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 3.2% higher than prices for the same homes that sold during the same 3 month period a year earlier, same as the year over year 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 rose to +0.10 in August from -0.41 in July, after the July index was revised from -0.36 to -0.41;  that left the 3 month moving average of the index at –0.06 in August, up from -0.14 in July, which still indicates that national economic activity has been a bit below the historical trend over the summer months…

This week also saw the release of two more regional Fed manufacturing surveys for September: 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 +1 in August to -9 in September, indicative of a contraction of that region’s manufacturing, while the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -2 in September, up from -6 in August but down slightly from -1 in July, still suggesting stagnation of that region’s manufacturing…

Third Estimate of 2nd Quarter GDP Has Growth at a 2.0% 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 2.0% annual rate in the quarter, revised but unchanged from from the 2.0% growth rate reported in the second estimate a month ago, as small downward revisions to personal consumption and fixed investment were offset by upward revisions to our trade balance and state and local government consumption and investment…in current dollars, our second quarter GDP grew at a 4.66% annual rate, increasing from what would work out to be a $21,098.8 billion a year rate in the 1st quarter to a $21,340.3 billion annual rate in the 2nd quarter, with the headline 2.0% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 2.4% were applied to the current dollar change of each of the GDP components… 

Recall 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 more than 4 times of the change that 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 pdf for the 3rd estimate of 2nd quarter GDP, which you may have to access using 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 3rd quarter of 2015; table 2, which shows the contribution of each of the components to the GDP change 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 major GDP components…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, was revised from the 4.7% growth rate reported last month to a growth rate of 4.6% in this estimate…that growth rate figure was arrived at by deflating the 7.0% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 2.4% annual rate in the 2nd quarter, which was revised from the 2.3% PCE inflation rate reported a month ago…real (inflation adjusted) consumption of durable goods grew at a 13.0% annual rate, which was unrevised from the growth rate shown in the second estimate, and added 0.87 percentage points to GDP, as real consumption of both motor vehicles and recreational goods and vehicles grew at rates in excess of 16% to boost durables consumption…real personal consumption of nondurable goods rose at a 6.5% annual rate, revised from the 6.8% growth rate shown in the 2nd estimate, and also added 0.87 percentage points to 2nd quarter economic growth, as real growth in clothing & footwear consumption at a 14.5% annual rate accounted for nearly a third of the non-durables growth….meanwhile, real consumption of services rose at a 2.8% annual rate, unrevised from last month, and added 1.29 percentage points to the final GDP tally, with a 3.2% real growth rate in health care services providing the largest contribution to the 2nd quarter growth in services…

Meanwhile, seasonally adjusted real gross private domestic investment contracted at a 6.3% annual rate in the 2nd quarter, revised from the 6.1% contraction in investment reported last month, as real private fixed investment shrunk at a 1.4% rate, revised from the 1.1% shrinkage rate reported in the second estimate, while the change in real inventories was little changed from what was previously reported…..real investment in non-residential structures was revised from contraction at a 9.4% rate to contraction at a 11.1% rate, while real investment in equipment is now shown growing at a 0.8% rate, revised from the 0.7% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised lower, from growth at a 3.7% rate to growth at a 3.6% rate, while the contraction rate of residential investment was revised from -2.9% to -3.0% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.36 percentage points from the 2nd quarter’s growth rate, the increase in investment in equipment added 0.05 percentage points to the quarter’s growth, the growth in investment in intellectual property added 0.17 percentage points, while the decrease in investment in residential structures subtracted 0.11 percentage points from the 2nd quarter’s GDP…

At the same time, the growth in real private inventories was revised from the previously reported $69.0 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $69.4 billion rate…this came after inventories had grown at an inflation adjusted $116.0 billion rate in the 1st quarter, and hence the revised $46.6 billion decrease in real inventory growth from that of the 1st quarter subtracted 0.91 percentage points from the 2nd quarter’s growth rate, unrevised from the subtraction from lower inventory growth shown in the second estimate….since any growth in inventories would indicate that more of the goods produced during the quarter were left sitting on a shelf or in a warehouse, the decrease in their growth by $46.6 billion conversely meant that real final sales of GDP were actually greater by that much, and hence the BEA found that real final sales of GDP grew at a 3.0% rate in the 2nd quarter, same as the real final sales growth rate shown in the second estimate..

