2nd estimate 2nd quarter GDP; July’s durable goods, new and existing home sales

the key economic release of the past week was the 2nd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was released on Friday…other widely watched releases we saw earlier in the week included the July advance report on durable goods and the July report on new home sales, both from the Census bureau, and the Existing Home Sales Report for July from the National Association of Realtors (NAR)…this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, which rose to a 12 month high of +0.27 in July, up from +0.05 in June…however, that still left the 3 month average of the index at –0.10, which supposedly indicates national economic activity has been below the historical trend over those recent months…in addition, this week saw the release of two more regional Fed manufacturing surveys for August: 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 collapsed to -10 in July from +11 in July, suggesting a return to contraction for that region’s manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to -4 in August, up from -6 in July, suggesting that the regional contraction, mostly in energy related industries, continues for the 18th month…

2nd Quarter GDP Revised to Indicate Growth at a 1.1% Rate

the Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 1.1% rate in the quarter, revised down from the 1.2% growth rate reported in the advance estimate last month, as residential investment was revised lower, private inventory investment decreased more than was previously estimated, our trade deficit was revised higher, and government shrunk more than was first reported…in current dollars, our first quarter GDP grew at a 3.4% annual rate, increasing from what would work out to be a $18,281.6 billion a year rate in the 1st quarter to a $18,436.5 billion annual rate in the 2nd quarter of this year, with the headline 1.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.3%, aka the GDP deflator, was applied to the current dollar change…

recall that the press release for the 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 which actually occurred over the 3 month period, and that the prefix “real” is used to indicate that the change has been adjusted for inflation using prices chained from 2009, from which all percentage changes in this report are calculated, as they thus represent the change in quantity of goods and services output…given the misunderstanding evoked by the text of the press release, all the data that we’ll use in reporting the changes here comes directly 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 the 2nd quarter of 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 1st quarter advance estimate, which this estimate revises, is here

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 4.2% growth rate reported last month to a 4.4% rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 6.46% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 2.0% annual rate in the 2nd quarter, which was revised from the 1.9% PCE inflation rate reported a month ago…real consumption of durable goods grew at a 9.9% annual rate, which was revised from the 8.4% growth rate in the advance report, and added 0.71 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 15.2% rate accounted for more than half the durables increase…real consumption of nondurable goods by individuals rose at a 5.7% annual rate, revised from the 6.0% increase rate reported in the 1st estimate, and added 0.81 percentage points to 2nd quarter economic growth, as higher consumption of food, clothing and other non-durables more than offset a small decrease in consumption of energy goods ….at the same time, consumption of services rose at a 3.1% annual rate, revised from the 3.0% growth rate reported last month, and added 1.42 percentage points to the final GDP tally, as real health care consumption rose at a 5.6% rate…

meanwhile, seasonally adjusted real gross private domestic investment contracted at a 9.7% annual rate in the 2nd quarter, with the aggregate statistically unrevised from the 9.7% shrinkage estimate reported last month, as real private fixed investment shrunk at a 2.5% rate, rather than at the 3.2% rate reported in the advance estimate, while the inventory contraction was somewhat larger than previously estimated…investment in non-residential structures was revised from shrinking at a rate of 7.9% to shrinking at a 8.4% rate, and real investment in equipment was revised to show contraction at a 3.7% rate, also worse than the 3.5% contraction rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 3.5% rate to growth at a 8.7% rate…on the other hand, real residential investment was shown to be shrinking at a 7.7% annual rate, rather than the 6.1% contraction rate previously reported…after those revisions, the decrease in investment in non-residential structures subtracted 0.23 percentage points from the 2nd quarter’s growth rate, the decrease in investment in equipment subtracted 0.22 percentage points from growth, lower residential investment subtracted 0.30 percentage points from GDP, while growth in investment in intellectual property added 0.34 percentage points to 2nd quarter GDP…

in addition, investment in real private inventories fell by an inflation adjusted $12.4 billion in the 2nd quarter, revised from the originally reported $8.1 billion of inventory shrinkage…this came after inventories had grown at an inflation adjusted $40.7 billion rate in the 1st quarter, and hence the $53.1 billion decrease in real inventory growth subtracted 1.26 percentage points from the quarter’s growth rate, in contrast to the 1.16 percentage point subtraction due to slower inventory growth that was shown in the advance estimate….since slower growth in inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf”, their decrease by $53.1 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP increased at a 2.4% rate in the 2nd quarter, in contrast to the real final sales increase at a 1.2% rate in the 1st quarter, when the change in inventories was smaller…

the previously reported increase in real exports was revised smaller with this estimate, while the reported decrease in real imports was revised to show a increase, and as a result the change in our net trade was a smaller addition to GDP rather than was previously reported…our real exports grew at a 1.2% rate rather than the 1.4% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.14 percentage points to the 2nd quarter’s growth rate, a bit less than the 0.16 percentage point addition shown in the previous report……meanwhile, the previously reported 0.4% decrease in our real imports was revised to a 0.3% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.04 percentage points from 2nd quarter GDP….thus, our still weakening trade balance only added a net 0.10 percentage points to 2nd quarter GDP, rather than the 0.23% percentage point addition that had been indicated by the advance estimate…

finally, there were also negative revisions to real government consumption and investment in this 2nd estimate, as the entire government sector shrunk at a 1.5% rate, revised from the shrinking at a 0.9% rate previously reported…real federal government consumption and investment was seen to have shrunk at a 0.3% rate from the 1st quarter in this estimate, which was revised from the 0.2% contraction rate in the 1st estimate…real federal outlays for defense were revised to show shrinkage at a 3.1% rate, rather than the 3.0% contraction rate previously reported, and subtracted 0.12% percentage points from 2nd quarter GDP, while all other federal consumption and investment grew at a 3.8% rate, rather than the 3.9% rate previously reported, and added 0.10% percentage points to 2nd quarter GDP,,,meanwhile, real state and local consumption and investment shrunk at a 2.2% rate in the quarter, which was revised from the 1.3% contraction rate reported in the 1st estimate, and subtracted 0.25% percentage points from 2nd quarter GDP….note that 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…

