2nd quarter GDP revision; August’s durable goods, new and existing home sales, et al

the key report this week was the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was released on Friday…other widely watched reports included the August advance report on durable goods from the Census bureau, and the two reports on home sales: the August report on new home sales from the Census bureau and the August report on existing home sales from the National Association of Realtors (NAR)…also released this week was the Chicago Fed National Activity Index (CFNAI) for August, 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 fell from a revised +0.51 in July to -0.41 in August, which left the 3 month average at +0.01, indicating national economic activity has been very close to the historical trend this summer…the week also saw two more regional Fed manufacturing surveys for September; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell to -5, following last month’s reading of 0, indicating the onset of a regional slowdown, as the regional index for September new orders fell from 1 to -12…then 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 was at -8 in September, little changed from -9 in August and -7 in July, indicating a ongoing regional contraction, mostly in the energy industry…thus far, the 4 regional Fed surveys that have reported for September have all been negative…

2nd Quarter GDP Revised to Show Growth at a 3.9% Rate

the Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 3.9% annual rate in the quarter, revised from the 3.7% growth rate reported in the second estimate last month, as personal consumption expenditures, nonresidential fixed investment, and residential investment increased more than previously estimated and the increase in private inventory investment was smaller than previously estimated…in current dollars, our second quarter GDP grew at a 6.1% annual rate, increasing from what would work out to be $17,649.3 billion a year in the 1st quarter to $17,913.7 billion annually in the 2nd quarter, with the headline 3.9% annualized rate of increase in real output arrived at after an annualized inflation adjustment of 2.1% was applied to the 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 each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts…given the misunderstanding evoked by the oversimplified press release, all the data that we’ll use in reporting the changes here will come from the pdf for the 3rd 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 estimate of the 2nd quarter, which this estimate revises, is here

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show real growth at a 3.6% annual rate, rather than the 3.1% growth rate reported last month, as a revised 5.8% increase in the rate of personal spending was deflated with an annualized 2.2% increase in the PCE price index, an inflation adjustment which remained unchanged from the first estimate….real consumption of durable goods rose at a 8.0% annual rate, which was revised from 8.2% in the 2nd estimate, and added 0.57 percentage points to GDP, as real output of automotive products consumed was revised down to show growth at a 9.7% annual rate…real consumption of nondurable goods by individuals rose at a 4.3% annual rate, revised from the 4.1% increase reported in the 2nd estimate, and added 0.62 percentage points to 1st quarter growth, as only real consumption of fuel decreased by a statistically insignificant amount (rounded to 0.0%)….in addition, real consumption of services rose at a 2.7% annual rate, revised from the 2.0% rate reported last month, and added 1.20 percentage points to the final GDP tally…almost all of the services categories saw increases in the 2nd quarter except for real consumption of housing and utilities, which declined from the higher than the seasonally adjusted norm that we saw in the colder than normal 1st quarter..

seasonally adjusted real private domestic investment grew at a 5.0% annual rate in the 2nd quarter, revised from the 5.2% growth estimate made last month, mostly due to slower inventory accumulation, as real growth in private fixed investment was revised from 4.1% to 5.2%…investment in non-residential structures was revised up from a 3.1% growth rate to a 6.2% growth rate, investment in equipment grew at a 0.3% rate, not the 0.4% decline previously reported, and the quarter’s investment in intellectual property products was revised from growth at a 8.6% rate to growth at a 8.3% rate; in addition, growth in residential investment was revised from 7.8% to 9.3% annually…after those revisions,  investment in non-residential structures added 0.18 percentage points to the 2nd quarter growth rate, investment in equipment added 0.03 percentage points to 2nd quarter growth, investment in intellectual property added 0.33 percentage points, while growth in residential investment added 0.30 percentage points to 2nd quarter GDP…

meanwhile, the change in real private inventories was revised from the previously reported $121.1 billion in real inflation adjusted growth to show inventory growth at an inflation adjusted $113.5 billion rate, which comes after inventories had grown at an inflation adjusted $112.8 billion rate in the 1st quarter….hence the $0.7 billion larger real inventory growth only added 0.02 percentage points to the 2nd quarter’s growth rate, in contrast to the 0.22 percentage points addition to GDP from inventory growth reported in the 2nd estimate…however, since lower inventories indicate that fewer of the goods produced goods during the quarter remained ‘on the shelf’, their increase by just $0.7 billion means real final sales of GDP were only lower by that small amount, and hence real final sales also increased at a 3.9% rate in the 2nd quarter, revised up from the real final sales growth at 3.5% reported last month….

