Sunday, November 29, 2015

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

we had a full plate of economic releases this past week, despite the holiday...the key reports were the 2nd estimate of 3rd quarter GDP and the October report on Personal Income and Spending, both from the Bureau of Economic Analysis, which were released on Tuesday and Wednesday respectively...other widely watched reports released early in the week included the October advance report on durable goods and the October report on new home sales, both from the Census bureau, the October report on existing home sales from the National Association of Realtors, and the September Case-Shiller Home Price Index, which is actually a 3 month average of July, August, and September home prices...also released this week was the Chicago Fed National Activity Index (CFNAI) for October, which is a weighted composite index of 85 different economic metrics, constructed such that a zero value indicates economic growth at the historical trend rate; the CFNAI rose to rose to −0.04 in October, up from −0.29 in September, which still left the 3 month average at -0.20, indicating that national economic activity has been somewhat below its historical trend...the week also saw the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index fell to -3, following last month's reading of -1, indicating that the region's manufacturing remains stagnated in November...

3rd Quarter GDP Revised to Show Growth at a 2.1% Rate

as was widely expected,  the Second Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.1% rate in the 2nd quarter, revised from the 1.5% growth rate reported in the advance estimate last month, as fixed investment and inventories were revised higher while exports were revised lower....in current dollars, our third quarter GDP grew at a 3.4% annual rate, increasing from what would extrapolate to $17,913.7 billion a year in the 2nd quarter to $18,064.7 billion annually in the 3rd quarter, with the headline 2.1% annualized rate of increase in real output arrived at after a deflator of 1.3% was applied to that current dollar change to adjust for inflation..

while we cover the details below, remember that the press release for GDP 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 they only use the prefix "real" to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those artificial 2009 dollar figures, which we think would be better thought of as representing quantity indexes...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting the changes here comes from the pdf for the 2nd estimate of 3rd quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually 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, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the 2nd quarter advance estimate, which this estimate revises, is here...

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show their growth at a 3.0% annual rate in the 3rd quarter, rather than the 3.2% growth rate reported last month…that figure was arrived at by deflating the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 1.3% annual rate in the 3rd quarter, which was revised from the 1.2% inflation rate that was applied to PCE in the first estimate....real consumption of durable goods grew at a 6.5% annual rate, which was revised from 6.7% in the advance report, and added 0.47 percentage points to GDP, as real output of recreational equipment and vehicles consumed rose at a 10.1% annual rate and output of all other consumer durable categories also grew...real consumption of nondurable goods by individuals rose at a 4.0% annual rate, revised from the 3.5% increase reported in the 1st estimate, and added 0.58 percentage points to 3rd quarter growth, as all categories of non-durable consumption also saw growth, while consumption of services rose at a 2.2% annual rate, revised from the 2.6% rate reported last month, and which added 1.00 percentage points to the final GDP tally...an increase at a 3.7% rate in the real output of health care services led the services increase, as only real consumption of recreational services was slightly lower than it was in the second quarter...

seasonally adjusted real gross private domestic investment contracted at a 0.3% annual rate in the 3rd quarter, revised from the 5.6% shrinkage estimate made last month, as real private fixed investment was revised from growth at a 2.9% rate to growth at a 3.4% rate, while the contraction in inventory growth was much smaller than previously estimated...investment in non-residential structures was revised down, however, from shrinking at rate of 4.0% to a contraction at a 7.0% growth rate, while the quarter's investment in intellectual property products was revised from growth at a 1.8% rate to contraction at a 0.8% rate, on a cutback in real R&D...on the other hand, investment in equipment was revised to show growth at a 9.5% rate, not the 5.3% rate previously reported, and the growth rate of residential investment was also revised up, from 6.1% to 7.3% annually…after those revisions, lower investment in non-residential structures subtracted 0.22 percentage points from the 3rd quarter's growth rate, investment in intellectual property subtracted 0.03 percentage points, while investment in equipment added 0.55 percentage points to growth, and growth in residential investment added 0.24 percentage points to 3rd quarter GDP...

