1st Quarter GDP Revision, May’s Reports on Personal Income and Outlays, Durable Goods, and New Home Sales

The key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis and the May report on Personal Income and Spending, also from the BEA, which includes two months of 2nd quarter data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP….other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for April from S&P Case-Shiller, who reported that their national home price index was 3.5% higher than in the same month’s report a year ago…this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised -0.48 in April to -0.05 in May; that left the 3 month average of the index at -0.17, indicating national economic activity has been modestly below the historical trend over these recent months…

In addition, this week also saw the results of the last three Fed manufacturing surveys for June; the Texas area manufacturing survey from the Dallas Fed, which also includes southeast New Mexico and northeast Louisiana as well as Texas, reported its broadest general business activity index fell from -5.3 in May to a three year low of -12.1 in June, indicating that Texas manufacturing activity is now contracting at an even faster pace; 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 from +5 in May to +3  in June, indicating even more slowing in the already slow growth rate of that region’s manufacturing, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to 0 in June from + 4 in May and +5 in April, indicating that an equal number of that region’s manufacturers reported a slowdown as those who reported continuing growth…

1st Quarter GDP Growth Rate Remains at 3.1% in 3rd Estimate

The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services increased at a 3.1% annual rate in the quarter, revised but statistically unchanged from the 3.1% growth rate reported in the second estimate last month, as a downward revision to personal consumption was offset by an upward revision to domestic fixed investment…in current dollars, our first quarter GDP grew at a 3.79% annual rate, increasing from what would work out to be a $20,865.1 billion a year output rate in the 4th quarter of last year to a $21,060.1 billion annual rate in the 1st quarter of this year, with the headline 3.1% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 0.9%, aka the GDP deflator, was computed for and applied to the current dollar change of each of the GDP components…

As we review this month’s revisions, remember that this 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 from one 3 month period to the next, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes now 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 Full Release & Tables for the third estimate of 1st quarter GDP, which is linked to on the BEA’s main GDP page…specifically, we’ll be using 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; and table 4, which shows the change in the price indexes for each of the GDP components…the full pdf for the 1st quarter’s 2nd estimate, which this estimate revises, is here

Real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 0.9% annual rate in the 1st quarter, down from the 1.3% growth rate reported last month…that PCE growth figure was arrived at by deflating the 1.4% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 0.5% annual rate in the 1st quarter, revised from the 0.4% PCE inflation rate published a month ago….real consumption of durable goods fell at a 2.4% annual rate, which was revised from the 4.6% drop shown in the second estimate, and subtracted 0.17 percentage points from GDP, as a drop in real consumption of automobiles at a 17.2% rate more than offset modest increases in real consumption of recreational goods and vehicles and other durable goods…..real consumption of nondurable goods by individuals rose at a 2.3% annual rate, revised from the 2.0% increase rate reported in the 2nd estimate, and added 0.32 percentage points to 1st quarter economic growth, with decreased real consumption of food, clothing and energy more than offset by greater growth in real consumption of other nondurables….at the same time, consumption of services rose at a 1.0% annual rate, revised from the 2.1% growth rate reported last month, and added 0.48 percentage points to the final GDP tally, as real growth of health care at a 5.6% rate was mostly offset by a real 20.3% annualized decrease in consumption expenditures of nonprofit institutions serving households…

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 6.0% annual rate in the 1st quarter, revised from the 4.3% growth estimate reported last month, as real private fixed investment grew at a 3.0% rate, rather than at the 1.0% rate reported in the second estimate, while inventory growth was a bit less than previously estimated…real investment in non-residential structures was revised from growth at a 1.7% rate to growth at a 4.3% rate, while the contraction in real investment in equipment was unchanged from the 1.0% rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 7.2% rate to growth at a 12.0% rate, while the contraction rate of residential investment was reduced, from being down at a 3.5% rate to down at a 2.0% rate annually…after those revisions, the increase in investment in non-residential structures added 0.13 percentage points to the 1st quarter’s growth rate, the decrease in investment in equipment subtracted 0.06 percentage points from the quarter’s growth, greater investment in intellectual property added 0.53 percentage points, while contraction in residential investment subtracted 0.08 percentage points from the increase in 1st quarter GDP…

At the same time, the growth in real private inventories was revised from the previously reported $125.5 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $122.8 billion rate…this came after inventories had grown at an inflation adjusted $96.8 billion rate in the 4th quarter, and hence the revised $26.0 billion increase in real inventory growth over that of the 4th quarter added 0.55 percentage points to the 1st quarter’s growth rate, revised from the 0.60 percentage point addition from inventory growth shown in the second estimate….however, since growth in inventories indicates that more of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, that increase by $26.0 billion meant that real final sales of GDP were actually smaller by that much, and therefore the BEA found that real final sales of GDP rose at a 2.6% rate in the 1st quarter, revised from the 2.5% real final sales rate shown in the second estimate…