The previously reported decrease in real exports was revised to a slightly smaller decrease with this estimate, while at the same time the previously reported small increase in real imports was revised to statistically unchanged, and as a result the net of our foreign trade was a slightly smaller subtraction from GDP than was reported in the advance estimate…our real exports shrunk at a 5.7% rate rather than the 5.8% 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 shrinkage conversely subtracted 0.69 percentage points from the 2nd quarter’s growth rate, a bit less than the 0.71 percentage point subtraction shown in the previous report….meanwhile, the previously reported 0.1% increase in our real imports was revised to indicate no change even as there was a statistically insignificant $0.2 billion decrease in the inflation adjusted import figure….since 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 domestically, their revision from an increase to a decrease thus added 0.01 percentage point to 2nd quarter GDP, rather than the 0.1% subtraction shown in the 2nd estimate…thus, our deteriorating trade balance subtracted a net 0.68 percentage points from 2nd quarter GDP, revised from the rounded 0.72 percentage point subtraction that had been indicated in the second estimate…

Finally, there were modest upward revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 4.8% rate, revised from the 4.5% growth rate previously reported…real federal government consumption and investment was seen to have grown at a 8.3% rate from the 1st quarter in this estimate, which was revised from the 8.1% growth rate shown in the 2nd estimate…real federal outlays for defense were revised to show growth at a 3.3% rate, rather than the 3.1% growth rate previously reported, and added 0.13 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 16.1% rate, revised from the 16.0% growth shown in the previous report, and added 0.40 percentage points to 2nd quarter GDP….meanwhile, real state and local consumption and investment grew at a 2.7% rate in the quarter, which was revised from the 2.3% growth rate reported in the 2nd estimate, and added 0.29 percentage points to 2nd quarter GDP, which in total means that growth of government accounted for 0.82 percentage points of the 2nd quarter’s growth…. 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 0.4%; 2 Months PCE Would Add 1.50 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 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 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 $73.5  billion (0.4 percent) in August“, they mean that the annualized figure for seasonally adjusted personal income in August, $18,773.3 billion, was $73.5  billion, or a bit less than 0.4% greater than the annualized personal income figure of $18,699.8 billion for July; the actual, unadjusted change in personal income from July to August, which would be on the order of one-twelfth the size, is not given…similarly, annualized disposable personal income, which is income after taxes, rose by nearly 0.5%, from an annual rate of an annual rate of $16,495.2 billion in July to an annual rate of $16,572.9 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 thus also annualized…in August, the largest contributors to the $73.5 billion annual rate of increase in personal income were a $56.7 billion annual rate of increase in wages and salaries and a $9.9 billion annual rate of increase in personal current transfer receipts..…

For personal consumption expenditures (PCE), BEA reports that they increased at a $20.1 billion annual rate, or by more than 0.1 percent, as the annual rate of PCE rose from $14,637.6 billion in July to $14,657.7 in August; that was after the July PCE figure was revised down from the originally reported $14,661.1 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 $22.3 billion to $15,225.9 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,347.0 billion annual rate in August, up from the revised $1,291.6 billion annualized personal savings in July… hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 8.1% in August, up from 7.8% 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 109.914 in July to 109.950 in August, a month over month inflation rate that’s statistically 0.03275%, which BEA reports as unchanged, following the rounded +0.2% 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 0.1% 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 13,331.8 billion annually, 0.10437% more than July’s 13,317.9 billion, a difference that the BEA rounds and reports as +0.1%…

  However, to estimate the impact of the change in real 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 real PCE for each of those months separately, the BEA also provides the annualized chained dollar PCE for those three months quarterly in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 13,250.0 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, 13,317.9 billion and 13,331.8 billion respectively, 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 13324.85 to the 2nd quarter real PCE of 13,250.0, we find that 3rd quarter real PCE has grown at a 2.28% annual rate for the two months of the 3rd quarter that we have…{note the math we’ve used to get that annual growth rate: (((13,331.8 + 13,317.9) / 2) / 13,250.0) ^ 4 = 1.0227884 }…that’s a pace that would add 1.50 percentage points to the growth rate of the 3rd quarter, even if there should be no improvement in September’s real PCE from that July & August average… 

