note on the graphs used here

sometime during the third week of March, the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our graphs, and also left us with about half the options we had available and used before the upgrade...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them blank or unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where a graph has gone missing, click on the blank space where it had been in order to view it....


Sunday, October 28, 2012

3rd quarter GDP, september durable goods and new home sales, the LPS “first look”, et al

the key economic report of this past week was the advance estimate of 3rd quarter GDP from the BEA which was released on Friday; our real (inflation adjusted) gross domestic product, which is a dollar denominated measure of the goods & services produced during the quarter, rose at a seasonally adjusted annual rate of 2.0% over the period from july thru september...as always, the caution on these first GDP estimates is that they are usually revised substantially when more complete data about the recent quarter becomes available...ie, the 2nd quarter GDP was first estimated to have grown at an annual rate of 1.5%, which was revised to 1.7% a month later, & then unsettlingly lowered to 1.3% when the final regular revision came in last month...and remember too that, unlike europe, the US reports GDP at an annual rate, which means our growth from June 30 to Sept 30 was really a half a percent, whereas Britain, which also just reported 3rd quarter GDP growth at 1%, largely due to the Olympics, would report growth an annual rate over 4% by the US method...so our actual year to date annual growth rate of 1.74% is really anemic, & not considered high enough to lower unemployment...

nonetheless, a few surprises contributed to what was a better than expected report...probably most unexpected was the 0.71% added to GDP by government spending and investment, the largest contribution from the government sector since the 2nd quarter of 2009, a time when the full impact of the stimulus was being applied, as defense spending increased 13% in the 3rd quarter...and while private investment was generally weak, with investment in equipment & software declining slightly and non-residential building decreasing 4.4% in contrast to its 0.6% 2nd quarter gain, residential fixed investment increased 14.4% in the 3rd quarter, compared with an increase of 8.5% in the 2nd...so as weak as homebuilding has been, what counts for GDP is that it's continued to be better than it was previously...and as is usually the case, the lion's share of 3rd quarter GDP growth, 1.42%, came from personal consumption expenditures, which increased 2.0% in the third quarter, compared with an increase of 1.5% in the second; of the components of PCE, spending on durable goods increased 8.5% compared to the 0.2% decrease in the 2nd quarter; spending for nondurables was up 2.4%, while spending for services, which is nearly 2/3 of PCE, was only up 0.8%, in contrast to their 2nd quarter increase of 2.1%...and while our trade deficit always decreases GDP as exports are added and imports are subtracted, the steep decline in trade generally connected to the slump in europe & slowdown in china created the seemingly contradictory situation wherein the 1.6% 3rd quarter decline in exports in contrast to the 5.3% gain in the second subtracted 0.23% from GDP, while a much smaller decline of 0.2% in 3rd quarter imports added just .04% to GDP when compared to the second import increase of 2.8%...to the above right we have a bar graph from zero hedge for a visual on how each of the components affected the 3rd quarter GDP growth, as well as the components of earlier GDP readings from 2010 & 2011; with segments above the dashed line being positive contributors and those below that line subtracting from each quarter's GDP, which is tracked by the solid black line...the dark blue segments represent personal consumption, which has contributed positively throughout the recovery; the orange segment is government spending, which has subtracted from GDP for every recent quarter except Q2 2010 and the current one; even in quarters where federal spending has risen, state and local spending has been a major drag...the red segment represents private investment, which has now been a contributor to GDP for 6 quarters running: business investment in software & equipment was strong early in the recovery, but as that waned, residential investment has picked up the slack...the green segment below the line represents the .12% subtraction from GDP from a decrease in private inventory investment, less than declining inventories subtracted in the 2nd, so BEA calls that a contributor to acceleration in real GDP in the 3rd quarter vis-a-vis the 2nd; much of the hit from declining inventories this year is obviously an unwinding of the large inventory buildup in the 4th quarter of 2011...the last two segments in each bar are purple for exports and light blue for imports...in this recent quarter, exports declined for the first time in 3 years, hence the normally positive export contribution is shown as negative because it's less than the 2nd quarter, while imports, which subtract from GDP, are positive because they subtracted less this quarter than the last...

