2nd quarter GDP revision, August’s reports on durable goods, new and existing home sales

the key release of this past week was the 3rd estimate of 2nd quarter GDP from the BEA on Friday, which showed our economy expanded at a real 4.6% rate this past spring; the week also saw the two reports on home sales for August; the Census report on new home sales and the National Association of Realtor’s report on sales of existing homes…from the manufacturing sector, there was the August advance report on durable goods and two regional Fed surveys for September: 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 September as the Fifth District manufacturing composite index rose to 14, up from a reading of 12 in August, in a diffusion index where positive numbers indicate expanding manufacturing 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 Edged Higher (pdf) as their June composite index rose to 6 in September from 3 in August….this week also saw the release of the Chicago Fed National Activity Index for August (pdf), a weighted composite index of 85 different economic metrics grouped into four broad categories of data, which fell to –0.21 in August from +0.26 in July, with the negative number indicating growth below the historical trend…..45 of the 85 individual indicators made positive contributions as production related indicators subtracted .17 from the index, employment-related indicators added up to zero, sales, orders, and inventories added 0.08, while the the consumption and housing category subtracted 0.12 from the overall reading for August…

2nd Quarter GDP Revised to Show Growth at a 4.6% Rate

the Third Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our economy grew at a 4.6% annual rate in the 2nd quarter, revised from the 4.2% annual growth rate reported last month, as fixed investment and net exports were revised higher…when taking the 2.1% contraction in the first quarter into account, real GDP has now grown at a 1.19% annual rate year to date….in current dollars, our 2nd quarter GDP would extrapolate to $17,328.2 billion annually, up 1.67%, or at a 6.9% annual rate from the $17,044.0 billion annualized figure of the 1st 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 change 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, unchanged from the inflation factor reported for the second quarter last month, and up from the 1.3% 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 compounded change 4 times the change that actually occurred over the 3 month period… 

real personal consumption expenditures, the largest component of GDP, were little changed from the second estimate, as they grew at a 2.5% annual rate and contributed 1.75% to the quarter’s growth rate…real consumption of durable goods grew at a 14.1% rate, revised slightly from the 14.3% growth rate reported in the 2nd estimate, and added .99% to the final GDP figure; almost half of that was an increase in consumption of motor vehicles and parts, which grew at a 19.1% annual rate and added .45% to GDP; in addition, real outlays for durable household equipment and furniture grew at a 12.9% rate and added .20% to the quarter’s GDP, while real consumption of recreational goods and vehicles rose at a 13.3% rate and added .25%, as all durables consumption benefitted from a negative 1.9% deflator…meanwhile, real personal consumption of non-durable goods rose at a 2.2% rate, revised from the previous estimate of a 1.9% growth rate, as inflation adjusted food and beverage outlays fell at an inflation adjusted 1.3% annual rate and inflation adjusted energy goods consumption fell at a 3.3% annual rate…so while the increase in real consumption of clothing and all other core non-durable goods added .49% to GDP, the decreased consumption of food subtracted .07% and the decrease in energy goods consumption subtracted .08%…in addition, real consumption of services grew at an 0.9% rate and added 0.42% to the quarter’s growth, revised from the 0.8% growth rate and 0.40% addition reported in the 2nd estimate last month, as real outlays for housing and utilities contracted at a 3.4% rate and subtracted .40% from 2nd quarter growth on a return to more normal weather, while the health care sector grew at a 3.9% rate and added .45% to the final GDP figure…

meanwhile, seasonally adjusted real gross private domestic investment grew at a 19.1% annual rate in the 2nd quarter, up from the 17.5% that was estimated last month, as the growth rate of private fixed investment was revised to 9.5% from the 8.1% of the 2nd estimate and as such added 1.45% to the 2nd quarter’s growth rate…real non-residential fixed investment grew at a 9.7% rate, rather than the 8.4% rate last estimated, as investment in non-residential structures was revised from growth at a 9.4% rate to growth at a 12.6% rate, which now has added 0.35% to the quarter’s GDP growth…in addition, investment in equipment grew at a 11.2% rate, not the 10.7% rate reported last month, and added 0.63% to 2nd quarter growth, as investment in industrial equipment grew at a 27.3% rate and investment in information processing equipment grew at a 26.6% rate, and the quarter’s investment in intellectual property products was revised from a growth rate of 4.4% to a 5.5% growth rate and added 0.21% to the annualized change in growth for the quarter, as R&D spending rose at a 8.0% annual clip….meanwhile, residential investment was revised to show growth at a 8.8% rate, not the 7.2% rate reported last month, and as a result added 0.27% to overall economic growth in the 2nd quarter…  