meanwhile, the growth in real private inventories were revised from the originally reported $56.8 billion in real growth to show inventory growth at an inflation adjusted $90.2 billion rate, which came after inventories had grown at an inflation adjusted $113.5 billion rate in the 2nd quarter, and hence the $23.3 billion smaller real inventory growth than in the 2nd quarter subtracted 0.59 percentage points from the 3rd quarter's growth rate, in contrast to the 1.44 percentage point subtraction from slower inventory growth reported in the advance estimate....however, since slower growth in inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf”, their decrease by $23.3 billion means real final sales of GDP were actually greater by that much, and hence real final sales of GDP grew at a 2.7% rate in the 3rd quarter, revised from 3.0%, compared to the real final sales increase at a 3.9% rate in the 2nd quarter, when the change in inventories was insignificant, and hence growth in real final sales then was the same as growth in GDP…

the increase in real exports was revised lower with this estimate while the increase in real imports was revised higher, and as a result our net trade was a subtraction from GDP rather than the addition previously reported, as 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 elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was not produced here....our real exports grew at a 0.9% rate rather than the 1.9% real export growth reported in the first estimate, and as a result added just 0.11 percentage points to 3rd quarter GDP growth...meanwhile, the real growth of our imports was revised to 2.1% from the previously reported 1.8% growth and hence imports subtracted 0.33  percentage points from the quarter's growth rate...thus, our deteriorating trade balance subtracted a net 0.22% percentage points from 3rd quarter GDP, after an improving trade balance had added 0.18 percentage points to 2nd quarter growth...

finally, there were only minor revisions to real government consumption and investment in this 2nd estimate, as the real growth rate for the entire government sector was unchanged at a 1.7% rate...real federal government consumption and investment was seen to have grown at a 0.1% rate from the 2nd quarter in this estimate, revised from the 0.2% growth rate of the federal government previously reported...real federal spending for defense was revised to show it shrinking at a 1.5% rate rather than the 1.4% contraction rate previously reported, subtracting 0.06% percentage points from 3rd quarter GDP, while all other federal consumption and investment grew at a 2.6% rate, rather than the 2.8% growth rate previously reported, and added 0.7 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, real state and local consumption and investment was revised from growing at 2.8% rate in the first estimate to growth at a 2.6% rate in this estimate, that hence added 0.29 percentage points to 3rd quarter GDP...

in our FRED bar graph below, each color coded bar shows the real 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, the quarterly changes in real, or inflation adjusted, personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real 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...you can clearly see that the major contribution to GDP growth in the 3rd quarter came as a result of increased real personal consumption in blue, while slower growth in inventories (yellow) and increased imports (green) were the major subtraction from 2015 Q3 growth...

3rd quarter 2015 GDP 2nd estimate

Personal Consumption Expenditures Rise 0.1% in October as Personal Income Increases 0.4%

as you can infer from the chart above, the key monthly release in determining the ultimate trajectory of GDP each quarter would usually be the report on Personal Income and Outlays from the Bureau of Economic Analysis, which gives us the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, 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 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 are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, in today’s case they tell us what income and spending would be for a year if October's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, and in this case of this month's report they give us the percentage change in each annual metric from September to October...

hence, when the opening line of the press release for this report tell us "Personal income increased $68.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $56.8 billion, or 0.4 percent, in October", they mean that the annualized figure for personal income in October, $15,573.8 billion, was $68.1 billion, or a bit over 0.4% greater than the annualized  personal income figure of $15,505.7 billion for September; the actual change in personal income from September to October is not given...similarly, annualized disposable personal income, which is income after taxes, rose by more than 0.4%, from an annual rate of an annual rate of $13,545.2 billion in September to an annual rate of $13,601.9 billion in October...likewise, all the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be more clearly seen in the Full Release & Tables (PDF) for this release...so when the press release says, "Wages and salaries increased $45.0 billion in October, compared with an increase of $2.5 billion in September." that really means wages and salaries would rise by $45.0 billion over an entire year if October's seasonally adjusted increase in wages and salaries were extrapolated over that year, just as rental income of individuals rose at a $5.2 billion annual rate and interest and dividend income, the largest contributor to the September income increase, rose at a $4.7 billion annual rate in October...so you can see what's written in the press release is misleading, and often leads to media reports that parrot those lines the same way the BEA wrote it...

