3rd quarter GDP revision, November income and outlays, durable goods, new and existing home sales, et al

this week’s key reports were the 3rd estimate of 3rd quarter GDP and the November report on Personal Income and Spending, both from the Bureau of Economic Analysis, which were released on Tuesday and Wednesday respectively…other widely watched reports included the November advance report on durable goods from the Census bureau, and the two reports on home sales: the November report on new home sales, also from the Census bureau and the November report on existing home sales from the National Association of Realtors (NAR)….this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for November, 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 downwardly revised –0.17 in October to–0.30 in November, which left the 3 month average at –0.20 in November, indicating national economic activity has been slower than the historical trend through Autumn…in addition, the Richmond Fed Survey of Manufacturing Activity for December, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to +6, following last month’s reading of -3, indicating a return to growth in the region’s manufacturing, after 4 months of modest contraction…

3rd Quarter GDP Growth Rate Revised to 2.0%

the Third Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 2.0% annual rate in the quarter, revised from the 2.1% growth rate reported in the second estimate last month, as residential investment increased more than previously estimated and the growth of private inventory investment was smaller than previously estimated…in current dollars, our third quarter GDP grew at a 3.3% annual rate, increasing from what would extrapolate to $17,913.7 billion a year in the 2nd quarter to an annualized $18,060.2 billion in the 3rd quarter, with the headline 2.0% annualized rate of increase in real output arrived at after a deflator of 1.3% was applied to that current dollar change to adjust for inflation..

while we cover the details, 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 the prefix “real” is used 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 3rd 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 for the 3rd quarter, which this estimate revises, is here

growth in real personal consumption expenditures (PCE), the largest component of GDP, was unrevised from the 3.0% annual growth rate reported last month, as a 4.3% increase in the rate of personal spending was deflated with an annualized 1.3% increase in the PCE price index, an inflation adjustment which remained unchanged from the second estimate….real consumption of durable goods grew at a 6.6% annual rate, which was revised from 6.5% in the second estimate, and added 0.47 percentage points to GDP, as real output of recreational equipment and vehicles consumed rose at a 10.2% annual rate and output of all other consumer durable categories also grew…real consumption of nondurable goods by individuals rose at a 4.2% annual rate, revised from the 4.0% increase reported in the 2nd estimate, and added 0.58 percentage points to 3rd quarter growth, as real consumption of gasoline and other energy goods grew at a 5.2% rate and all categories of non-durable consumption also saw growth…meanwhile consumption of services rose at a 2.1% annual rate, revised from the 2.2% rate reported last month, and which added 1.00 percentage points to the final GDP tally…an increase at a 3.6% rate in the real output of health care services led the services increase, as only real consumption of recreational services was slightly lower than it was in the second quarter…

seasonally adjusted real private domestic investment contracted at a 0.7% annual rate in the 3rd quarter, revised from the 0.3% contraction estimate made last month, as growth real private fixed investment was revised from a 3.4% rate to indicate growth at a 3.7% rate, while the contraction in inventory growth was larger than reported in the 2nd estimate…the contraction in investment in non-residential structures was revised from shrinking at a 7.1% rate to a contraction at a 7.2% rate, investment in equipment grew at a 9.9% rate, not the 9.5% growth rate previously reported, and the contraction in the 3rd quarter’s investment in intellectual property products was unrevised at a 0.8% rate; meanwhile, growth in residential investment was revised higher, from a 7.3% rate to growth at an 8.2% rate annually…after those revisions, the contraction in investment in non-residential structures subtracted 0.21 percentage points from the 3rd quarter growth rate, increased investment in equipment added 0.57 percentage points to 3rd quarter growth, lower investment in intellectual property subtracted 0.03 percentage points, while growth in residential investment added 0.27 percentage points to 3rd quarter GDP…

meanwhile, the growth in real private inventories was revised from the previously reported $90.2 billion in real growth to show inventory growth at an inflation adjusted $85.5 billion rate, which came after inventories had grown at an inflation adjusted $113.5 billion rate in the 2nd quarter, and hence this quarter’s $28.0 billion smaller real inventory growth, annualized, subtracted 0.71 percentage points from the 3rd quarter’s growth rate, in contrast to the 0.59 percentage point subtraction from slower inventory growth reported in the second estimate….since slower growth in inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf”, their decrease at a $28.0 billion rate means real final sales of GDP in the 3rd quarter were actually greater by that much, and hence real final sales of GDP grew at a 2.7% rate in the 3rd quarter, compared to the real final sales increase at a 3.9% rate in the 2nd quarter, when the change in inventories was insignificant, and when growth in real final sales was the same as growth in GDP…

