3rd quarter GDP; September’s personal income and outlays, and durable goods; August’s home prices, et al

the key reports of this past week were the Advance Estimate of 3rd quarter GDP from the Bureau of Economic Analysis, and the September report on Incomes and Outlays, also from the BEA, which breaks down the month’s national data on personal income, personal consumption expenditures, personal savings and the personal savings rate, as well as the price index for PCE, which is the inflation gauge the Fed targets…in addition, this week saw the release of the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for September (pdf) from the Census Bureau, the August S&P/Case-Shiller House Price Indices, and 3 manufacturing diffusion indexes, including 2 from Fed district banks…first, in indexes where positive values indicate expansion, the October Texas area manufacturing survey from the Dallas Fed saw its general business activity index hold steady at 10.5 while their production index fell from 17.6 to 13.7, indicating output grew but at a slightly slower pace than in September; the Richmond Fed October Survey of Manufacturing Activity, covering the 5th Fed District that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported improvement in new orders and shipments as their manufacturing composite index rose to 20, up from a reading of 14 in September; and the Chicago Purchasing Managers Index (PMI) for October from the ISM-Chicago (pdf), which reported their Chicago Business Barometer rose 5.7 points to a one year high of 66.2 in October, indicating a larger plurality of Midwest manufacturers reported expansion than in September…

3rd Quarter GDP Up at 3.5% Rate on Higher Defense Spending and Lower Trade Deficit

the Advance Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis indicated that the real output of goods and services produced in the US grew at a 3.5% annual rate this summer over the output of the 2nd quarter of this year, when output grew at a 4.6% real rate…the third quarter saw a smaller trade deficit and greater defense outlays than the second, while growth in personal consumption and investment spending slowed ….after the first quarter contraction of 2.1%, our year to date growth for the nine months of 2014 works out to 1.5%, or at a little less than a 2.0% annual rate…in current dollars, our 2nd quarter GDP would extrapolate to $17,535.4 billion of economic output annually, up at an annualized 4.9% from the $17,328.2 billion annualized figure extrapolated by the BEA for the 2nd 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 inflation adjustment used in the third quarter, aka the “GDP deflator” would suggest annual inflation at a 1.3% rate, down from the 2.0% deflator applied in the 2nd quarter…as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate is released, which will be two months from now…also note that September trade and inventory data have yet to be reported, and that BEA assumed an increase in exports and a decrease in imports, and that wholesale and retail inventories and nondurable manufacturing inventories had decreased in September…while we cover the details below, remember all quarter over quarter percentage changes reported here are given at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred over the 3 month period…

real personal consumption expenditures, the largest component of GDP,  grew at a 1.8% seasonally adjusted annual rate in the 3rd quarter, compared with growth at a 2.5% rate in 2nd quarter…real consumption of goods was up at a 3.1% annual rate, with consumer purchases of durable goods units growing at a 7.2% rate and adding 0.53% to 3rd quarter GDP on the strength of 1.9% negative deflator and a 12.1% real growth rate in consumption of recreational goods and vehicles and a 9.9% real growth rate in motor vehicle and parts consumption, while real consumption of furnishings and durable household equipment other durable goods was flat….real consumption of non-durable goods, reduced by a 1.3% deflator, was up at a 1.1% rate and added 0.18% to the GDP growth rate, as reduced real outlays for food and beverages and gasoline partially offset real growth in consumption of clothing and footwear and other non-durable goods…meanwhile, real growth in consumption of services increased to a 1.1% annual rate and added 0.52% to GDP as real consumption of financial services and insurance grew at a 5.4% annual rate, real consumption of food and lodging services grew at a 4.1% rate, and real outlays for health care services rose at a 1.8% rate, offsetting small decreases in real outlays for housing and utilities, recreation and other services…

