Sunday, November 30, 2014

3rd Qtr GDP revision, October’s income & outlays, new home sales, and durable goods, September’s Case-Shiller, et al

the key releases of the past week were the 2nd estimate of 3rd quarter GDP from the BEA on Tuesday, and the BEA report on personal Incomes and spending for October, released on Wednesday, which gives us the largest component of 4th quarter GDP for the month....other widely watched releases included the September Case-Shiller house price indexes, released on Tuesday, and the Census reports on October new home sales and on orders, shipments, and inventories of durable goods, both released on Wednesday....other reports included the Chicago Fed National Activity Index for October (pdf), a weighted composite index of 85 different economic metrics grouped into four broad categories of data, which slipped to +0.14 in October from a revised +0.29 in September, with the positive number still indicating growth above the historical trend....49 of the 85 Chicago Fed indicators made positive contributions to the index in October, as production related indicators added 0.01 to the index, employment-related indicators added 0.16, sales, orders, and inventories added 0.11, while the the consumption and housing category subtracted 0.12 from the overall reading for October....the index’s three-month moving average declined to -.01 in October from +0.12 in September as the September monthly index was revised to +0.29 from an initial estimate of +47, and the August monthly index was revised to -.46 from last month’s estimate of -0.25...this week also saw two regional Fed manufacturing surveys: the November Texas area manufacturing survey from the Dallas Fed saw its general business activity index hold steady at 10.5 for the 3rd month in a row while their production index fell from 13.7 to 6.0, indicating output grew but at a slightly slower pace than in October, and the Richmond Fed November Survey of Manufacturing Activity, covering the 5th Fed District that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported flattening new orders and shipments as their manufacturing composite index fell to 4, from a reading of 20 in October...the short holiday week also saw the Chicago Purchasing Managers Index (PMI) for November from the ISM-Chicago (pdf), which reported their Chicago Business Barometer fell 5.4 points to to 60.8 in November, indicating a smaller plurality of Midwest manufacturers reported expansion than in October, as reported new orders and production indicators slipped...

GDP Revised Estimate Shows Growth at a 3.9% Rate in 3rd Quarter

the Second Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our economy grew at a 3.9% rate in the third quarter, revised from the 3.5% growth rate reported in the advance estimate last month, as personal consumption expenditures and the change in private inventories were revised upward while imports were revised upward and exports were revised lower...in current dollars, our 3rd quarter GDP would extrapolate to $17,555.2 billion annually, up 1.31%, or at a 5.34% annual rate from the $17,328.2 billion annualized figure of the 2nd quarter...however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, the current dollar value of output is adjusted for inflation based on prices chained from 2009 , from which all percentage calculations in this report are based....the resulting inflation adjustment used in the third quarter, aka the "GDP deflator", implies annual inflation at a 1.4% rate, revised from the 1.3% deflator reported a month ago and up from the 2.1% annualized inflation factor reported for the second quarter...while we cover the details below, recall that all quarter over quarter percentage changes reported in this release are given at an annual rate, which means that they're expressed as a change a bit over 4 times the change that actually occurred over the 3 month period... 

real personal consumption expenditures, the largest component of GDP, were revised to show growth at a 2.2% annual rate rather than the 1.8% growth rate reported last month, and hence contributed 1.51% to the quarter's growth rate, not the 1.23% previously estimated...real consumption of durable goods grew at a 8.7% rate, revised from the 7.2% growth rate reported in the advance estimate, and added .63% to the final GDP figure; major contributors to that were a 15.1% real growth rate in consumption of recreational goods and vehicles and a 10.5% real growth rate in motor vehicle and parts consumption, while real consumption of furnishings and durable household equipment rose slightly and consumption of other durable goods fell, even as all durables consumption benefited from a negative 2.0% deflator...meanwhile, real personal consumption of non-durable goods rose at a 2.2% rate and added 0.33% to GDP, revised from the previous estimate of a 1.1% growth rate, even though inflation adjusted outlays for food and beverages, clothing, and energy goods were flat....in addition, real consumption of services grew at an 1.2% rate and added 0.53% to the quarter's growth, revised from the 1.1% growth rate and 0.52% addition reported in the advance estimate last month, as real consumption of financial services and insurance grew at a 5.6% annual rate, real consumption of food and lodging services grew at a 4.6% rate, and real outlays for health care services rose at a 1.9% rate, offsetting small decreases in real outlays for housing and utilities and recreation while outlays for other services were flat..