The previously reported increase in real exports was revised higher, while the decrease in real imports was smaller than previously reported, and with those changes mostly offsetting one another, our net trade was a slightly smaller addition to GDP than was previously reported…our real exports grew at a 5.4% rate, revised from the 4.8% rate shown 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, and hence not included in those metrics, their increase added 0.65 percentage points to the 1st quarter’s growth rate, revised from the 0.58 percentage point addition shown in the 2nd estimate….meanwhile, the previously reported 2.5% decrease in our real imports was revised to a 1.9% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their decrease conversely added 0.30 percentage points to 1st quarter GDP, revised from the 0.39 addition shown a month ago….thus, our improving trade balance added 0.94 percentage points to 1st quarter GDP, reduced from the rounded 0.96 percentage point addition resulting from our improving foreign trade balance that had been indicated by the second estimate…

Finally, there were also revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown growing at a 2.8% rate, revised from the 2.5% growth rate for government indicated by the 2nd estimate….real federal government consumption and investment was seen to have been unchanged from the 4th quarter in this estimate, which was revised from the 0.1% contraction rate shown in the 2nd estimate, as real federal outlays for defense grew at an unrevised 4.0% rate and added 0.15 percentage points to 1st quarter GDP, while all other federal consumption and investment shrunk at a 5.8% rate and subtracted 0.15 percentage points from GDP, revised from the 0.16 percentage point subtraction shown last month…meanwhile, real state and local consumption and investment grew at a 4.6% rate in the quarter, revised from the 4.0% growth rate in the 2nd estimate, and added 0.48 percentage points to 1st quarter GDP, which was revised from the 0.42 addition shown in the second estimate…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, thereby indicating an increase in the output of those goods or services…

May Personal Income up 0.5%, Spending up 0.4%; 2 Months PCE Would Add 2.32 Percentage Points to Q2 GDP

The May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 69% 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 same 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 metrics is not the current monthly change; rather, they’re seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if May’s change in seasonally 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 April to May….

Thus, when the opening line of the news release for this report tell us “Personal income increased $88.6 billion (0.5 percent) in May“, they mean that the annualized figure for seasonally adjusted personal income in May, $18,183.5 billion, was $88.6 billion, or a bit less than 0.5% greater than the annualized  personal income figure of $18,094.9 billion for April; the actual, unadjusted change in personal income from April to May is not given…similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.5%, from an annual rate of an annual rate of $15,956.3 billion in April to an annual rate of $16,028.8 billion in May….the contributors to the increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $43.8 billion increase to $2,851.2 billion in interest and dividend income, a $14.3 billion increase to $9,079.1 billion in wages and salaries, and a $14.0 billion increase to $3,184.6 billion in personal current transfer receipts from benefit programs; again, those are all annualized figures…

For the personal consumption expenditures (PCE) that we’re interested in, BEA reports that they increased at a $59.7 billion annual rate, or by a little more than 0.4 percent, as the annual rate of PCE rose from $14,408.7 billion in April to $14,468.4 in May; that happened after the April PCE figure was revised up from the originally reported $14,393.4 billion annually and March PCE was revised from an annual rate of $14,352.5 billion to an annual rate of $14,329.2 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier….the current dollar increase in May spending included a $24.9 billion or 1.7% increase to an annualized $1,515.4 billion in spending for durable goods, $3.3 billion or 0.1% decrease to an annualized $2,969.7 billion in spending for non-durable goods and a $38.1 billion or 0.4% increase to $9,983.3 billion in annualized spending for services….total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $62.1 billion to a $15,043.4 billion annual rate, which left national personal savings, which is disposable personal income less total outlays, at a $985.4 billion annual rate in May, up from the revised $975.0 billion annualized personal savings in April… however, the personal saving rate, which is personal savings as a percentage of disposable personal income, was statistically unchanged at 6.1% in May, after April’s savings rate was revised from 6.2% to 6.1%…

As you know, before those 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 a chained price index based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report….that index rose from 109.546 in April to 109.726 in May, a month over month inflation rate that’s statistically 0.1643%, which BEA reports as an increase of 0.2 percent, following a similarly rounded PCE price index increase of 0.3% they reported for April…applying that inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 0.2% in May, after an April real PCE increase of 0.2%….but notice that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in those familiar 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 May’s chained dollar consumption total works out to 13,186.5 billion annually, 0.0249% more than April’s 13,153.7 billion, a difference that the BEA reports as 0.2%, even as the full decimal fractions are used in all their computations…