for the October personal consumption expenditures (PCE) that will be included in 4th quarter GDP, BEA reports that they increased by $15.2 billion, or 0.1%, which means the rate of personal consumption expenditures rose from $12,378.3 billion annually in September to $12,393.5 billion annually in October; in addition, the September PCE figure was revised down from the originally reported $12,389.2 billion annually...however, 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....that's done with the price index for personal consumption expenditures, which is included in Table 9 in the pdf for this report, which is a chained price index based on 2009 prices = 100....that index rose from 109.680 in September to 109.749 in July, giving us a month over month inflation rate of 0.063%, which BEA rounds to a 0.1% increase in reporting it....applying that functionally less than 0.1% inflation adjustment to the increase in October PCE leaves real PCE up 0.0598% in October, which the BEA reports as a 0.1% increase...comparing the annualized October real PCE of 11,292.8 in chained 2009 dollars from Table 7 of this release to the annualized real PCE of 11,262.8 in chained dollars that was reported in table 3 of the 3rd quarter GDP revision, we find that real PCE is growing at a 1.07% annual rate so far in the 4th quarter, or at a pace that, if continued in November and December, would add a meager 0.69 percentage points to 4th quarter GDP...

with disposable personal income up by 0.4% and personal consumption expenditures up by 0.1%, it only goes to reason that our personal savings for October would have increased from a month earlier...to arrive at the figures for that, the BEA takes total personal outlays, which is the sum of PCE, personal interest payments, and personal current transfer payments, and subtracts that from disposable personal income, to show personal savings at a $761.9 billion annual rate in October, up from the $722.9 billion that we would have ‘saved"’ over a year had September's savings been extrapolated for a year...this brought the personal savings rate, or personal savings as a percentage of disposable personal income, to 5.6% in October, up from the savings rate of 5.3% in September...

New Orders for Durable Goods Jumped 3% in October on Aircraft; Shipments and Inventories Fell

the value of new orders for durable goods jumped on higher aircraft orders in October and almost recovered to their July level, when new car orders had provided a large boost...the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods rose by a seasonally adjusted $6.9 billion, or 3.0%, to $239.01 billion in October, following a September drop of $1.9 billion or 0.8% that was revised from the previously reported  $2.9 billion or 1.2% drop, and a August drop of 2.9% that was revised up from the 3.0% decrease that was reported last month....year to date new orders still remain 4.2% below the orders level of 2014, in part due to falling prices of some durable goods, such as primary metals and fabricated metal products, and in part due to the July 1st shutdown of the Export-Import Bank, the financing vehicle for large export orders...as is usually the case, the volatile monthly change in new orders for transportation equipment drove the headline change, as those transportation equipment orders rose $6.1 billion or 8.0% to $82,082 billion on a 81.0% increase to $17,492 million in new orders for commercial aircraft, which are nonetheless still 39.2% below the year ago level year to date....excluding new orders for transportation equipment, new orders were still up 0.5% in October, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 1.3% to $70,046 million, after September orders for such capital goods were revised from a 0.3% decrease to a 0.4% increase...

meanwhile, the seasonally adjusted value of October shipments of durable goods, which will be an input into 4th quarter GDP after an inflation adjustment, fell by $2.5 billion or 1.0% to billion to $240.1 billion, after a September increase of 0.2%...again, reduced shipments of transportation equipment drove the change, as they fell $2.0 billion or 2.5% to $78.8 billion, as the value of shipments of motor vehicles and parts fell 2.7% to $51,716 million and shipments of commercial aircraft fell 4.7% to $13,696; excluding that volatile sector, the value of other shipments of durable goods still fell 0.3% to $161,358 million....meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 5th time in 6 months, dropping $0.7 billion or 0.2% to $397.4 billion, after a 0.6% decrease in September that was originally reported as a 0.3% decline ...a $0.3 billion or 0.9% decrease to $35.7 billion in the value of inventories of primary metals, which were priced 1.0% lower, was a factor, although inventories of computers and defense capital goods, not likely to be so skewed by price changes, were also down...

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were up for the first time in 3 months, rising by $3.5 billion or 0.3% to $1,192.0 billion, largely due to an increase in the backlog in orders for transportation equipment, which rose $3.3  billion or 0.4 percent to $798.2 billion, which you'll note is more than half the total of unfilled orders outstanding, as the $612,365 million backlog in commercial aircraft orders alone accounts for more than half of this metric...without the transportation equipment sector, October's unfilled orders barely increased, rising by $192 million to $393,853 million....compared to a year ago, the unfilled order book is now 2.1% below last October's level, with unfilled orders for transportation equipment 2.3% below their year ago level...

