3rd estimate of 2nd quarter GDP; August’s income and outlays, durable goods, and new home sales

The key economic releases of the past week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence will account for more than 46% of 3rd quarter GDP….other widely watched releases included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for July, which is an index generated by comparing relative prices for May, June and July repeat home sales to their earlier selling prices, and which reported that home prices nationally for those 3 months averaged 6.0% higher than prices for the same homes that sold during the same 3 month period a year earlier, down from the 6.2% YoY increase shown in the prior report…the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which was unchanged at +0.18 in August, after the July index was revised from +0.13 to +0.18;  that left the 3 month moving average of the index at +0.24, up from +0.02 in July, which indicates national economic activity has been above the historical trend over the summer months…

This week also saw the release of the last three regional Fed manufacturing surveys for September: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity index fell from +30.9 in August to +21.8 in September, still suggesting a strong expansion of the Texas oil patch economy; 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 rose from +24 in August to +29 in September, indicative of an ongoing robust expansion in that region’s manufacturing, and the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index slipped to +13 in September, down from +14 in August and +23 in July, but still suggesting an ongoing expansion of that region’s manufacturing…

Third Estimate of 2nd Quarter GDP Has Growth at a 4.2% Rate, Same as Second Estimate

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 4.2% annual rate in the quarter, revised but unchanged from from the 4.2% growth rate reported in the second estimate a month ago, largely because a big downward revision to inventory investment was completely offset by upward revisions to fixed investment, our trade balance, and state and local government consumption and investment…in current dollars, our second quarter GDP grew at a 7.6% annual rate, increasing from what would work out to be a $20,041.0 billion annual rate in the 1st quarter to a $20,411.9 billion annual rate in the 2nd quarter of this year, with the headline 4.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 3.0%, aka the GDP deflator, was applied to the current dollar change…

Remember that the GDP release 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 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly 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 the 3rd quarter of 2013; 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; and table 4, which shows the change in the price indexes for each of the components; and table 5…the pdf for the 2nd quarter second estimate, which this estimate revises, is here

Growth of real personal consumption expenditures (PCE), the largest component of GDP, remained the same as the 3.8% growth rate reported last month in this estimate…that growth rate figure was arrived at by deflating the 5.9% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated that consumer inflation was 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 (inflation adjusted) consumption of durable goods grew at a 8.6% annual rate, which was unrevised from the growth rate shown in the second estimate, and added 0.60 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 9.4% rate accounted for a third of the durables goods increase…real personal consumption of nondurable goods rose at a 4.0% annual rate, revised from the 3.7% rate shown in the 2nd estimate, and added 0.56 percentage points to 2nd quarter economic growth, as greater consumption of food at home accounted for 40% of the quarter’s non-durable growth, while there was a modest contraction in consumption of energy goods….meanwhile, real consumption of services rose at a 3.0% annual rate, revised from the 3.1% growth rate reported last month, and added 1.42 percentage points to the final GDP tally, as real consumption of food services and accommodations rose at a 8.1% rate and accounted for nearly a third of the 2nd quarter growth in services…

Meanwhile, seasonally adjusted real gross private domestic investment contracted at a 0.5% annual rate in the 2nd quarter, revised from the 0.4% investment growth reported last month, as real private fixed investment grew at a 6.4% rate, rather than at the 5.2% rate reported in the second estimate, while the previously reported contraction in inventory growth was greater than previously reported…..real investment in non-residential structures was revised from growth at a 13.2% rate to growth at a 14.5% rate, while real investment in equipment was revised to show growth at a 6.4% rate, revised from the 6.2% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised lower, from growth at a 11.0% rate to growth at a 10.5% rate, while the contraction rate of residential investment was revised from -1.6% to -1.3% annually…after those revisions, the increase in investment in non-residential structures added 0.43 percentage points to the 2nd quarter’s growth rate, the increase in investment in equipment added 0.27 percentage points to the quarter’s growth, the growth in investment in intellectual property added 0.45 percentage points, while the decrease in investment in residential structures subtracted 0.05 percentage points from the 2nd quarter’s GDP…

At the same time, investment in real private inventories contracted at an inflation adjusted $36.8 billion rate in the 2nd quarter, revised from the inventory shrinkage at a $26.9 billion rate that was reported a month ago…this came after inventories had grown at an inflation adjusted $30.3 billion rate in the 1st quarter, and hence the $67.2 billion decrease in the rate of real inventory growth subtracted 1.17 percentage points from the quarter’s growth rate, revised from the 0.97 percentage point subtraction due to inventory contraction that was shown in the second estimate….however, since shrinkage of inventories indicates that less of the goods produced during the quarter were left ‘sitting on the shelf’ or in a warehouse, the $67.2 billion quarter over quarter decrease in their growth meant that real final sales of GDP were relatively greater by that much, or enough to boost 2nd quarter growth in real final sales of GDP to a 5.4% rate, revised from the 5.3% real final sales growth rate shown in the second estimate, and a big jump from the real final sales growth at a 1.9% rate in 1st quarter, when that quarter’s increase in inventory growth meant that part of the increase in GDP had not been sold..