July Durable Goods: New Orders Up 4.4%, Shipments Up 0.2%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $9.7 billion or 4.4 percent to $228.9 billion in July, following a revised drop of 4.2% in June new orders, which had been originally reported as a 4.0% decrease…year to date new orders are still 0.9% below those of 2015, vs the statistically unchanged year over year change we saw in this report last month…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the July headline change, as those transportation equipment orders rose $7.5 billion or 10.5 percent to $78,861 million, on a 89.9% increase to $12,498 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were still up 1.5% in July, as new orders for computers and electronic products were up 3.6% to $24,780 million, contributing to a 1.6% increase in new orders for nondefense capital goods excluding aircraft, which is a proxy for equipment investment…

the seasonally adjusted value of July’s shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, rose by $0.4 billion or 0.2 percent to $232.9 billion, after June shipments were revised from a increase of 0.4% to an increase of 0.5% because May shipments were revised 0.1% lower….a 1.5% increase in shipments of computers and electronic products drove the July change, as those shipments rose $0.4 billion to $27.1 billion… meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the first time in seven months, increasing by $1.2 billion or 0.3 percent to $383.0 billion, after the drop in June inventories was revised from a 0.2% decrease to a 0.1% decrease…an increase in inventories of transportation equipment were a major factor in the inventory increase, as they rose $0.5 billion or 0.4 percent to $123.7 billion, on a 7.2% increase to $11,519 million in inventories of defense aircraft…excluding the increase in inventories of transportation equipment, all other durable goods inventories increased 0.3% to $259,300 million…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the 2nd consecutive month, slipping by $0.8 billion or 0.1 percent to $1,126.6 billion, following a June decrease of 0.9%, which was statistically unrevised…a $1.9 billion or 0.2 percent to $772.2 billion decrease in unfilled orders for transportation equipment was responsible for all of the decrease, as unfilled orders excluding transportation equipment rose 0.3% to $354,349 million….compared to a year earlier, the unfilled order book for durable goods is now 2.2% below the level of last July, with unfilled orders for transportation equipment 3.2% below their year ago level, largely on a 7.4% decrease in the backlog of orders for motor vehicles… 

July New Home Sales Highest in at Least 8 Years

the Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 654,000 new homes a year, which was 12.4 percent (±12.7%)* above the revised June rate of 582,000 new single family home sales a year and 31.3 percent (±19.9%) above the estimated annual rate that new homes were selling at in July of last year….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, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….thus, that uncertainty must be considered when noting media reports alleging that new homes sales were at the highest level since October 2007…however, even allowing for a maximum downward revision reflecting the ±12.7% margin of error in this report, July new homes sales would still be at their highest level since March 2008…with this report; sales new single family homes in June were revised from the annual rate of 592,000 reported last month to a 582,000 a year rate, and home sales in May, initially reported at an annual rate of 551,000 and revised to a 572,000 a year rate last month, were unrevised with this report, while April’s annualized home sale rate, initially reported at 619,000 and revised from 586,000 to 572,000 last month, were further revised down to 570,000 with this release..

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of Census field reps, which showed that approximately 57,000 new single family homes sold in July, up from the 53,000 new homes that sold in both May and June….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in July was $294,600, down from the median sale price of $310,500 in June and down from the median of $296,000 in July a year ago, while the average July new home sales price was $355,800, up from $353,500 average sales price in June, and up from the average sales price of $341,900 in July a year ago….a seasonally adjusted estimate of 233,000 new single family houses remained for sale at the end of July, which represents a 4.2 month supply at the July sales rate, down from the reported 4.9 month supply in June….

Existing Home Sales Fall 3.2% in July, Down 1.6% YoY, as Prices Slip

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell 3.2% from June to July, projecting that 5.39 million homes would sell over an entire year if the July home sales pace were extrapolated over that year, a pace that was also 1.6% below the annual sales rate projected in July of a year ago; June sales at a 5.57 million annual rate were essentially unrevised from last month’s report…the NAR also reported that the median sales price for all existing-home types was $244,100 in July, down from $247,600 in June 5.3% higher than in July a year earlier, which they report as “the 53rd consecutive monthly year over year increase in home prices”…..the NAR press release, which is titled “Existing-Home Sales Lose Steam in July “, 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, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home 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 like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month…this unadjusted data indicates that roughly 514,000 homes sold in July, down by 11.7% from the 582,000 homes that sold in June, and down by 6.7% from the 551,000 homes that sold in July of last year, so we can see there was a sizable seasonal adjustment just to bring the annualized published figures up to the level reported…that same pdf indicates that the median home selling price for all housing types fell 1.4%, from a revised $247,600 in June to $244,100 in July, while the average home sales price was $285,900, down 1.3% from the $289,800 average in June, but up 3.6% from the $275,900 average home sales price of July a year ago, with the regional average home sales prices ranging from a low of $226,200 in the Midwest to a high of $373,100 in the West…

 

(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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