in addition, the real (inflation adjusted) change in private inventories was also revised up, as they grew by an inflation adjusted $84.8 billion, revised from the $83.9 billion increase reported a month ago, leaving us with a $49.6 billion change in inventory growth from the first quarter’s inventory growth of $35.2 billion, which in turn added 1.42% to the 2nd quarter’s growth rate…since higher inventories are indicative of produced goods that have not been shipped or sold, their increase by $49.6 billion leaves real final sales of GDP less than the headline figure by that amount and thus they are recorded rising at a 3.2% rate in the 2nd quarter.. 

as we mentioned when reviewing the July international trade report 3 weeks ago, the revisions to June in that report resulted in a net positive revision to GDP as well…last month, the BEA estimated that our seasonally adjusted 2nd quarter exports had increased at an inflation adjusted 10.1% annual rate while imports rose at a 11.0% rate, for an increase in the trade deficit that subtracted 0.43% from the 2nd estimate of 2nd quarter GDP…with the revision including corrected June data, we now find that 2nd quarter exports have increased at 11.1% rate, while growth in imports were revised to 11.3% from the previous estimate…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 revised increase in real exports added 1.43% to 2nd quarter growth, while the increase in real imports subtracted 1.77% from GDP, leaving us with a smaller negative .34% impact of trade on the 2nd quarter’s GDP…   

lastly, while real government consumption and investment at the Federal level was mostly unrevised, state and local governments grew more than previously estimated…real federal government consumption and investment shrunk at a 0.9% rate vis a vis the first quarter, which was unrevised, as real federal spending for defense grew at a 0.9% rate and added 0.04% to GDP, while.all other federal consumption and investment fell at a 3.8% rate, rather than the 3.7% rate published in the earlier two estimates, and which still subtracted 0.10% from GDP…real state and local outlays rose at a seasonally adjusted 3.4% rate, rather than the the 2.9% increase previously reported, as real state and local investment rose at a 14.6% rate and added 0.26% to GDP while state and local consumption expenditures rose at a 1.2% rate and added 0.11% to 2nd quarter growth…  

our new 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 real fixed private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is shown in yellow, the real change in exports are shown in purple, while the change in real imports is shown in green ..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 3rd estimate

Durable Goods Order Backlog at Record $1,165.0 Billion in August, 13.1% Higher than Year Ago

although the headlines read that new orders for durable goods fell 18.2% in August, that widely watched monthly change in new orders was again rendered meaningless by the change in volatile orders for civilian aircraft, as new orders for Boeing jetliners fell to 107, from the record 324 logged in July, and hence August’s new orders merely reflect the absence of those orders that drove the July gain to a seasonally adjusted increase of 22.5% over June…the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau estimated that new orders for manufactured durable goods fell by a seasonally adjusted $54.5 billion to $245.4 billion, a record drop that effectively reversed the $55.1 billion or 22.5% increase in July….new orders for transportation equipment fell 42.0% to $76,804 million as new orders for non-defense aircraft fell 74.3% to $17,976, but strip out the orders for transport equipment and new orders rose 0.7% in August to $168,629 million, with a respectable 0.6% increase to $73,233 million in the important new orders for non-defense capital goods less aircraft, an indicator of business investment…meanwhile, seasonally adjusted shipments of durable goods, which will be reflected in 3rd quarter GDP, decreased by $3.7 billion or 1.5% in August to $246.1 billion, with shipments of automotive equipment, down $4.8 billion or 6.7% to $47,422 million, largely responsible, as shipments excluding transportation equipment rose 0.1% to $173,564 million….in addition, seasonally adjusted inventories of durable goods, another GDP contributor which have been up 16 out of the last 17 months, rose $1.7 billion or 0.4% to a new record at $403.0 billion, as once again inventories of motor vehicles and parts, up 0.7% to $26,877 million, influenced the overall increase…but more importantly, 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 $7.4 billion or 0.6% to a record  $1,165.0 billion …once again, the order backlog for automotive equipment, up 1.3% to $17,084 million, and for civilian aircraft with their long lead times, up 0.8% to $570,069, were a large part of this aggregate increase, but even without transportation equipment, unfilled orders still increased by 0.8% to $422,930 million, with unfilled orders for non-defense capital goods up a solid 1.0% to $731,756 million…overall, unfilled orders for durable goods are now 13.1% ahead of last year’s backlog…