the increase in real exports was revised lower with this estimate, while the increase in real imports was revised higher, and as a result our net trade was a greater subtraction from GDP 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 0.7% rate rather than the 0.9% real export growth reported in the second estimate, and as a result added just 0.09 percentage points to 3rd quarter GDP growth…meanwhile, the real growth of our imports was revised to 2.3% from the previously reported  2.1% growth, and hence imports subtracted 0.35 percentage points from the quarter’s growth rate…thus, our deteriorating trade balance subtracted a net 0.26 percentage points from 3rd quarter GDP, after an improving trade balance had added 0.18 percentage points to 2nd quarter growth…

finally, there were also small revisions to real government consumption and investment in this 3rd estimate, that essentially put every metric back to where it was in the 1st estimate…real federal government consumption and investment was seen to have grown at a 0.2% rate from the 2nd quarter in this estimate, revised from the 0.1% growth rate of the federal government reported in the 2nd estimate….real federal spending for defense was revised to show it shrinking at a 1.4% rate, rather than the 1.5% contraction rate last reported, subtracting 0.06% percentage points from 3rd quarter GDP, while all other federal consumption and investment grew at a 2.8% rate, rather than the 2.6% growth rate previously reported, and thus added 0.8 percentage points 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 the output of those goods or services….lastly, real state and local consumption and investment was revised from growing at 2.6% rate in the first estimate to growth at a 2.8% rate in this estimate, and hence added 0.39 percentage points to 3rd quarter GDP…

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 have been the major negative…

3rd quarter 2015 GDP 3rd estimate

November Personal Income up 0.3%; 2 Months PCE Would Add 1.08 Percentage Points to Q4 GDP

other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important economic release we see monthly, as it gives us the monthly data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, and the PCE price index, the inflation gauge the Fed targets, and 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 amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if November’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from October to November..

thus, when the opening line of the press release for this report tell us “Personal income increased $44.4 billion, or 0.3 percent, and disposable personal income (DPI) increased $34.5 billion, or 0.3 percent, in November“, they mean that the annualized figure for seasonally adjusted personal income in November, $15,617.6 billion, was $44.4 billion, or a bit less than 0.3% greater than the annualized  personal income figure of $15,573.2 billion extrapolated for October; the actual, unadjusted change in personal income from October to November is not given…similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.3%, from an annual rate of an annual rate of $13,596.4 billion in October to an annual rate of $13,630.9 billion in November…likewise, all the contributors to the increase in personal income, listed under “Compensation” in the press release, are also annualized amounts, all of which can be more clearly seen in the Full Release & Tables (PDF) for this release…so when the press release says, “Wages and salaries increased $37.1 billion in November, compared with an increase of $47.2 billion in October”, that really means wages and salaries would rise by $37.1 billion over an entire year if November’s seasonally adjusted increase in wages and salaries were extrapolated over that year, just as rental income of individuals rose at a $5.7 billion annual rate and interest and dividend income, sometimes the largest contributor to the monthly personal income increase, fell at a $9.7 billion annual rate in November…so you can see what’s written in the press release is misleading, and often leads to media reports that parrot those lines the same way the BEA wrote them, and why we favor referencing the pdf in reviewing this report

for the personal consumption expenditures (PCE) that we’re most interested in today, BEA reports that they increased at a $40.1 billion rate, or a bit more than 0.3 percent, as the annual rate of PCE rose from $12,390.5 billion in October to $12,430.7 in November; that happened as the October PCE figure was revised down from the originally reported $12,393.5 billion annually, and prior months were slightly revised as well….components of the current dollar increase in November spending were a $24.2 billion annualized increase to an annualized $4,029.7 billion in spending for goods and a $16.0 billion increase to $8,400.9 billion annualized in spending for services. …total personal outlays for November, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $44.0 billion to $12,883.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $747.6 billion annual rate in November, down a bit from the revised $757.0 billion in annualized personal savings in October… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 5.5% in November from October’s savings rate of 5.6%…

