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

the key reports this past week were the 2nd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was released on Thursday, and the July report on Personal Income and Spending, also from the BEA, which was released on Friday.. other widely watched reports included the July advance report on durable goods and the July report on new home sales, both from the Census bureau, and the March Case-Shiller Home Price Index…also released this week was the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, constructed such that a zero value indicates economic growth at the historical trend rate; the CFNAI rose to rose to +0.34 in July, up  from –0.07 in June, which left the 3 month average at +0.06, indicating national economic activity has been slightly above its historical trend…the week also saw two more regional Fed manufacturing surveys for August; the Kansas City Fed manufacturing survey, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to -9 in August, down from -7 in July, indicating a ongoing regional contraction, mostly in the energy industry, and the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index fell to 0, following last month’s reading of 13, indicating that regional manufacturing had stagnated in August…

2nd Quarter GDP Growth Rate Revised to 3.7% From 2.3%

in one of the largest GDP revisions that we’ve seen, the Second Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.7% rate in the 2nd quarter, revised from the 2.3% growth rate reported in the advance estimate last month, as personal consumption, fixed investment, inventories and government expenditures were all revised higher while imports (which subtract from GDP) were revised lower…in current dollars, our second quarter GDP grew at a 5.9% rate, increasing from what would work out to be $17,649.3 billion a year in the 1st quarter to $17,902.0 billion annually in the 2nd quarter, with the headline 3.7% annualized rate of increase in real output arrived at after a deflator of 2.1% was applied to that current dollar change…

while we cover the details below, remember that the press release for GDP reports all quarter over quarter percentage changes 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, and that they only use the prefix “real” to indicate that the change has been adjusted for inflation using prices chained from 2009, and then that all percentage changes in this report are calculated from those nonsense 2009 dollar figures, which we think would be better thought of as a quantity indexes…given the misunderstanding evoked by the press release, all the data that we’ll use in reporting the changes here comes from the pdf for the 2nd estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts…the pdf for the 2nd quarter advance estimate, which this estimate revises, is here

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 3.1% annual rate, rather than the 2.9% growth rate reported last month, which was arrived at by deflating the dollar amounts of consumer spending with the PCE price index, which indicated inflation at a 2.2% annual rate in the 2nd quarter, which was unchanged from the first estimate….real consumption of durable goods rose at a 8.2% annual rate, which was revised from 7.3% in the advance report, and added 0.59 percentage points to GDP, as real output of automotive products consumed rose at a 10.5% annual rate and output of all other consumer durable categories also grew…real consumption of nondurable goods by individuals rose at a 4.6% annual rate, revised from the 3.6% increase reported in the 1st estimate, and added 0.60 percentage points to 1st quarter growth, as only real consumption of gasoline decreased by a statistically insignificant amount (rounded to 0.0%), while consumption of services rose at a 2.0% annual rate, revised from the 2.1% rate reported last month, which added 0.93 percentage points to the final GDP tally…an increase at a 7.5% rate in the real output of food services and accommodations led the services increase, as only real consumption of housing and utilities fell from the 1st quarter, when utility output was higher than the seasonally adjusted normal due to the colder than normal winter..

seasonally adjusted real gross private domestic investment grew at a 5.2% annual rate in the 2nd quarter, revised from the 0.3% growth estimate made last month, as real growth in private fixed investment was revised from 0.8% to 4.1% and inventories grew more than they did in the 1st quarter…investment in non-residential structures was revised up from a negative growth rate of 1.6% to a positive 3.1% growth rate, investment in equipment fell at a 0.4% rate, not the 4.1% drop previously reported, and the quarter’s investment in intellectual property products was revised from growth at a 5.5% rate to growth at a 8.6% rate, while growth in residential investment was revised from 6.6% to 7.8% annually…after those revisions,  investment in non-residential structures added 0.09 percentage points to the 2nd quarter growth rate, investment in equipment subtracted just 0.2 percentage points from growth, investment in intellectual property added 0.34 percentage points, while growth in residential investment added 0.22 percentage points to 2nd quarter GDP…

meanwhile, real private inventories were revised from the originally reported $110.0 billion in real growth to show inventory growth at an inflation adjusted $121.1 billion rate, after inventories had grown at an inflation adjusted $112.8 billion rate in the 1st quarter, and hence the $8.3 billion larger real inventory growth added 0.22 percentage points to the 2nd quarter’s growth rate, in contrast to the 0.08 percentage point subtraction from inventory growth reported in the advance estimate…however, since higher inventories indicate that some of the goods produced goods during the quarter are still sitting on the shelf, their increase by $8.3 billion means real final sales of GDP were lower by that much, and hence real final sales only increased at a 3.5% annual rate in the 2nd quarter….