the 2nd quarter increase in real exports was revised slightly lower while the increase in real imports was revised higher with this release, so our net trade was a smaller 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 (and not counted elsewhere), while the increased imports subtract from GDP because they represent either consumption or investment added elsewhere that was not produced here….our real exports grew at a 5.1% rate rather than the 5.2% real export growth reported in the 2nd estimate, and as a result added 0.64 percentage points to 2nd quarter GDP growth, revised from 0.65 percentage points added to the 2nd estimate…meanwhile, the real growth of our imports was revised to 3.0% from the previously reported 2.8% growth and hence imports subtracted 0.46 percentage points from the quarter’s growth rate, revised from 0.42…thus, our trade balance added a net 0.18% percentage points to 2nd quarter GDP, still much better than the 1st quarter, when our worsening trade balance had subtracted 1.93 percentage points from first quarter growth…

finally, there were barely any revisions to real government consumption and investment in this 3rd estimate…real federal government consumption and investment was unchanged from the 1st quarter and unchanged from the 2nd estimate, and hence added nothing to 2nd quarter GDP…real federal spending for defense grew at a 0.3% rate, which was unrevised, while all other federal consumption and investment shrunk at a 0.5% rate, which was revised from the 0.4% contraction reported last month….real state and local consumption and investment grew at a 4.3% rate, also unchanged from the 2nd estimate, while they contributed 0.46 percentage points to second quarter growth, fractionally lower than the 0.47 percentage point contribution reported in the 2nd estimate…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…

our FRED bar graph below, which can also be viewed as an interactive at the FRED site, has been updated with these latest GDP revisions…each color coded bar shows the real inflation adjusted change, expressed 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 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 real 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, and 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 did in the recent quarter, they’ll appear below the zero line…it’s fairly clear from this graph that our personal consumption expenditures has underpinned GDP growth over this period, while increasing imports has been the major negative…

2nd quarter 2015 GDP 3rd estimate

August New Orders for Durable Goods Down 2.0%; Shipments and Inventories Unchanged

the nominal value of new orders for durable goods fell back in August after June orders were boosted by one time Boeing jet orders and and July orders were boosted by 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 fell by a seasonally adjusted $4.8 billion or 2.0% to 236.3 billion, following a July increase of 1.9% that was revised from the previously reported 2.0%, and a June increase of 4.1% that was statistically unrevised from last month…year to date new orders remain 4.6% below the orders level of 2014, but some of that decrease is 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 those orders fell 5.8% to $83,231 million on a 5.9% decrease to $15,101 million in new orders for commercial aircraft and a reversal of last month’s 20% increase in new orders for ships and boats…excluding new orders for transportation equipment, new orders were statistically unchanged, down by just $25 million to $157,568 million, as the important new new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.2% to $69,795 million, after increasing by 1.5% June and 2.1% in July, both of which have been upwardly revised ..

the seasonally adjusted value of August shipments of durable goods, which will be inputs into 3rd quarter GDP after an inflation adjustment, were virtually unchanged at $243.2 billion in August after they rose by 1.0% in July and 0.9% in June…much of the change was due to shipments of motor vehicles and parts, which fell 1.4% to $52,967 after rising 4.7% in July; excluding the volatile transportation equipment sector, other shipments of durable goods were up by $26 million to $162,417 million, which is again statistically unchanged…meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $0.1 billion to $401.4 billion, which is considered statistically unchanged, after July’s decrease by 0.2%, which was revised from the originally reported unchanged… inventories of transportation equipment were up 0.7% to $132,546 on a 2.9% increase in inventories of military aircraft; without that, inventories would have fallen 0.3% to $268,854 million…since prices for industrial commodities less fuel were down 0.3% in August, real inventories should be closed to unchanged, but following the downward revision of July inventories, 3rd quarter inventories continue to appear to be a negative for next month’s 3rd quarter report..