as you know, 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 adjustment is accomplished with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, also included in this report….looking at Table 9 in the pdf, we see that that index rose from 109.751 in October to 109.769 in November, a month over month inflation rate that’s statistically 0.028%, which BEA reports as an increase of “less than 0.1 percent”, following the PCE price index increase of ~0.1% in October…since the inflation adjustment to PCE is so small, that left real PCE still statistically up 0.3% in November, after October’s increase was revised to statistically unchanged from the previously reported 0.1% increase…note that when those price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another….that result is shown in table 7 of the PDF, where we see that November’s chained dollar consumption total works out to 11,323.4 billion annually, ~0.3% more than October’s 11,290.0 billion…

however, in estimating the impact of the change in PCE on the change in GDP, the month over month change doesn’t buy us much, since GDP is reported quarterly…thus we have to compare real PCE from October and November to the the real PCE of the 3 months of the third quarter…while this report shows PCE for those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in the GDP report which we reviewed earlier…in table 3 of the pdf for the GDP report, we see that the annualized real PCE for the 3rd quarter was represented by 11,262.4 million in chained 2009 dollars…by averaging the annualized chained 2009 dollar figures for October and November, 11,290.0 billion and 11,323.4 billion, we get an equivalent annualized PCE for the two months of the 4th quarter that we have data for so far….when we compare that average to the 2nd quarter real PCE, we find that 4th quarter real PCE has grown at a 1.6% annual rate for the two months we do have (note the math to get that annual rate: (((11,290.0 + 11,323.4) /2 ) / 11,262.4) ^ 4 = 1.0158268…this means that even if December real PCE does not improve from the average of October and November, growth in PCE would still add 1.08 percentage points to the growth rate of the 4th quarter…

real disposable personal income, or the purchasing power of disposable income, is arrived at in the same manner as we found real PCE; disposable personal income figures are adjusted for inflation using the PCE price index…even though that index was only up 0.028% in November, disposable personal income was only shown as up 0.3% for the month by virtue of upward rounding from a 0.2567% increase…hence, when that 0.028% increase in the PCE index was applied to that, it reduced real disposable personal income to a rounded increase of 0.2%, following a 0.3% increase in October…our FRED graph below shows annualized real disposable personal income in blue and real personal consumption expenditures in red monthly since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and on the lower 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 mostly the result of income manipulation before the year end “fiscal cliff” of that year, while the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush…. 

November 2015 income and outlays

November Durable Goods: Orders Flat, Shipments Up 0.9%, Inventories Down 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for November (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods were virtually unchanged as they rose by less than a seasonally adjusted $0.1 billion to $238.77 billion in November, following a October increase of $6.7 billion or 2.9% that was revised from the previously reported $6.9 billion or 3.0% increase, and decreases of 0.8% in September and 2.9% in August…year to date new orders still remain 3.7% below the orders level of 2014, in part due to falling prices of some durable goods, such as primary metals and fabricated metal products, and in part due to the July through November shutdown of the Export-Import Bank, the financing vehicle for large export orders…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the headline change, as those transportation equipment orders rose $0.3 billion or 0.4% to $82,183 million as a 1.5% increase to $52,432 million in new orders for automotive vehicles more than offset a 22.2% decrease to $13,442 million in new orders for commercial aircraft, which are now 36.9% below their year ago level year to date….excluding those new orders for transportation equipment, other new orders fell by more than 0.1% in November, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.4% to $69,347 million, after the October change in orders for such capital goods was revised from a 1.3% increase to a 0.6% increase…

meanwhile, the seasonally adjusted value of November shipments of durable goods, which will be inputs into various components of 4th quarter GDP after adjusting for deflation, rose by $2.1 billion or 0.9% to $241.8 billion, after October’s shipments were revised from a decrease of 1.0% to a decrease of 1.2%…again, greater shipments of transportation equipment drove the change, as they rose $2.3 billion or 2.9 percent to $80.8 billion, as the value of shipments of motor vehicles and parts rose 1.8% to $52,559 million and shipments of commercial aircraft rose 16.0% to $15,973; excluding that volatile sector, the value of other shipments of durable goods fell 0.1% to $160,996 million….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 6th time in the past 7 months, dropping $1.1 billion, or 0.3 percent to $395.7 billion, after a 0.3% decrease in October that was originally reported as a 0.2% decline …a $0.8 billion or 0.6% decrease to $129.8 billion in the value of inventories of transportation equipment was again a major factor, although lower inventories of primary metals, which fell 1.1%, likely reflected lower prices…