Existing Home Sales Fall 1.8% in August as New Home Sales Rise ~18%

according to the National Association of Realtors (NAR), seasonally adjusted existing home sales fell by 1.8% in August to an annual rate of 5.05 million completed transactions, from an revised annual rate of 5.14 million sales in July, while home sales still remained 5.3% below the annual sales rate of 5.33 million units in August of last year….before the seasonal adjustment and conversion to an annualized figure, an estimated 479,000 homes sold in August, down 3.0% from the 494,000 homes that sold in July and down 7.5% from the estimated 518,000 homes that sold in August a year ago…both seasonally adjusted and unadjusted data (pdf) indicate that homes sales are down in every region of the country from a year ago, with sales in the West down the most, 12.9% lower than a year ago….the preliminary median home selling price for all housing types was $219,800 in August, down from $221,600 in July, but 4.8% higher than the $209,700 median sales price in August of last year, in home price data that is not seasonally adjusted…the average home sales price was $265,200, down from $267,500 in July, while up 3.4% from $256,600 in August a year ago, with regional average home prices ranging from a high of $341,900 in the West to the average of $211,800 for homes sold in the Midwest….foreclosed homes, which sold for an  average of 14% below the price of similar homes in their market, accounted for 6% of August sales, while short sales, at 2% of all sales, were discounted by an average of 10%…the median time on the market for all homes was 53 days in August, up from 48 days in July, and up from a median of 43 days on the market in August a year ago.…those who bought houses with cash accounted for 23% of transactions in August, down from 29% in July and the lowest overall share of all cash buyers since December 2009, while those identified as investors accounted for 12% of all transactions, down from 16% in July and down from the 17% sales to investors a year earlier….domestic 30 year mortgage rates averaged 4.12% in August, down from 4.13% in July; while the share of first time home buyers remained unchanged at 29%, still well below the historical average of 40%….2.31 million existing homes remained available for sale at the end of August, which would be a 5.5-month supply of unsold homes at the August sales pace, down 1.7% from July but up from the 2.21 million existing homes available for sale a year earlier…

while existing homes sales were somewhat lower in August, sales of new homes were around 18% higher than July sales, which themselves were revised up by nearly 4%… the Census bureau report on New Residential Sales for August estimated that new single family homes were sold at a seasonally adjusted annual rate of 504,000 in August, which was 18.0 percent (±16.3%) above the revised July rate of 427,000 annually and was 33.0 percent (±21.7%) above the annualized new homes sales pace in August of last year….the July annualized sales rate was revised up from the 412,000 annually reported a month ago to 427,000, while June’s sales rate was revised down from 422,000 annually to 419,000…note that the number in parenthesis is the 90% confidence range, which indicates that based on their small sampling, Census is only 90% confident that August home sales rose between 11.3% and 54.7% over those of a year ago, and that this report may be subject to revisions even greater than that range….although August’s annualized new home sales were widely reported as at the highest rate since May 2008, we should point out that 504,000 was the same annual rate first published for May of this year, which was subsequently revised down to 442,000 annually the next month…the unadjusted data from Census field reps estimated that 41,000 homes sold in August, up from 39,000 in July, while July’s unadjusted sales were revised from 37,000 up to 39,000…of the 41,000 homes sold in August, 12,000 were completed, 15,000 were under construction, and 14,000 had not yet been started…the median new home sales price was $275,600;in August, down from $280,100 in July, while the average sales price was $347,900, up from July’s $345,100 average, as more expensive homes were in the sales mix… the Census estimated that a seasonally adjusted 203,000 new homes remained unsold at the end of August, which was a 4.8 month supply at the June sales pace, up from from a 5.6 month supply of unsold new homes in July…

the FRED graph below shows the seasonally adjusted annual rate of new single family home sales from this Census report in thousands since January 2000 in red, and the seasonally adjusted annual rate of existing home sales from the Realtors monthly over the same time period in blue…although new home sales appears to be in a uptrend, breaking out above 450,000 annually, we’d caution that the same spike was reported in May before it was revised away…this graph can also be viewed as an interactive at the FRED site, where the annualized monthly sales extrapolations for both existing and new homes will appear as you scroll across the face of the graph…

August 2014 new and existing home sales

(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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