we consider unfilled orders for manufactured durable goods a better measure of industry conditions than the widely watched but volatile new orders, but they also fell in August, with the order backlog decreasing $2.2 billion or 0.2 percent to $1,195.3 billion, on the heels of a 0.2% increase in July…this left unfilled orders virtually unchanged from the level of both May and June, as the August backlog in orders for transportation equipment fell $2.1 billion or 0.3 percent to $800.3 billion, which you’ll note is more than half the total of unfilled orders outstanding….without the transportation equipment sector, August’s unfilled orders fell by $137 million to $394,931 million, considered statistically unchanged.. unfilled orders for durable goods are now 1.2% below the year ago level, with orders for computers, primary metals, machinery and defense goods all seeing sizable a year over year decreases in their order backlog…

New Home Sales Continue 20% Above Last Year’s Pace

the Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 552,000 new homes a year, which was  5.7 percent (±16.2%)* above the revised July rate of 522,000 new single family homes a year and 21.6 percent (±18.7%) above the estimated annual rate that new homes were selling at in August of last year….as you know, the asterisk indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of July, 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 July were revised from the annual rate of 507,000 reported last month to 522,000 a year with this report, while the annual rate of June sales was revised from 481,000 to 466,000, and the annual rate of May new home sales was revised from 521,000 to 513,000…

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 45,000 new homes sold in August, up from 44,000 new homes sold in July, which was revised from the originally reported 43,000….the unadjusted estimate for June home sales was revised from 45,000 to 43,000, while the estimate for May sales, originally reported at 51,000, was revised from 48,000 to 47,000….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in August was $292,700, up from $291,100 in July, which was originally reported as $285,900, while the average August new home sales price was $353,400, up from $344,800 in July, but down from the average sales price of $356,200 in August a year ago….a seasonally adjusted estimate of 216,000 new houses remained for sale at the end of August , which represents a 4.7 month supply at the August sales rate…for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increased to 552,000 Annual Rate in August and Comments on August New Home Sales..

Existing Home Sales Fall 4.8% in August

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 4.8% in August, projecting that 5.31 million homes would sell over an entire year if August sales were extrapolated over that year, which was still a rate 6.2% higher than the annual rate projected in August of a year ago…the annual rate of July home sales was revised slightly from 5.59 million to 5.58 million….the NAR also says that the median existing-home price for all housing types in August was $228,700, which was 4.7% higher than a year earlier and the 42nd consecutive year over year increase in home prices…the NAR press release, which is titled Existing-Home Sales Stall in August, Prices Moderate, is in easy to read plain English, so you can check that for additional details…as sales of existing properties do not add to our national output, neither these sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered…

since this report is entirely seasonally adjusted and at a fairly meaningless annual rate, we’ll take a quick look at the raw data overview (pdf), which shows that 505,000 homes actually sold in August, down 8.3% from the 551,000 homes that sold in July (which was revised from 552,000) but still up 5.4% from the 479,000 homes that sold in August last year…the decrease in August home sales was seen in all regions of the country, ranging from an decrease of 10.9% to 122,000 home sales in the Midwest to a 6.1% decrease to 107,000 home sales in the West….that same pdf indicates that the median home selling price for all housing types fell from a downwardly revised $231,800 in July to $228,700 in August, while the average home sales price was $271,600, down 1.6% from the $275,900 average sales price in July, but up 3.0% from the $263,800 average home sales price of August a year ago, with the regional averages ranging from a low of $214,600 in the Midwest to a high of $355,400 in the West…for additional coverage with long term graphs on this report, see Existing Home Sales in August: 5.31 million SAAR and A Few Random Comments on August Existing Home Sales, both from Bill McBride at Calculated Risk… 

(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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