The previously reported increase in real exports was revised higher with this estimate, while at the same time the previously reported decrease in real imports was larger than was previously reported, so as a result our foreign trade was an even greater contributor to GDP than was reported in the second estimate…our real exports grew at a 9.3% rate rather than the 9.1% rate reported in the second 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 1.12 percentage points to the 2nd quarter’s growth rate, up from the 1.10 percentage point addition shown in the previous report….meanwhile, the previously reported 0.4% decrease in our real imports was revised to a 0.6% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.10  percentage points to 2nd quarter GDP, up from the 0.07 percentage points addition indicated last month….hence, our improving trade balance added a net 1.22 percentage points to 2nd quarter GDP, revised from the 1.17 percentage point addition that had been indicated in the second estimate…

Finally, there were also upward revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 2.5% rate, revised from the 2.3% growth rate previously reported…real federal government consumption and investment was seen to have grown at a 3.7% rate from the 1st quarter in this estimate, which was unchanged from the growth rate shown in the 2nd estimate…real federal outlays for defense were revised to show growth at a 5.9% rate, rather than the 6.0% growth rate previously reported, and added 0.22 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 0.5% rate, unchanged from the previous report, and added 0.01 percentage points to 2nd quarter GDP…….meanwhile, real state and local consumption and investment grew at a 1.8% rate in the quarter, which was revised from the 1.6% growth rate reported in the 2nd estimate, and added 0.20 percentage points to 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, thus indicating there was an increase in the output of those goods or services…

August Personal Income up 0.3%; 2 Months PCE Would Add 2.13 Percentage Points to Q3 GDP

The August report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 3rd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% 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 August’s 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 metrics 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 August’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 July to August….

Thus, when the opening line of this report tell us “Personal income increased $60.3 billion (0.3 percent) in August“, they mean that the annualized figure for seasonally adjusted personal income in August, $17,679.5 billion, was $60.3 billion, or somewhat more than 0.3% greater than the annualized personal income figure of $17,619.2 billion for July; the actual, unadjusted change in personal income from July to August, which would be roughly one-twelfth the size, is not given…similarly, annualized disposable personal income, which is income after taxes, rose by more than 0.3%, from an annual rate of an annual rate of $15,566.0 billion in July to an annual rate of $15,617.4 billion in August….the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also thus annualized…in August, the largest contributors to the $60.3 billion annual rate of increase in personal income were a $41.4 billion increase in wages and salaries and a $11.9 billion increase in personal current transfer receipts…

For personal consumption expenditures (PCE), BEA reports that they increased at a $46.4 billion annual rate, or also by more than 0.3 percent, as the annual rate of PCE rose from $14,003.8 billion in July to $14,050.1 in August; that was after the July PCE figure was revised up from the originally reported $13,980.0 billion annually and prior months were revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP…..total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $47.1 billion to $14,585.1 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,032.3 billion annual rate in August, up just a bit from the revised $1,028.0 billion annualized personal savings in July… hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 6.6% in August, same as in July..

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….the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, and which is included in Table 9 in the pdf for this report….that index rose from 108.353 in July to 108.470 in August, a month over month inflation rate that’s statistically 0.1080%, which BEA reports as an increase of 0.1 percent, following the rounded +0.1% change in the PCE price index they reported for July…applying the August inflation adjustment to the nominal amount of August spending left real PCE up a rounded 0.2% in August, after a real PCE increase of 0.3% in July …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 chained 2012 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 August’s chained dollar consumption total works out to 12,953.5 billion annually, 0.222% more than July’s 12,924.8 billion, a difference that the BEA rounds and reports as +0.2%…

