2nd quarter GDP and annual revision; June’s durable goods, new home sales, existing home sales

The key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior five years…..the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, and the June report on existing home sales from the National Association of Realtors (NAR)..in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which rose from a upwardly revised -0.03 in May to -0.02 in June…that bumped the 3 month average of the index to -0.26 in June, up from a downwardly revised -0.27 in May, indicating national economic activity has been somewhat below the historical trend during the 2nd quarter…

This week also saw the release of two more regional Fed manufacturing surveys for July: 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 +2 in June to −12 in  July, its lowest reading since January 2013 and suggesting a contraction of 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 fell to  -1 in July, down from readings of 0 in June and +4 in May, suggesting continued stagnation of the 10th District’s manufacturing…

Advance Estimate of 2nd Quarter GDP & Revisions From 2014 to Present

The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included an annual revision over the past 5 years of GDP releases, revising previously published data from the first quarter of 2014 through the first quarter of 2019, which on net indicated that economic growth over the period from 2014 to 2019 was at a 2.4% annual rate, the same net growth over the period that was previously published….in addition to revisions to the first quarter of 2019, this report showed that the GDP growth rate for 2014 was unchanged from the previously reported 2.5%; that the growth rate for 2015 was unchanged from the previously reported 2.9%, that the GDP growth rate for 2016 was unchanged from the previously reported 1.6%, that the growth rate of 2017 was revised from the previously reported 2.2% to 2.4%, and that the growth rate for 2018 was unchanged from the previously reported 2.9%…although those annual numbers seem to show little revision, there was still considerable revision on a quarter to quarter basis; for instance, the 4th quarter of 2018, which had previously been recorded with a 2.2% growth rate, was revised to show that it had now only grown at a 1.1% rate….that revision led some media outlets who calculate yearly GDP from 4th quarter to 4th quarter to report that 2018’s GDP had been revised from 3.0% to 2.5%, which we feel is an inaccurate representation of year over year GDP because it omits the output of the first 3 quarters of both years…

Over the 2014  to 2018 period, personal consumption grew at a 3.0% rate, statistically unchanged from what was previously reported…private investment, on the other hand, saw its five year growth rate revised lower, from 3.9% to 3.6%, and exports only grew at a 1.6% over the period, also revised down from 1.8%…meanwhile, imports grew at a 4.4% annual rate over those 5 years, statistically unchanged from previously reports, while the growth of government investment and consumption was revised to a 1.3% rate from the 1.0% rate that had been indicated by reports prior to this revision…

The growth rate of first quarter of 2019, which had been reported at 3.1% when we reviewed it a month ago, remained the same as previously published, as downward revisions to exports, state and local government spending, and private inventory investment were offset by upward revisions to personal consumption expenditures and federal government spending…the first quarter PCE growth rate was revised from 0.9% to 1.1%, the growth rate of first quarter exports was revised from 5.4% to 4.1%, the first quarter growth rate of the federal government was revised to 2.2% from unchanged, while the growth rate of state and local governments was revised from 4.6% to 3.3%…first quarter growth in current dollar spending was revised from a 3.8% rate to a 3.9% rate, while the PCE price index for the first quarter was revised from +0.5% to +0.4%…

All those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Friday with some of June’s data still not reported, with a grain of salt…the BEA cautions that the 2nd quarter source data is incomplete and also subject to revisions, which have historically averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading…note that June construction and non-durables inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is explained in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions

The Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 2.1% annual rate over the output of the 1st quarter of this year, which we have just seen grew at a 3.1% rate…the slower 2nd quarter growth was due to downturns in inventory investment, exports, and nonresidential fixed investment, which were partly offset by greater grown in PCE and federal government spending.  In current dollars, our second quarter GDP grew at a 4.61% annual rate, increasing from what would work out to be a $21,098.8 billion a year rate in the 1st quarter to a $21,337.9  billion annual rate in the 2nd quarter, with the headline 2.1% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.4% were applied to the current dollar change of the components, as we will illustrate below…

While we cover the details on the 2nd quarter, remember that the GDP news 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 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 pdf for the 1st estimate of 2nd quarter GDP, which we find linked to on the BEA’s GDP page, which also links to just the tables on Excel and other technical notes.  Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually since 2007 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; and table 4, which shows the change in the price indexes for each of the GDP components…