  However, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don’t help us much, since GDP is reported quarterly…thus we have to compare April and May’s real PCE to the the real PCE of the 3 months of the first 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 1st quarter was represented by 13,061.6 billion in chained 2012 dollars..(note that’s the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)….then, by averaging the annualized chained 2012 dollar figures for April and May, 13,153.7 billion and 13,186.5 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far….when we compare that average of 13170.1 billion to the 1st quarter real PCE representation of 13,061.6 billion,we find that 2nd quarter real PCE has grown at a 3.364% annual rate for the two months of the 2nd quarter we have data for at this point…(note the math used to get that annual growth rate: (((13,153.7 + 13,186.5) /2 ) / 13,061.6 ) ^ 4  = 1.0336435)….that’s a pace that would add 2.32 percentage points to the growth rate of the 2nd quarter by itself, even if there is no improvement in June PCE from the April-May average…

May Durable Goods: New Orders Down 1.3%, Shipments Up 0.4%, Inventories Up 0.5%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $3.3 billion or 1.3 percent to $243.4 billion in May, following a revised decrease of 2.8% to $246.7 billion in April’s new orders, which had originally been reported as a 2.1% decrease to $248.4 billion…however, year to date new orders are still running 1.0% higher than they were a year ago, despite those back to back decreases….as is usually the case, the volatile monthly change in new orders for transportation equipment was the reason for the May headline change, as those transportation equipment orders fell $3.9 billion or 4.6 percent to $80.0 billion, on a 28.2% decrease to $5,338 million in new orders for commercial aircraft and a 15.3% decrease to $4,534 million in new orders for defense aircraft…. excluding new orders for transportation equipment, other new orders rose 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 0.4% to $68,950 million…

The seasonally adjusted value of May’s shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the first time in 3 months, increasing by $0.9 billion or 0.4 percent to $254.1 billion….shipments of machinery led the increase, as they rose $0.4 billion or 1.1  percent to $33.4 billion, and also led shipments of nondefense capital goods excluding aircraft to a 0.7% increase to $70,086 million…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 10th time in 11 months, increasing by $2.1 billion or 0.5 percent to $424.6 billion, after the value of end of April inventories were revised from $422.6 billion to $422.5 billion, still a 0.4% increase from March…a $2.1 billion or 1.6 percent increase to $138.4 billion in the value of inventories of transportation equipment accounted for the May inventory increase, as inventories other of goods were little changed…

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 third time in four months, decreasing by $6.4 billion or 0.5 percent to $1,171.2 billion, following a April decrease of 0.2% to $1,177.6 billion, revised from the 0.1% decrease to $1,179.1 billion reported a month ago…a $5.8 billion or 0.7 percent decrease to $803.6 billion in unfilled orders for transportation equipment was responsible for most of the decrease, but unfilled orders excluding transportation equipment orders were also down 0.2% to $367,583 million….compared to a year earlier, the unfilled order book for durable goods is just 0.8% above the level of last May, with unfilled orders for transportation equipment just 0.3% above their year ago level, dragged down by a 2.9% decrease in the backlog of orders for commercial aircraft…

New Homes Sales Reported Lower in May; Prices Also Lower

The Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 626,000 homes annually during the month, which was 7.8 percent (±14.7 percent)* below the revised April rate of 679,000 new single family homes a year and 3.7 percent (±15.0 percent)* below the estimated annual rate that new homes were selling at in May of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of April or even from those in May 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 April were revised from the annual rate of 673,000 reported last month to a 679,000 annual rate, March’s annualized home sale rate, initially reported at 662,000, was revised from last months upwardly revised figure of 723,000 to a 705,000 rate, while the annual rate of February’s sales, initially reported at an annual rate of 667,000 and revised from a revised annual rate of 662,000 to a rate of 669,000 last month, were again revised with this report but remained statistically unchanged from last month’s revised 669,000 annual rate…

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 60,000 new single family homes sold in May, down from the 67,000 new homes that sold in April, and down from the estimated 69,000 new homes that sold in March….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $308,000, down from the median sales price of $335,100 in April, and down from the median sales price of $316,700 in May of last year, while the average May new home sales price was $377,200, down from a $386,500 average price in April, but up from the average home sales price of $372,600 in May a year ago, while down from the average home sales price of $378,400 in May of two years ago….a seasonally adjusted estimate of 333,000 new single family houses remained for sale at the end of May, which represents a 6.4 month supply at the May sales rate, up from a 5.9 month supply in April….for more details and graphics on this report, see Bill McBride’s two posts on this month’s report, New Home Sales decreased to 626,000 Annual Rate in May and A few Comments on May 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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