  However, to estimate the impact of the change in PCE on the change in GDP,  month over month changes like that don’t help us much, since GDP is reported quarterly…thus we have to compare July and August’s real PCE to the the real PCE of the 3 months of the second quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 12,842.0 billion in chained 2012  dollars..(note that’s also what’s shown in table 3 of the pdf for the revised 2nd quarter GDP report)….then, by averaging the annualized chained 2012 dollar figures for July and August, 12,924.8 billion and 12,953.5 billion, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far….when we compare that average of 12939.15 to the 2nd quarter real PCE of 12,842.0, we find that 3rd quarter real PCE has grown at a 3.06% annual rate for the two months of the 3rd quarter we have…(note the math to get that annual growth rate: (((12,924.8 + 12,953.5) / 2 ) / 12,842.0) ^ 4 = 1.030605)…that’s a pace that would add 2.13 percentage points to the growth rate of the 3rd quarter, should there be no improvement in September PCE from that average…

August Durable Goods: New Orders Up 4.5%, Shipments Up 0.8%, Inventories Down 0.4%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods grew by $11.1 billion or 4.5 percent to $259.6 billion in August, after falling by a revised 1.2% in July…July’s new orders were revised from the $246.9 billion reported last month to $248.5 billion, with the month over month percentage decrease revised from 1.7% to 1.2%…with this month’s increase and July’s revision, year to date new orders are now 9.2% above those of 2017, up from the 8.6% year over year change we saw in this report last month….the volatile monthly change in new orders for transportation equipment drove the August headline change, as those transportation equipment orders rose $10.9 billion or 13.0 percent to $95.3 billion, on a 69.1% increase to $17,101 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were up 0.1% in August, as new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.5% to $69,475 million…

At the same time, the seasonally adjusted value of August’s shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $1.9 billion or 0.8 percent to $253.1 billion, after July shipments were revised from $250.8 billion to $251,238 million, thus revising the previously reported shipments decrease of 0.2% to one of 0.1% from June….an increase in shipments of transportation equipment led the August increase, as transportation equipment rose $1.6 billion or 1.9 percent to $86.0 billion, while shipments of nondefense capital goods excluding aircraft rose 0.1% and all other shipments rose 0.2%…meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in 20 months, decreasing by $1.4 billion or 0.4 percent to $407.0 billion, after the increase in July inventories was revised from a 1.3% increase to a 1.2% increase…a  decrease in inventories of transport equipment was the cause of the August inventory decrease, as they fell $1.8 billion or 1.4 percent to $129.3 billion…

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the 9th time in 10 months, increasing by $10.4 billion or 0.9 percent to $1,176.5 billion, after July’s unfilled orders were revised from $1,164.7 billion to $1,166,073 million, now a 0.1% increase from June…unfilled orders for transportation equipment rose $9.3 billion or 1.2 percent to $811.0 billion on an increase in unfilled orders for transportation equipment other than motor vehicles or aircraft, while all other unfilled orders rose 0.3%….compared to a year earlier, the unfilled order book for durable goods is now 4.9% above the level of last August, with unfilled orders for transportation equipment 4.7% above their year ago level, partly on a 4.2% increase in the backlog of orders for commercial aircraft…

August New Home Sales Reported Higher After Prior 3 Months Sales Were Revised Lower

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 629,000 new homes a year, which was 3.5 percent (±13.7 percent)* above the revised July rate of 608,000 new single family home sales a year and 12.7 percent (±20.7 percent)* above the estimated annual rate that new homes were selling at in August of last year….the asterisks indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of July, 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 is subject to the largest revisions of any census construction series….hence, these initial new home sales reports are not very reliable and often see significant revisions…with this report; sales new single family homes in July were revised from the annual rate of 627,000 reported last month down to a 608,000 a year rate, while home sales in June, initially reported at an annual rate of 631,000 and revised to a 638,000 a year rate last month, were revised down to a 618,000 a year rate with this report, and while May’s annualized home sale rate, initially reported at a 689,000 rate and revised from a 666,000 a year to a 654,000 rate last month, were revised down to a 653,000 rate with this release..

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 50,000 new single family homes sold in August, down from the estimated 52,000 new homes that sold in July and the 56,000 that sold in June….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in August was $320,200, down from the median sales price of $328,900 in July and but up from the median sales price of $314,200 in August a year ago, while the average August new home sales price was $388,400, down from the $389,000 average sales price in July, but up from the average sales price of $369,200 in August a year ago….a seasonally adjusted estimate of 318,000 new single family houses remained for sale at the end of August, which represents a 6.1 month supply at the August sales rate, up from the 5.9 months of supply reported for July…for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increase to 629,000 Annual Rate in August and A few Comments on August New Home Sales..

 

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

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