Personal consumption expenditures (PCE), which accounts for roughly 69% of GDP, grew at a 6.7% rate in current dollars in the 2nd quarter, up from the first quarter’s spending increase at a revised 1.5% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 4.3% in the 2nd quarter after rising 1.1% in the first…consumer spending for durable goods rose at a 11.0% rate on big increases in spending for both motor vehicles and recreational goods and vehicles, but since the weighted prices for those durable goods fell at a 1.6% rate, the real output of durable goods represented by that spending increased at a 12.9% rate…at the same time, current dollar consumer spending for non durable goods rose at 9.5% rate, but the PCE price index for non-durable goods rose by 3.3%, meaning real growth in consumption of non durable goods was at a 6.0% rate…similarly, the 5.3% current dollar growth in personal spending for services was reduced by a 2.7% PCE services deflator to show real 2nd quarter growth in services was at a 2.5% rate…thus, with strong real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.86 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.81 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.17 percentage points to the change in 2nd quarter GDP…

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services…..hence, real gross private domestic investment, which had risen at a 6.2% annual rate in the 1st quarter as investment in inventories soared, shrunk at a 5.5% annual rate in the 2nd quarter, as both fixed investment and inventory growth contracted…real non residential fixed investment shrunk at a 0.8% annual rate as real investment in non-residential structures fell at a 10.6% rate, real investment in equipment grew at a 0.7% rate, and investment in intellectual property grew at 4.7% rate…hence, investment in real non residential fixed investment subtracted 0.08 percentage points from the growth in 2nd quarter GDP as real investment in non-residential structures subtracted 0.34 percentage points, real investment in equipment added 0.04 percentage points to the change in GDP, and investment in intellectual property added 0.22 percentage points to the change in GDP….in addition, residential investment fell at a 1.5% rate and subtracted 0.06 percentage points from the 2nd quarter’s GDP, leaving the total fixed investment contribution at minus 0.14 percentage points…for an easy to read table as to what’s included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3…

Meanwhile, slower growth in inventories also reduced gross investment and hence GDP, as real private inventories grew by an inflation adjusted $71.7 billion in the quarter, down from the revised $116.0 billion of inflation adjusted inventory growth now reported for the first quarter, and as a result the $44.3 billion reduction in real inventory growth subtracted 0.86 percentage points from the 2nd quarter’s growth rate, after an inflation adjusted $23.0 billion increase in inventory growth in the 1st quarter had added 0.53 percentage points to that quarter’s GDP growth rate…however, smaller inventories indicate that less of the goods produced during the quarter were left “sitting on the shelf”, so their quarter over quarter decrease by $48.7 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP grew at a 3.0% rate in the 2nd quarter, after real final sales had increased at a 2.6% rate in the 1st quarter, when the increase in inventories had a negative impact on real final sales of GDP…

After adjustment for higher export and import prices, real exports decreased in the 2nd quarter, while real imports eked out an increase… our real exports of goods and services decreased at a 5.2% rate in the second quarter, after rising at a 4.1% rate in the 1st quarter, while our real imports rose at a 0.1% rate in the 2nd quarter after falling at a 1.5% rate in the 1st quarter…as you’ll recall, increases in 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 in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been because it was not produced here….thus the 2nd quarter decrease in real exports subtracted 0.63 percentage points to 2nd quarter GDP, after exports had added 0.49 percentage points to first quarter GDP…at the same time, since imports subtract from GDP, their increase at a 0.1% rate subtracted 0.01 percentage points from 2nd quarter GDP, after the decrease in first quarter imports had added 0.23 percentage points to that quarter’s growth…as a result, our deteriorating trade balance subtracted a rounded total of 0.65 percentage points from 2nd quarter GDP growth, after an improved trade deficit had added 0.73 percentage points to GDP growth in the first quarter..

Finally, real consumption and investment by branches of government rose at a 5.0% annual rate in the 2nd quarter, after increasing at a 2.9% rate in the first quarter, as federal government consumption and investment grew at a 7.9% rate and state and local consumption and investment grew at a 3.2% rate…inflation adjusted federal spending for defense rose at a 2.8% rate and that added 0.11 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment grew at a 15.9% rate and added 0.40 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….meanwhile, state and local government investment and consumption expenditures, which grew at a 3.2% annual rate, added 0.35  percentage points to the quarter’s growth rate, as an increase in real state and local investment at a 14.1% rate accounted for most of the increase…

June Durable Goods: New Orders Up 2.0%, Shipments Up 1.4% Inventories Up 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $4.9 billion or 2.0 percent to $246.0 billion, following a revised drop of 2.3% to $241.0 billion in May’s new orders, which had originally been reported as a 1.3% decrease to $243.4 billion…however, year to date new orders are now shown unchanged from those of 2018, vs the 1.0% year over year change we saw in this report last month, as last June’s orders were 2% higher…as is usually the case, the volatile monthly change in new orders for transportation equipment led this month’s headline change, as those transportation equipment orders rose $3.0 billion or 3.8 percent to $80.5 billion, on a 75.5% increase to $6,236 million in new orders for commercial aircraft and supported by a 3.1% increase to $62,561 million in new orders for motor vehicles and parts….still, excluding new orders for transportation equipment, other new orders were up 1.2% in June, as the important new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 1.9% to $70,146 million…