seasonally adjusted real gross private domestic investment grew at a 5.1% annual rate in the 3rd quarter, revised from the 1.0% growth that was first estimated, as inventories were revised sharply upward and the growth rate of private fixed investment was revised to 6.2% from the 4.7% estimate of last month and thus added .97% to the 3rd quarter's growth rate...real non-residential fixed investment grew at a 7.1% rate, rather than the 5.5% previously estimated, even though investment in non-residential structures was revised down from growth at a 3.8% rate to growth at a 1.1% rate, as investment in equipment grew at a 10.7% rate, not the 7.2% rate previously reported, and the quarter's investment in intellectual property products was revised from a growth rate of 4.2% to a 6.4% growth rate, while growth in residential investment was revised from 1.8% to 2.7%…after these revisions, investment in non-residential structures added 0.3% to the quarter's growth rate, investment in equipment added 0.61%, investment in intellectual property added 0.24%, while growth in residential investment added 0.9% to 3rd quarter GDP...

meanwhile, the real (inflation adjusted) change in private inventories was revised from $62.8 billion greater to $79.1 billion greater than the 2nd quarter, when inventories grew by $84.8 billion over the 1st quarter; hence the $5.7 billion negative change in inventory growth was much smaller than the originally reported $22.0 billion decrease, and thus it only subtracted 0.12% from 3rd quarter growth rather than the .57% subtraction applied in the advance estimate last month....

  the change in our real 3rd quarter net trade figures were revised as well, although not as seriously as the estimates we noted in reporting on the September trade report, which was released a week after the advance estimate....the BEA originally estimated that our 2nd quarter exports had increased at an inflation adjusted 7.8% annual rate while imports fell at a 1.7% rate, for a decrease in the trade deficit over the 2nd quarter deficit that added 1.32% to the 1st estimate of  3rd quarter GDP...with the revision now including the correct September data, we now find that real 3rd quarter exports have increased at just a 4.9% rate, while real imports only fell at a 0.7% rate...as you should recall, exports add to gross domestic product because they represent that part of our production that was not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here...thus the smaller increase in real exports added just 0.65% to 2nd quarter growth, while the smaller decrease in real imports subtracted just 0.12% from the 3rd quarters's GDP...  

finally, there were also some minor revisions to real government consumption and investment in this 2nd estimate...real federal government consumption and investment grew at a 9.9% rate vis a vis the 2nd quarter, revised from a 10.0% growth rate, as real federal spending for defense grew at a 16.0% rate and added 0.66% to GDP, which was unchanged from last month's estimate, while.all other federal consumption and investment grew at a 0.4% rate, revised from 0.5% growth, and which added 0.01% to GDP...real state and local outlays rose at a seasonally adjusted 0.8% rate and added 0.09% to GDP, rather than the 1.3% rate of increase previously reported, as real state and local investment rose at a 11.1% rate and added 0.20% to GDP, while state and local consumption spending rose at a 0.9% rate and added 0.12% to 3rd quarter growth…

our new FRED bar graph below, which can also be viewed as an interactive, has been updated with these latest GDP revisions…each color coded bar shows the change, in billions of chained 2009 dollars in one of the major components of GDP over each quarter since the beginning of 2012...in each quarterly grouping of seven bars on this graph below, the quarterly changes in real personal consumption expenditures are shown in blue, the quarterly changes in real fixed private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is shown in yellow, the real change in exports are shown in purple, while the change in real imports is shown in green ..then the change in state and local government spending and  investment is shown in pink, while the change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line....  

3rd qtr 2014 2nd estimte GDP 

Personal Income and Spending Both Rise 0.2% in October

the other key monthly release this past week, also from the Bureau of Economic Analysis, was on Personal Income and Outlays for October, which in addition to the important personal income data, also reports the monthly data on our personal consumption expenditures (PCE), which as we just saw is the major component of GDP...from that data, the BEA also computes personal savings and the national savings rate, as well as a price index for PCE, the inflation gauge the Fed targets and which is used in this report to adjust both personal income and consumption expenditures for inflation to arrive at 'real' change figures.. ..like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the nominal monthly dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts... however, the percentage changes are expressed as a month over month change and are confusingly used within the report as if they refer to the annualized amounts, making for a difficult report to unpack and report on correctly...