both the increase in real exports and the increase in real imports were revised lower with this release, but since imports were revised down more, our net trade was a larger positive than previously reported, as exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (hence not counted elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was not produced here….our real exports grew at a 5.2% rate rather than the 5.3% real export growth reported in the first estimate, and as a result added 0.65 percentage points to 2nd quarter GDP growth…meanwhile, the real growth of our imports was revised to 2.8% from the previously reported 3.5% growth and hence imports only subtracted 0.42  percentage points from the quarter’s growth rate…thus, our improving trade balance added a net 0.23% percentage points to 2nd quarter GDP, after unbalanced trade subtracted 1.93 percentage points from first quarter growth, and thus the swing in trade by itself accounts for more than half of improvement in the second quarter over the first…

finally, there were also upward revisions to real government consumption and investment in this 2nd estimate…real federal government consumption and investment was seen to be unchanged from the 1st quarter in this estimate, revised from the 1.1% rate of shrinkage of the federal government previously reported…real federal spending for defense was revised to show growth at a 0.3% rate rather than the 1.5% contraction rate previously reported, while all other federal consumption and investment shrunk at a 0.4% rate rather than the 0.5% shrinkage previously reported….real state and local consumption and investment were also revised higher, from growing at 2.0% rate in the first estimate to growth at a 4.3% rate in this estimate, almost entirely accounted for by a 25.2% growth rate in state and local investment that added 0.43 out of the 0.47 percentage point contribution to GDP from the government sector…also note that government outlays for social insurance are not included in this GDP component; rather, they are included in personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services…

Incomes Rose 0.4% in July, Personal Consumption Spending Rose 0.3%

the key monthly release in determining the trajectory of GDP is the report on Personal Income and Outlays from the Bureau of Economic Analysis, which gives us the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated…this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they’re seasonally adjusted and at an annual rate, ie, in today’s case they tell us what income and spending would be for a year if July’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, and in this case of this month’s report they give us the percentage change in each annual metric from June to July…

thus, when the opening line of the press release for this report tell us “Personal income increased $67.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $61.5 billion, or 0.5 percent“, they mean that the annualized figure for all types of personal income in July, $15,349.6 billion a year, was $67.1 billion or 0.4% greater than the annualized personal income figure for June; the actual July increase in personal income over June is not given…similarly, disposable personal income, which is income after taxes, rose by 0.5%, from an annual rate of $13,346.4 billion in June to an annual rate of $13,407.8 billion in July…the contributors to the increase in personal income, listed under “Compensation” in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (PDF) for this release, which is the document we’re referencing…so when the press release says, “Wages and salaries increased $35.8 billion in July” that really means wages and salaries would rise by $35.8 billion over an entire year if July’s seasonally adjusted increase were extrapolated over an entire year, just as proprietor’s income rose at a $11.3 billion annual rate and rental income rose at a $4.4 billion annual rate over the month…so you can see what’s written in the press release is confusing, and often leads to misreporting the data the same way the BEA describes it…..

for the July personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased by $37.4 billion, or 0.3%, which means the annual rate of PCE rose from $12,268.0 billion in June to $12,305.4 billion in July; in addition, the June PCE figure was revised down from the originally reported $12,255.3 billion annually…however, before personal consumption expenditures are used in the GDP computation, they must first be 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….looking at Table 9 in the pdf, we see that that index rose from 109.664 in June to 109.756 in July, giving us a month over month inflation rate of 0.083%, which BEA rounds to 0.1%, following the revised June increase of +0.3% in the PCE price index…applying the 0.1% inflation adjustment to July PCE leaves real PCE up 0.2% in July, following a statistically insignificant increase in June…comparing the annualized July real PCE of 11,212.0 in chained 2009 dollars to the annualized real PCE of 11,166.4 in chained dollars that was reported in the 2nd quarter GDP revision, we find that real PCE is growing at a 1.64% annual rate so far in the 3rd quarter, or at a pace that would add 0.69 percentage points to 3rd quarter GDP…

July New Orders for Durable Goods Rose 2.0% on Autos

July new orders for durable goods were expected to decrease after June new orders were boosted by one time Boeing jet orders at the Paris Air Show, but they unexpectedly rose on a surge of new car orders…the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods rose in July by a seasonally adjusted $4.6 billion or 2.0% to $241.1 billion, following a June increase of 4.1% that was revised from the 3.4% increase reported last month, and a 2.3% decrease in May’s orders, which was revised the reported 2.1% drop…year to date new orders remain 5.1% below the orders level of 2014, but a large part of that decrease is likely due to falling prices in some durable goods, such as primary metals and fabricated metal products…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the headline change, as they rose 4.7% to $83,231 million, mostly on a 4.0% increase to $53,253 million in new orders for automotive equipment…excluding new orders for transportation equipment, new orders were still up 0.6% to $157,877 million, as the important new new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 2.2% to $69,982 million, after rising and upwardly revised 1.4% June and falling by 0.8%  in May…

