.0  billion in April to $12,322.0 billion, in contrast to the increase of $51.2 billion in June outlays….however, the lower outlays left personal savings, which is disposable personal income less total outlays, at $739.1 billion for the month, up from savings of $709.4 billion in June…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 5.7% in July, up from 5.4% in June… 

while personal consumption expenditures accounted for 68.2% of our 2nd  quarter GDP, before they were included in the computation of the change in 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 price index based on 2009 prices = 100….that index rose to 109.114 in July from 109.023 in June, giving us a month over month inflation rate of 0.08% and a year over year PCE price index increase of 1.61%; as a result, inflation adjusted or real personal consumption expenditures fell by 0.2% July after rising 0.2% in June, which would indicate a negative PCE contribution from July to GDP for the coming third  quarter (since real PCE in April and May was relatively flat)….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 just 0.1% in July, after 0.3% real increases in each of the three previous months..

our FRED graph below, which can also be viewed as an interactive, 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 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 as shown below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 20.7% over the span of this graph…   

July 2014 income and outlays

Backlog of Orders for Durable Goods Up 5.4% in July, 12.4% More than a Year Ago

an unusually large number of orders for the costly new Boeing 777Xs in July skewed the widely watched new orders for durable goods for the month, rendering the headline increase a one time phenomena which will likely be reversed when new orders return to a normal pace… the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau estimated that new orders for manufactured durable goods rose by a seasonally adjusted $55.3 billion, or 22.6%, to $300.1 billion, a new all time high, after rising by 2.4% in June…the increase was driven by an increase in new orders for transportation equipment, which were up $56.6 billion to $133.0 billion, which in turn was driven by a 318.0% increase to $70,281 million in new orders for commercial aircraft …new orders excluding transportation equipment actually fell 0.8%, while the important new orders for capital goods less aircraft fell 0.5% to $72,639 million…meanwhile, seasonally adjusted July shipments of durable goods, which will be reflected in 3rd quarter GDP, increased by $8.0 billion or 3.3% to a new record $248.9 billion, with shipments of automotive equipment, up $4.8 billion or 10.4% to $50,935 million, leading the increase….in addition, seasonally adjusted inventories of durable goods, which have been up 15 out of the last 16 months, rose $2.1 billion or 0.5% to a record  $401.9 billion, with a 1.2% increase to $73,370 million of commercial aircraft inventories, which are now 15.3% higher than they were a year ago, leading the increase…finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, increased by $59.2 billion or 5.4% to a record  $1,158.5 billion …with their long lead times, commercial aircraft orders, which were up 11.2% at $565,769 million, are a large part of this aggregate, but even without transportation equipment, unfilled orders still increased by 0.5% to $420,089 million, with unfilled orders for non-defense capital goods up a solid 1.1% to $248,439 million…overall, unfilled orders for durable goods were 12.4% ahead of last year’s backlog…

New Home Sales Continue at Below a 450,000 a Year Pace

according to the Census bureau report on New Residential Sales for July (pdf), new single family homes sold at a seasonally adjusted annual rate of 412,000, which was 2.4 percent (±11.9%)* below the revised June sales rate of 422,000 homes a year, but was 12.3 percent (±17.1%)* above the 367,000 a year pace that new homes were selling at in July of last year… the asterisks indicate that based on their small sampling, Census could not be certain whether July’s new home sales rose or fell from those of June or even from those of a year ago, but they’re 90% confident that July home sales rose less than 9.5% or fell less than 14.3% from those of June, and that new homes could have sold as many as 29.4% more than last JUly or as few as 6.8% less than last July, a range of uncertainty to be expected in this report which has the largest margin of error of any census construction series….the unadjusted data from Census field reps estimated that 37,000 homes sold in July, down from 40,000 in June, which was revised from the original estimate of 38,000, while May’s unadjusted sales were revised back up to 43,000, after they were revised down from 49,000 to 42,000 last month…of the 37,000 homes sold in July, 13,000 were completed, 13,000 were under construction, and 13,000 had not yet been started…the median new home sales price was $269,800, in July, down from $280,100 in June; while the average sales price was $339,100, up from June’s $332,100 average, as more homes sold for under $200,000 or over $750,000 in July than in  June…the Census estimated that a seasonally adjusted 205,000 new homes remained unsold at the end of July, which was a 6.0 month supply at the July sales pace, down from a 5.8 month supply in June…the FRED graph below show the historical data from this Census report, with the monthly sales reported as an annualized figure…note that new home sales have been stuck in a monthly range that would result in between 400,000 and 450,000 homes being sold annually since the end of 2012…

July 2014 new home sales

June Case-Shiller Report Shows Home Prices Rising 8.1% Year Over Year

the release of the Case-Shiller Home Price Index for June includes their 2nd quarter National home price index, comparing prices for repeat sales of homes over the 2nd quarter to the 1st quarter, in addition to the usual monthly 10 city and 20 city indexes which compare home prices of the three month period of April to June vis a vis the 3 month period from March to May…for June, they reported  both the 10-City Composite and the 20-City Composite Index increased by 1.0% for the month, while both Composites posted annual home price increases of 8.1%, in contrast to year over year gains of 9.4% for the 10-City Composite and 9.3% for the 20-City Composite last month…meanwhile, the 2nd quarter national index indicated that prices were up 0.9% in June and 6.2% from the 2nd quarter of last year…all 20 cities saw home prices rise for the month; the largest one month home price increases were registered in New York City at 1.6%, while Chicago, Boston and Las Vegas saw home prices rise 1.4%; meanwhile, at the low end San Francisco saw just a 0.3% in their home price index…..the largest year over year home price increases were seen in Las Vegas at 15,2%, San Francisco at 12.9%, Los Angeles at 10.5% and Detroit at 10.3%, while Cleveland, where prices rose 0.8%, Charlotte, where prices were up 3.8%, and New York, where prices rose 4.5%, were the only cities showing an annual home price increase of less than 5%…

included below are 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, which are 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 home price index values for each of them for the June report in our screenshot…

June 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…

June 2014 Case Shiller M-Z

(the above is the synopsis that accompanied my regular 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 receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

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