in October, total personal income increased at a seasonally adjusted and annualized $32.9 billion rate, to what would be a gross national personal income of $14,868.3 billion annually, which was 0.2% higher than in September, when personal income increased by 0.2% over August...disposable personal income (DPI), which is total income after taxes, increased at an annualized rate of $23.4 billion to $13,109.3 billion annually, which was also a 0.2% increase over September , while September's DPI was up just 0.1% over August...increases in private wages and salaries accounted for $18.8 billion of the annualized October personal income gains in contrast to just $13.9 billion in September, as service industry payrolls increased at a $11.6 billion rate and goods producing industry payrolls rose at a $7.2 billion clip....increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.8 billion of October's annualized increase, while employee contributions for government social insurance, which is subtracted from the personal income figure, increased at a $2.4 billion rate...meanwhile, proprietors' income decreased at a $7.4 billion rate in October, as farm owners incomes fell at a $1.2 billion rate while incomes of individual proprietors of other types of business were up $8.6 billion....other sources of the October personal  income changes included rental income of individuals, which increased at a $2.5 billion rate in October, personal interest and dividend income, which grew at a $3.1 billion rate, and personal transfer payments from government programs, which increased at a $4.8 billion rate..   

meanwhile, seasonally adjusted personal consumption expenditures (PCE) in October, which will be included in the change in real PCE in 4th quarter GDP, rose at a $27.3 billion annual rate to a level of $12,024.1 billion in consumer spending annually, 0.2% higher than in September, which itself was revised 0.2% higher to a level statistically unchanged from August....the current dollar increase in October spending was driven by a $24.7 billion annualized increase to an annualized $8,019.5 billion spending for services and a $4.8 billion increase to $2,688.2 billion in annualized spending for non-durable goods, while outlays for durable goods fell at an annualized $2.1 billion rate to an annualized $1,316.5 billion ...total personal outlays for October, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $26.3 billion to $12,458.2 billion, which left personal savings, which is disposable personal income less total outlays, at $651.2 billion in October, down from the revised $654.0 billion in personal savings in September, which was originally reported at $732.2 billion... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, was at 5.0%, now unchanged from September's revised savings rate, which was originally reported at 5.6%..

while our personal consumption expenditures accounted for 68.2% of our third quarter GDP, before they were included in the measurement of the change in our output they were first 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 included in this report, which is a chained price index based on 2009 prices = 100....that index rose to 109.225 in October from 109.165 in September, giving us a month over month inflation rate of 0.055%, which BEA reports as +0.1%, and a year over year PCE price index increase of 1.44%, while core prices rose 1.55%...because of the small monthly increase, the inflation adjusted or real personal consumption expenditures were up 0.2% in October, statistically the same as the unadjusted increase, after being unchanged in September, when the PCE price index was also up fractionally...however, using the same PCE price index, disposable personal income was deflated to show that real disposable personal income, or the purchasing power of disposable income, rose by just 0.1% in October, after increasing by 0.1% in September...

our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right...the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 14 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI per capita is up just 20.8% over the span of this graph, an increase which can largely be attributed to the non-wage components of personal income…  

October 2014 income and outlays

Durable Goods Order Backlog at Record $1,174.0 Billion in October, 12.4% Higher than Year Ago

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for October (pdf) from the Census Bureau estimated that new orders for manufactured durable goods rose by a seasonally  adjusted $1.0 billion or 0.4% to $243.8 billion, following the revised September new orders decrease of $2.2 billion or 0.9%....new orders for transportation equipment rose 3.4% to $76,255 million after falling 3.3% in September and 42.4% in August as new orders for defense aircraft rose 45.6% to $5,355 million, while new orders excluding transport equipment orders fell 0.9% in October to $167,551 million, as the important new orders for non-defense capital goods less aircraft, a measure of business investment, fell 1.3% to $71,212 million...seasonally adjusted shipments of durable goods were also weak, rising only $0.3 billion or 0.1% to $246.5 billion after a revised 0.3% increase in September, with shipments of motor vehicles and parts, up 0.6% to $47,633 million, driving the increase; without such transportation equipment, shipments were down 0.1%...meanwhile, seasonally adjusted inventories of durable goods, which have been up 18 out of the last 19 months, rose $2.0 billion or 0.5% to a new record at $406.8 billion, as inventories of  transportation equipment, up 0.7% to $131,694 million, was a major factor in the October increase....finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, increased by $5.0 billion or 0.4% to a record $1,174.0 billion....all categories of durables except machinery and automotive equipment saw their order backlog increase, with unfilled orders for computer equipment, up 2.0% to $4,133 million, and for electrical equipment and appliances, up 1.4% to 25,768 million, seeing the largest percentage increases...at month end, unfilled orders for durable goods were 12.4% ahead of last October's backlog...