real gross private domestic investment, which had grown at a 19.1% annual rate in the 2nd quarter, stalled in the 3rd quarter and only grew at a 1.0% annual rate, adding just 0.17% to the the quarter’s GDP growth rate, in contrast to the 2.87% that investment growth added in the 2nd quarter…real gross private fixed investment grew at a 4.7% rate as real nonresidential fixed investment grew at a 5.5% rate on a 7.2% increase in real outlays for equipment, with a 24.9% growth rate in outlays for industrial equipment leading that increase, while investment in non-residential structures grew at a 3.8% annual rate and investment in intellectual property products grew at a 4.2% rate, on modest growth in software, R&D, and artistic originals….for the quarter, non-residential fixed investment added to GDP at a 0.68% annual rate, with investment in equipment adding 0.41%, investment in structures adding 0.11%, and investment in intellectual property adding 0.16%, while real residential investment grew at a 1.8% annual rate in contrast to 2nd quarter growth at a 8.8% rate and hence added just 0.06% to the quarter’s growth rate…meanwhile, real private inventories grew by an inflation adjusted $62.8 billion in the third quarter after growth of $84.8 billion in the 2nd quarter, and hence the $22.0 billion slower inventory growth subtracted 0.57% from the quarter’s growth rate, in contrast to the $49.2 billion increase in inventory growth in the 2nd quarter that added 1.42% to that quarter’s GDP…since lower inventories indicate that more of the goods produced goods have either been shipped or sold, their decrease by $22.0 billion means real final sales of GDP were that much higher, increasing at a 4.2% annual rate in the 3rd quarter compared to the real final sales increase at a 3.2% rate in the 2nd quarter, when the change in inventories grew…

real exports, which had grown at a 11.1% rate in the second quarter, grew at a 7.8% rate in the 3rd quarter, but imports fell at a 1.7% rate, in contrast to the 2nd quarter increase in imports at a 11.3% rate, so our net trade added to growth for the quarter…remember that 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, and that it’s the quarter over quarter change in each that affects the quarterly change in GDP…. so the 7.8% increase in our real exports of goods and services resulted in an addition of 1.03% to the third quarter’s growth rate, while the 1.7% decrease in our real imports of goods and services also added another 0.29% to third quarter growth, a sharp contrast from the 1.77% that the increase in imports subtracted from GDP in the 2nd quarter…

finally, real consumption and investment by governments increased at a 4.6% annual rate, as federal government consumption and investment rose at a 10.0% rate over the 2nd quarter, while state and local consumption and investment grew at a 1.3% rate….federal spending for defense grew at a 16.0% rate and added 0.66% to GDP, while non-defense federal consumption and investment grew at a 0.5% rate and added 0.01% to GDP…note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in output of goods or services…meanwhile, state and local government investment and consumption expenditures, which grew at a 1.3% annual rate, added 0.15% to the quarter’s growth rate, as state and local consumption spending rose at a 0.9% rate while state and local investment grew at a 3.4% rate

in our FRED bar graph below, 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, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and  investment is shown in pink, while the real 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…you can see the major contributions to GDP in the 3rd quarter came from personal consumption, exports, and Federal spending & investment, while the smaller increase in inventories was the only component that subtracted from growth…

3rd qtr 2014 advance GDP

September Incomes Increase by 0.2%, Personal Consumption Expenditures Fall by 0.2%

along with the release of the 3rd quarter GDP report, the BEA also released the September report on Personal Income and Outlays, which is where they get the September data on our personal consumption expenditures (PCE), which as we just saw was weaker than expected, largely because of the pullback indicated in this September report…..like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the nominal monthly dollar changes, which are not reported, are actually 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, often confusing reporters…

in September,  total personal income increased at a seasonally adjusted and annualized $22.7 billion rate, to what would be a gross national personal income of $14,892.6 billion annually, which was 0.2% higher than in August, when personal income increased by 0.3% over July…disposable personal income (DPI), which is total income after taxes, increased at an annualized rate of $15.7 billion to $13,134.1 billion annualized, which was just a 0.1% increase over August, while August’s DPI was up 0.3% over July…increases in private wages and salaries accounted for just $12.6 billion of the annualized September personal income gains, with service industry payrolls increasing by $11.9 billion and goods producing industry payrolls rising $0.7 billion….increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.5 billion of September’s annualized increase, while employee contributions for government social insurance, which is subtracted from the personal income figure, increased at a $1.8 billion rate…meanwhile, proprietors’ income decreased at a $0.8 billion rate in September, mostly due to a $9.2 billion decrease in farm owners incomes, as incomes of individual proprietors of other types of business were up $8.4 billion….other sources of the September personal  income changes included rental income of individuals, which increased at a $1.5 billion rate in September, personal interest and dividend income, which fell at a $1.1 billion rate, and personal transfer payments from government programs, which increased at a $7.5 billion rate..  