August Durable Goods: New Orders Up 0.2%, Shipments Up 0.1%, Inventories Up 0.3%

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 $0.5 billion or 0.2 percent to $250.7 billion in August, after rising by a revised 2.0% in July…July’s new orders were revised from the $250.4 billion reported last month to $250.2 billion, with the month over month percentage increase thus revised from 2.1% to 2.0%…however, even after three consecutive increases, year to date new orders are now 0.4% below those of 2018, actually a decrease from the +0.3% year over year change we saw in this report last month….

The volatile monthly change in new orders for transportation equipment limited the August new orders increase, as those transportation equipment orders fell $0.39 billion or 0.4 percent to $86.14  billion, due to a 17.1% decrease to $9,066 million in new orders for commercial aircraft, which are now running 37.3% below those of 2018 year to date….excluding new orders for transportation equipment, other new orders were up 0.5% in August, led by a 1.3% or $0.4 billion increase $34.4 billion in new orders for fabricated metal products, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.2% to $69,296 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 $0.3 billion or 0.1 percent to $254.2 billion, after July shipments were revised from $254.0 billion to $253,868 million, thus revising the previously reported shipments decrease of 1.1% to one of 1.2% from June….an increase in shipments of machinery was responsible for the August increase, rising $0.5 billion or 1.6 percent to $33.4 billion, while shipments of transportation equipment fell 0.6 to $85.95 billion…meanwhile, shipments of nondefense capital goods excluding aircraft rose 0.4% to $ 69,789, after falling 0.6% in July…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the thirteenth time in the last fourteen months, increasing by $1.3 billion or 0.3 percent to $428.6 billion, with the revised increase in July inventories remaining statistically unchanged at up 0.4% to $427.3 billion…a  increase in inventories of transport equipment was the cause of the August inventory increase, as they rose $1.7 billion or 1.2 percent to $143.2 billion…excluding transportation, other durable goods inventories fell 0.1%..

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 a 2nd time in 5 months, increasing by $0.7 billion or 0.1 percent to $1,162.3 billion, after July’s unfilled orders were up 0.1% to $1,161.6 billion from June…a $0.6 billion or 0.7 percent increase to $87.2 billion in unfilled orders for fabricated metal products led the August increase, while unfilled orders for transportation equipment were statistically unchanged at $793.5 billion….compared to a year earlier, the unfilled order book for durable goods is now 1.0% below the level of last August, with unfilled orders for transportation equipment 1.8% below their year ago level, largely on a 3.8% decrease in the backlog of orders for commercial aircraft…

August New Home Sales Reported Higher After July Sales Were Revised Higher

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 713,000 new homes a year, which was 7.1 percent (±20.3 percent)* above the revised July rate of 666,000 new single family home sales a year and 18.0 percent (±19.9 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 635,000 reported last month up to a 666,000 a year rate, while home sales in June, initially reported at an annual rate of 646,000 and revised to a 728,000 a year rate last month, were revised up to a 729,000 a year rate with this report, and while May’s annualized home sale rate, initially reported at a 626,000 rate and revised from a 604,000 a year to a 602,000 rate last month, were revised down to a 598,000 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 57,000 new single family homes sold in August, up from the estimated 56,000 new homes that sold in July but down from the 66,000 that sold in June….the raw numbers from Census field agents further allowed for estimates that the median sales price of new houses sold in August was $328,400, up from the median sales price of $305,400 in July and up from the median sales price of $321,400 in August a year ago, and that the average August new home sales price was at a record $404,200, up from the $372,700 average sales price in July, and up from the average sales price of $380,900 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 5.7 month supply at the August sales rate, down from the revised 5.9 month supply of unsold homes in July, 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 713,000 Annual Rate in August and A few Comments on August New Home Sales..

 

(the above is the synopsis that accompanied my weekly 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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