New Home Sales Unchanged at a 450,000 a Year Pace

according to the Census bureau report on New Residential Sales for October (pdf), new single family homes sold at a seasonally adjusted annual rate of 458,000, which was 0.7 percent (±16.5%)* above the revised September sales rate of 455,000 homes a year, and 1.8 percent (±17.4%)* above the 450,000 a year pace that new homes were selling at in October of last year...furthermore, this report showed that September's sale rate was revised down from 467,000 annually to 455,000, and August's sales rate was revised down from the previously reported 466,000 to 453,000 annually....the asterisks indicate that based on their small sampling, Census could not be certain whether October's new home sales rose or fell from those of September or even from those of a year ago, but they're 90% confident that October home sales rose less than 17.2% or fell less than 15.8% from those of September, and that new homes could have sold as many as 19.2% more than last October or as few as 15.6% less than last October, a range of uncertainty to be expected in this report which has the largest margin of error of any census construction series....

the unadjusted data from Census field reps estimated that 37,000 homes sold in October, the same as they now estimate for September, which was revised from the original estimate of 38,000, and the same as for August, which was also estimated at 38,000 last month...new home sales for the year through October were estimated to be at 373,000, up 1.9% from the 366,000 estimated for the same ten months of 2013....of the 37,000 homes sold in October, 12,000 were completed, 14,000 were under construction, and 11,000 had not yet been started...the median new home sales price was $305,000 in October, up from $261,700 in September; while the average sales price was $401,100, up from September's $314,200 average, as the number of homes that sold for over $750,000 tripled...the Census estimated that a seasonally adjusted 212,000 new homes remained unsold at the end of October, which was a 5.6 month supply at the October sales pace, up from a 5.5 month supply in September...the FRED graph below show the historical data from this Census report, with the monthly sales reported as an annualized figure…note that new home sales have generally been stuck in a monthly range that would result in between 400,000 and 450,000 homes being sold annually since the end of 2012...

October 2014 new homes sold

Case-Shiller Home Price Indices See Small Decrease in September

according to the S&P Case-Shiller Home Price Index for September, there was a broad based slowdown in home prices during the month, as the National and both metropolitan Composite Indexes showed small price declines vis a vis the prior report....in the month over month comparison, which takes the current 3 month average of July, August and September repeat home sales prices and compares it to last month's 3 month average of June, July and August prices (and hence is simply a comparison of September prices to June's), both the 10 city and 20 city indexes were negative but statistically unchanged, while the Case-Shiller National Index was down 0.1%...on a unadjusted basis, Charlotte and Miami saw the largest monthly home increases at 0.6%, followed by Las Vegas, where the metropolitan area price index rose 0.4%....cities showing lower prices in this August release compared to last months include Washington, where area home prices fell 0.4%, and Atlanta, where the home price index was down 0.3%....meanwhile, the 10-City Composite was 4.8% higher than a year ago while the 20-City Composite Index was 4.9% higher, which were both down from the 5.6% annual home price increases reported for both in August...in the comparison to last September's indexes, home sales prices in Miami were 10.3% higher, followed by 9.1% higher prices in Las Vegas and 7.9% higher prices in San Francisco...Cleveland home prices, up 0.8%, saw the smallest one year increase, followed by Washington at 2.1% and Chicago with prices 2.6% higher than last year... 

included below are the pair of interactive FRED graphs we have created to show the historical track of home price indexes for each of the cities in the 20 city index, which are all based on 2000 home prices equal to 100.0... in our first FRED graph, we show the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red... for the larger interactive view of this graph at FRED, click here; there you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below, just as we have included the home price index values for each of them for the September report in our screenshot… 

September 2014 Case Shiller A-L

our second FRED graph of the Case-Shiller city indices shows the the historical price track of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…the S&P Case-Shiller index is not seasonally adjusted, but you will notice that the seasonal home price swings have become more pronounced since the housing bust…again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and the index values for each viewed over time with their interactive tool… 

September 2014 Case Shiller M-Z

(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 that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

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