the other two major reports this week both covered what are ultimately components of GDP; we'll look at the September Report on Durable Goods Shipments, Inventories and Orders from the Dept of Commerce (pdf), which are mostly watched for the forward looking new orders, which showed that new orders for manufactured durable goods increased $19.6 billion to a seasonally adjusted $218.2 billion in september, a 9.9% increase over new orders booked in August and the largest single month gain in nearly three years; however, that large gain only managed to reverse part of the major decrease of 13.2% in new orders that we saw in August, which was the worst report since the worst months of the recession...new orders for durable goods tend to fluctuate around orders for defense and transport goods but are not normally as volatile as we've seen these past two months, but just as the August decline came as the result of a very unusual dearth of orders for civilian aircraft, the rebound in September comes from a return of aircraft orders to a more normal level, as orders for civilian aircraft added $14.66 billion to the $16.8 billion increase in orders for transportation equipment, which were up 31.7% to a seasonally adjusted $69.6 billion for the month...excluding those transport orders, new orders increased only 2.0% in September...and if we also exclude orders for defense goods, the other volatile category, we find that orders for core durable goods rose 0.4% in September, up from a rise of 0.2% in August core durables orders...non-defense orders for capital goods, representing business investment in productive equipment, rose $13.7 billion or 23.7% to $71.4 billion, but taking aircraft out of that total reduces the september gain to statistical insignificance at 0.0%, which you can see on the chart to the right from J. Picerno at the capital spectator, which shows non-defense orders for capital goods except aircraft in red, and total durable goods for each month since last september in black ...
looking forward from the durables report at manufacturing activity in October, we've seen a handful fairly weak reports from the regional Fed banks; New York's Empire State Manufacturing Survey showed an increase from september's -10.41 reading, but remained mired in contraction at -6.16; the Philly Fed's October Manufacturing Survey showed expansion for the first time in 6 months as their broadest diffusion index rose to 5.7, but the Richmond Fed Manufacturing Composite, covering Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, fell from a slightly expansionary reading of 4 in september to a negative 7 in october...and the Kansas City Fed’s manufacturing composite index, covering a broad swath of the plains states, dropped to the contractionary level of -4 in October, the first time this year KC has gone negative...
Residential Investment
the major housing report of the past week was for New Residential Home Sales in September from the census bureau and HUD (pdf)...the new home sales numbers dont correspond much with the new housing construction report, such as we saw last week, because a significant number of the home starts are by owner or private parties who may or may not occupy the home themselves but have no intention of putting it on the market for sale...and it is the total of residential investment, which comes not only from new single family homes being built, but also from mufti family structures and home improvement spending, which is the component of GDP which had the big percentage gain in this week's 3rd quarter GDP report...nonetheless, the economic impact of new homes built &/or sold is far greater than with existing homes sales, because with the new homes comes new appliances, furniture, decor, and a plethora of other retail purchases & services such as landscaping...and, as you can see from the adjacent chart from bill mcbride, residential investment at less than two & a half percent of GDP is far from it's normal 4% to 5% contribution to the economy, and has lingered in that low range for four years because of the overhanging existing supply of housing brought about by high levels of defaults & subsequent foreclosures, so residential investment isnt leading the economy out of this recessions as it normally does (recessions are marked by vertical light blue bars)... but as is the case with most current housing data, there are wide margins of error; ±14.8% on this month's figures, ±19.3% on the annual comparisons....according to the census, 31.000 single-family home were sold in September; but census & everyone else reports these at a seasonally adjusted annual rate of 389,000, which was 5.7% (±14.8%) above the revised August annual rate of 368,000 and 27.1% (±19.3%) above the year ago estimate of a 306,000 annual sales rate; the seasonally adjusted estimate of new houses for sale at the end of September was 145,000, pretty close to the actual 146,000 new homes on the market; census calls this a 4.5 month supply at the current sales rate; math says it's a 4.7 month supply (146 / 31)...and the median sales price of new houses sold in September 2012 was $242,400; the average sales price was $292,400; table 2 on page 3 of the pdf has further sales price ranges details (table one has sales breakdown by regions which are rendered incoherent by 90% confidence interval as high as ± 111.5%)

another housing report we should take a quick look at is the LPS “First Look” Mortgage Report for September because there has been a substantial & inexplicable rise in mortgage delinquencies over the past month; LPS reported the  mortgage delinquency rate (home loans 30 or more days past due, but not in foreclosure) increased to 7.40% from 6.87% in August, as 3,700,000 of us had not made their most recent mortgage payment at month end; LPS offers no explanation for the delinquency increase, although one may be forthcoming when their complete Mortgage Monitor is released at the end of next week; in the years we've covered the mortgage crisis we have never seen a major jump in mortgage delinquencies at this time of year (typically, there is an increase around the holidays as some homeowners apparently skip a house payment in order to buy toys, but they usually catch up by march and delinquencies resume their downward trend)...retail sales did jump in september, driven by higher gas prices and purchases of the new iphone, and there were a number of articles at the time that most of the new gadget buyers were going into debt to buy the latest, but that correlation is just speculative...nonetheless, the rest of the LPS report didnt show any deterioration; longer term delinquencies of more than 90 days rose just 10,000 to 153,000, which is less than one percent, and the number of homes in foreclosure fell from 2,020,000 in August, which was 4.04% of all mortgages, to 1,940,000 at the end of September, which is 3.87% and the first time homes in foreclosure have been below 4% since the crisis started...the decrease in foreclosures was confirmed by the third quarter report from RealtyTrac, which this week was updated with data for the 212 largest cities; they report 131 of those cities with a population of 200.000 or more saw their foreclosure activity decrease in the 3rd quarter...the New York metro area remains a sore spot, however, as foreclosures in the big apple are running 69% higher than a year ago... 

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

1 comment:

  1. the revisions are in our face but too many are still not aware

    sitting in a waiting room last week, a man was talking about the housing market 'lifting'...i pulled up the chart from 2005 (above) and shared it with him...his reply 'thats just the bubble'.

    there are no more excuses left...all the numbers are a click away

    thanks rj

    ReplyDelete