the seasonally adjusted value of July shipments of durable goods, which will be an input into 3rd quarter GDP after an inflation adjustment, rose by $2.3 billion or 1.0% to $243.2 billion, after the June increase was revised from +0.3 to +0.9%..again, higher shipments of transportation equipment drove the change, rising $1.9 billion or 2.5% to $80.3 billion, as shipments of motor vehicles and parts rose 7.6% to $53,228 million; excluding that volatile sector, other shipments of durable goods were still up 0.2% to %162,824 million….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, slipped by $0.1 billion to $402.1 billion, which is considered statistically unchanged, after June’s 0.4% increase…a  $0.2 billion or 0.5% decrease to $37.1 billion in inventories of primary metals, which were priced 1.4% lower, made the difference, although inventories of computers and defense aircraft, not likely to be so skewed by price changes, were also down…while producer prices for industrial products fell by 0.4% in July, most of the durable goods prices other than metals seem to be up or unchanged, indicating a mild downward inflation adjustment when these shipments and inventories are included in 3rd quarter GDP….

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, rose by $2.3 billion or 0.2% to $1197.5 billion, again largely due to an increase in the backlog in orders for transportation equipment, which rose $2.9 billion or 0.4 percent to $802.6 billion, which you’ll note is more than half the total of unfilled orders outstanding…without the transportation equipment sector, July’s unfilled orders fell by more than 0.1%, falling by $591 million to $394,859 million…and for the first time since we’ve tracked this metric, unfilled orders for durable goods fell below the year ago level by 0.6%, with orders for primary metals, machinery and defense goods all seeing sizable a year over year decrease in their order backlog…

New Home Sales Remain Above Last Year’s Pace

the Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 507,000 new home sales a year, which was 5.4 percent (±14.8%)* above the revised June rate of 481,000 new single family homes a year and 25.8 percent (±22.6%) above the estimated annual rate that new homes were selling at in July of last year….as you know, the asterisk indicates that based on their small sampling, Census could not be certain whether July new home sales rose or fell from those of June, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error and subject to the largest revisions of any census construction series…sales new single family homes in June were revised from the annual rate of 482,000 reported last month to 481,000 a year with this report, while the annual rate of May sales was revised from 517,000 to 521,000, and the annual rate of April new home sales was revised from 523,000 to 508,000…

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 43,000 new homes sold in July, down from 45,000 new homes sold in June, which was unrevised from last month….the unadjusted estimate for May home sales was revised from 48,000 to 49,000, while the estimate for April sales was revised from 50,000 to 48,000….the raw numbers from Census field agents further estimated that the median sales price of new houses sold was $285,900, up from $277,500 in June, which was originally reported as $281,800, while the average July sales price was $361,600, up from $319,600 in June, as the number of homes selling for more than $500,000 rose from ~4,000 to ~6000…. a seasonally adjusted estimate of 218,000 new houses remained for sale at the end of July , which represents a 5.2 month supply at the July sales rate…for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increased to 507,000 Annual Rate in July and Comments on July New Home Sales..

June Case Shiller National Home Price Index is 4.4% Higher Than a Year Ago

the Case-Shiller house price indexes for June, released as usual on the last Tuesday of the month, indicated a 4.6% year over year increase in prices on repeat home sales in the ten cities of the original index, a 5.0% annual increase in the 20 city Composite, and a 4.4% increase in home prices nationally since the June report of last year…they also report a ‘monthly’ increase of 1.0% increase in the 20 city and the national index and a 0.9% increase in the national and the 10 city index, which is deceptive because the month over month figures for this report are comparing prices of houses sold in April, May and June to those sold in March, April and May, and hence the change in the month over month indexes is in effect equal to 1/3rd the difference between June home prices and March prices, logically a seasonal increase at this time of year, which they acknowledge in indicating that with seasonal adjustment, which showed the national index 0.1% higher while the 10 and 20 city indices would be down 0.1% from the previous report….thus, while home prices in all 20 cities showed an increase from last month’s report, after seasonal adjustments, home prices in 9 cities were down, 9 cities were up, and prices in two cities were unchanged…the full pdf of the release, titled Home Prices Continue Upward Trend, is here, and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary…for coverage of this Case-Shiller report on the web, Bill McBride has two posts, which include several graphs: Case-Shiller: National House Price Index increased 4.5% year-over-year in June, followed by his analysis in Real Prices and Price-to-Rent Ratio in June


(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, most from the aforementioned GGO posts, contact me…)

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