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which are the basis for the change in real PCE in the GDP data we reviewed earlier, fell at a $19.0 billion annual rate in September to a level of $11,966.7 billion in consumer spending annually, 0.2% lower than August, when PCE increased by 0.5% over July…the current dollar drop in September spending was driven by a $26.4 billion annualized decrease to $1,306.5 billion in outlays for durable goods and a $8.1  billion decrease to $2,673.3 billion in annualized spending for non-durable goods, while spending for services rose at an annualized $18.4 billion rate to an annualized $7,986.8 billion …total personal outlays for March, which includes interest payments, and personal transfer payments in addition to PCE, fell by an annualized $14.5 billion to $12,401.9 billion, which left personal savings, which is disposable personal income less total outlays, at $732.2 billion in September, up from the $702.0 billion in personal savings in August… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose from 5.4% in August to 5.6% in September..

while personal consumption expenditures accounted for 68.2% of our third quarter GDP, before they were included in measurement of the change in our output they were first adjusted for inflation, to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption…that’s done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100….that index rose to 109.152 in September from 109.070 in August, giving us a month over month inflation rate of 0.075% and a year over year PCE price index increase of 1.48%; because of the small monthly increase, the inflation adjusted or real personal consumption expenditures were down 0.2% in September, statistically the same as the unadjusted decrease, after rising 0.5% in August, when the PCE price index was down fractionally…however, using the same PCE price index, disposable personal income was deflated to show that real disposable personal income, or the purchasing power of disposable income, rose by just 0.1% in September, after increasing by 0.3% in August…

our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and 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 14 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI  per capita is up just 21.2% over the span of this graph… 

September 2014 income and outlays

Durable Goods Order Backlog at Record $1,168.7 Billion in September, 12.4% Higher than Year Ago

the widely watched new orders for durable goods unexpectedly fell for the second month in a row in October as widespread weakness was compounded by another big drop in the the volatile big-ticket orders for commercial aircraft….the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for September (pdf) from the Census Bureau estimated that new orders for manufactured durable goods fell by a seasonally adjusted $3.2 billion or 1.3% to $241.6 billion, following the revised August orders decrease of $55.0 billion or 18.3%, a record drop that effectively reversed the $55.1 billion or 22.5% increase in July….new orders for transportation equipment fell 3.7% to $73,447 million after falling 42.4% in August as new orders for non-defense aircraft fell 16.0% to $15,264, while new orders excluding transport equipment orders fell 0.2% in September to $168,186 million, as the important new orders for non-defense capital goods less aircraft, an indicator of business investment, fell 1.7% to $71,824 million…seasonally adjusted shipments of durable goods were also weak, rising only $0.1 billion or less than 0.1% to $245.6 billion after falling 1.8% in August, with shipments of fabricated metal products, up 0.6% to $30,458 million, and transportation equipment, up 0.3% to $72,471 million, the major September increases…meanwhile, seasonally adjusted inventories of durable goods, which have been up 17 out of the last 18 months, rose $1.8 billion or 0.4% to a new record at $404.8 billion, as inventories of  transportation equipment, up 0.8% to $130,926 million, accounted for more than half of the September 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 $3.8 billion or 0.3% to a record  $1,168.7 billion….all categories of durables except communications equipment and defense capital goods saw their order backlog increase, with unfilled orders for automotive equipment, up 1.2% to $17,408 million, and for civilian aircraft with their long lead times, up 0.3% to $572,178, being a large part of this aggregate increase…at month end, unfilled orders for durable goods were 12.4% ahead of last September’s backlog…

Year Over Year Home Prices Increases Fall in August for Eighth Month in a Row

according to the S&P Case-Shiller Home Price Index for August, year over year home price increases continued to decelerate, as the 10-City Composite was 5.5% higher than a year ago while the 20-City Composite Index was 5.6% higher, which were both down from the 6.7% annual home price increases reported for both in July…the month over month change,  which compares their current 3 month average of June, July and August selling prices to last month’s 3 month average of May June, and July prices (and hence is simply a comparison of August’s prices to May’s), both the 10 city and 20 city indexes saw an unseasonably small increase of 0.2%, as did the Case-Shiller National Index…on a similar unadjusted basis, Detroit, where homes sold for 0.8% more, saw the largest monthly increase, followed by Dallas, Denver and Las Vegas, where the metropolitan area price indexes rose 0.5%….cities showing lower prices in this August release compared to last months include San Francisco, where area home prices fell 0.4%, and Charlotte and San Diego, where the home price indices were down 0.1%….in the comparison to last August, home sales prices in Miami were 10.5% higher, followed by 10.1% higher prices in Las Vegas and 9.0% higher prices in San Francisco…Cleveland home prices, up 0.8%, saw the smallest one year increase, followed by Charlotte at 2.5% and Chicago 2.9% higher than last year…

included below are the pair of interactive FRED graphs we have 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 August report in our screenshot… 

August 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 you will 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… 

August 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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