The seasonally adjusted value of June’s shipments of durable goods, which were inputs into various components of 2nd quarter GDP after their nominal value was adjusted for price changes, increased by $3.5 billion or 1.4 percent to $258.2 billion, after the value of May shipments were revised from a 0.4% increase to $254.1 billion to a 0.5% increase to $254.6 billion….a $2.6 billion or 3.1 percent increase to $88.8 billion in shipments of transportation equipment was the major contributor, as the value of shipments of commercial aircraft rose 6.0% to $11,130 million and the value of shipments of motor vehicles motor vehicles rose 3.1% to $57,917 million…excluding that volatile sector, the value of other shipments of durable goods rose 0.5%, as new orders for nondefense capital goods excluding aircraft were up 0.6% to $70,389 million, an increase which was reflected in the otherwise weak 2nd quarter GDP equipment investment figures….

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the eleventh time in 12 months, increasing by $1.3 billion or 0.3 percent to $425.8 billion, after the value of May’s inventories was revised from $424.6 billion to $424.5 billion, still a 0.5% increase from April…an increase in inventories of transportation equipment was the major factor in the June inventory decrease, as they rose $1.1 billion or 0.8 percent to $139.6 billion, on a 1.2% increase in inventories of nondefense aircraft and parts…

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 4th time in five months, decreasing by $7.8 billion or 0.7 percent to $1,160.4 billion, following a May decrease of 0.8% to $1,168.2 billion, which was revised from the 0.5% decrease to $1,171.2 billion reported last month… a $8.3 billion or 1.0 percent decrease to $792.6 billion in unfilled orders for transportation equipment was responsible for the June decrease, as unfilled orders excluding transportation equipment were up 0.1% to $367,807million….compared to a year earlier, the unfilled order book for durable goods is now 0.5% below the level of last June, with unfilled orders for transportation equipment 1.3% below their year ago level, reflecting the impact of a 3.9% decrease in the backlog of orders for commercial aircraft…  

New Home Sales Reported Higher in June After Prior Month’s Sales Revised Lower

The Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 646,000 homes annually, which was 7.0 percent (±15.2 percent)* above the revised May rate of 604,000 new single family home sales annually and 4.5 percent (±21.8 percent)* above 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 June new home sales rose or fell from those of May or even from those in June 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 May were revised from the 626,000 annual rate reported last month to a 604,000 a year rate, April’s annualized home sale rate, initially reported at 673,000, were revised from last months upward revision to 679,000 down to 658,000, while March’s sales, at initially reported at an annual rate 662,000, and revised from a 723,000 rate to an annual rate of 705,000 last month, were now revised back to an annual rate of 693,000…

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 57,000 new single family homes sold in June, down from the 58,000 new homes that sold in May, the 64,000 new homes that sold in April, and the 68,000 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 June was $310,400, up from the median sale price of $303,500 in May, but down from the median price of $310,500 in June of last year, while the average June new home sales price was $368,600, down from the $371,200 average in May, and down from the average sales price of $370,100 in June a year ago….a seasonally adjusted estimate of 336,000 new single family houses remained for sale at the end of June, which represents a 6.3 month supply at the June sales rate, down from the 6.7 month supply in May, which was originally reported as a 6.4 month supply….for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increased to 646,000 Annual Rate in June and A few Comments on June New Home Sales

Existing Home Sales Down 1.7% in June, Prices at a Record High

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 1.7% from May to June, projecting that 5.27 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 2.2% below the annual sales rate projected for June of a year ago…that came after an annual sales rate of 5.36 million homes in May, revised from the 5.34 million rate reported a month ago, and an annual home sales rate of 5.21 million in April…the NAR also reported that the median sales price for all existing-home types was at a record high $285,700 in June, up from the prior record of $278,200 set in May and 4.3% higher than in June a year earlier, which they report as “the 88th straight month of year-over-year gains“…..the NAR press release, which is titled “Existing-Home Sales Falter 1.7% in June“, 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 during the selling process..

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually 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 527,000 homes sold in June, down by 2.7% from the 542,000 homes that sold in May, and down by 7.5% from the 570,000 homes that sold in June of last year…that same pdf indicates that the median home selling price for all housing types rose 2.7%, from a revised $278,200 in May to a record $285,700 in June, while the average home sales price was at a record $321,600, up 2.2% from the $314,600 average price in May, and up 3.1% from the $311,900 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $258,600 in the Midwest to a high of $422,500 in the West, both of which are also record highs…for additional coverage with long term graphs on this report, see “NAR: Existing-Home Sales Decreased to 5.27 million in June” and “Comments on June Existing Home Sales” from Bill McBride at Calculated Risk…

 

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most picked from the aforementioned GGO posts, contact me…)       

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