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were up for the second month in a row, rising by $1.9 billion or 0.2% to $1,194.0 billion after a 0.3% increase in October, again largely due to an increase in the backlog in orders for transportation equipment, which rose $1.3 billion or 0.2 percent to $799.5 billion, which you’ll note is more than half the total of unfilled orders outstanding, as the $609,540 million backlog in commercial aircraft orders alone accounts for more than half of this metric…without the transportation equipment sector, November’s unfilled orders increased by more than 0.1%, rising by $577 million to $394,551 million….however, compared to a year ago, the unfilled order book for durable goods is still 2.2% below last November’s level, with unfilled orders for transportation equipment 2.3% below their year ago level…

New Home Sales Pace Remains Below a Half Million Annually

the Census report on New Residential Sales for November (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 490,000 new homes a year, which was 4.3 percent (±11.9%)* above the revised October rate of 470,000 new single family homes a year and 9.1 percent (±20.9%)* above the estimated annual rate that new homes were selling at in November of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether November new home sales rose or fell from those of October or even from those of a year ago, with the figures in parenthesis representing 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….hence, these initial reports are not very reliable and often see significant revisions…with this report; sales new single family homes in October were revised from the annual rate of 495,000 reported last month to a 470,000 a year rate, September’s annualized home sale rate, initially reported at 468,000, was revised from 447,000 to 442,000, while the annual rate of August sales, revised from 552,000 to 513,000 last month, was revised down again, to 507,000…

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 34,000 new homes sold in November, down from the 38,000 new homes that sold in October, which was revised down from the originally reported 41,000 home sold….in addition, the unadjusted estimate for September home sales was revised down again, from 34,000 to 33,000 after it was originally reported at 36,000, while the estimate for August sales, first reported at 45,000, was revised down to 41,000, after prior downward revisions to 43,000 and 42,000….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in November was $305,000, up from $286,900 in October, which was originally reported as $281,500, while the average November new home sales price was $374,900, up from $358,100 in October, and up from the average sales price of $358,800 in November a year ago….a seasonally adjusted estimate of 232,000 new single family houses remained for sale at the end of November, which represents a 5.7 month supply at the November sales rate, up from a 5.5 month supply in October….for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increased to 490,000 Annual Rate in November and Comments on November New Home Sales…. 

Existing Homes Sales Fell 10.5% to a 4.76 Million Annual Rate in November

also this week, the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 10.5% in November, projecting that 4.76 million homes would sell over an entire year if November sales were extrapolated over that year, the slowest pace of home sales in 19 months and 3.8% lower than the annual sales rate projected in November of a year ago…the annual rate of  October home sales was revised from the originally reported 5.35 million home sales to 5.32 million, down from September’s 5.55 million home sales rate….the NAR also reported that the median existing-home price for all housing types in November was $220,300, which was 6.3% higher than a year earlier and the 45th consecutive monthly year over year increase in home prices…the NAR press release, which is titled Existing-Home Sales Suffer Setback in November, Fall to Slowest Pace Since April 2014, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, et al. you can easily find them in that press release…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 not very informative annual rate, we’ll take a look at the raw data overview(pdf), which gives us a close approximation to the actual number of homes that sold each month…this indicates that roughly 351,000 homes sold in November, down 20.9% from the 444,000 homes that sold in October and unchanged from the 351,000 homes that sold in November last year…home sales were down sharply in every region of the country, ranging from a 17.3% decrease to 148,000 home sales in the South to a 26.4% decrease to 78,000 home sales in the Midwest….that same pdf indicates that the median home selling price for all housing types rose 0.5% from a revised $219,100 in October to $220,300 in November, while the average home sales price was $263,900, up 0.4% from the $262,800 average in October, and up 4.0% from the $253,800 average home sales price of November a year ago, with the regional average home sales prices ranging from a low of $202,700 in the Midwest to a high of $353,700 in the West…for additional coverage with long term graphs on this report, see Existing Home Sales declined in November to 4.76 million SAAR and A Few Random Comments on November Existing Home Sales by 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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