New Homes Selling at Annual Rate of 495,000 in October, Give or Take 88,600

the Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 495,000 new homes a year, which was 10.7 percent (±17.7%)* above the revised September rate of 447,000 new single family homes a year and 4.9 percent (±17.6%)* above the estimated annual rate that new homes were selling at in October of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether October new home sales rose or fell from those of September 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 subject to the largest revisions of any census construction series....sales new single family homes in September were revised from the annual rate of 468,000 reported last month to a 447,000 a year rate with this report, August's annualized home sale rate was revised from 552,000 to 513,000, while the annual rate of July sales was revised from 503,000 to 500,000...

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 41,000 new homes sold in October, up from the 34,000 new homes that sold in September, which was revised from the originally reported 36,000....in addition, the unadjusted estimate for August home sales was revised down again, from 43,000 to 42,000 after it was originally reported at 45,000, while the estimate for July sales was unrevised at 43,000....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in October was $281,500, down from $307,800 in September, which was originally reported as $296,900, while the average October new home sales price was $366,000, down from $369,600 in September, and down from the average sales price of $384.000 in October a year ago....a seasonally adjusted estimate of 226,000 new single family houses remained for sale at the end of October, which represents a 5.5 month supply at the October sales rate, down from a 5.8 month supply in September....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 495,000 Annual Rate in October and Comments on October New Home Sales.. 

Existing Homes Sales Fell 3.4% to 5.35 Million Annual Rate in October

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 3.4% in October, projecting that 5.35 million homes would sell over an entire year if October sales were extrapolated over that year, a rate still 3.9% higher than the annual sales rate projected in October of a year ago...the annual rate of September home sales was unrevised at 5.55 million home sales, which had been the 2nd highest monthly pace of existing home sales since February 2007...the NAR also reports that the median existing-home price for all housing types in October was $219,600, which was up 5.8% from a year earlier and the 44th consecutive year over year increase in home prices...the NAR press release, which is titled Existing-Home Sales Dial Back in October, is in easy to read plain English, so if you're interested in the details on cash sales, distressed sales, first time home buyers, et al. you can find them in that press release...as sales of existing properties do not add to our national output, neither these 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…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we'll take a look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this indicates that roughly 447,000 homes sold in October, down 5.1% from the 471,000 homes that sold in September and up only 0.9% from the 443,000 homes that sold in October last year...the regional change in October home sales ranged from a decrease of 3.1% to 63,000 home sales in the Northeast to a 5.9% decrease to 96,000 home sales in the West....that same pdf indicates that the median home selling price for all housing types fell 0.9% from a revised $221,700 in September to $219,600 in October, while the average home sales price was $262,800, also down 0.9% from the $265,100 average in September, but up 3.4% from the $254,100 average home sales price of October a year ago, with the regional average home sales prices ranging from a low of $203,800 in the Midwest to a high of $352,800 in the West...for additional coverage with long term graphs on this report, see Existing Home Sales in October: 5.36 million SAAR and A Few Random Comments on October Existing Home Sales by Bill McBride at Calculated Risk… 

September Case-Shiller Report Shows National Home Prices up 4.9% Since Last Year

the Case-Shiller house price indexes for September indicated a 5.0% year over year increase in prices on repeat home sales in the ten cities of the original index, a 4.9% annual increase in the 20 City Composite, and a 4.9% increase in home prices nationally since the September report of last year, led by an 11.2% increase in home prices in San Francisco and a 10.9% increase in home prices in Denver...they also report a 'monthly' increase of 0.2% in all three indexes, which compare prices of houses sold in July, August, and September to those sold in June, July, and August and hence the change in the month over month indexes are actually equal to 1/3rd the difference between June home prices and September home prices, ie, not really a monthly change at all...seasonally adjusting these so called month over month indexes shows that the national index is 0.8% higher while the 10 and 20 city indices would be up 0.6% from the previous report...thus, while home prices in 15 of the 20 cities showed an increase in September when compared to the June index, after seasonal adjustments, home prices in 19 of the cities increased, with only Washington DC showing a 0.1% decrease....the full pdf of the release, titled Across the Board Gains in Home Prices for September, is here, and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary...for coverage of this Case-Shiller report on the web, Bill McBride has two thorough posts, which include several graphs: Case-Shiller: National House Price Index increased 4.9% year-over-year in September, followed by his analysis in Real Prices and Price-to-Rent Ratio in September...


(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 from the aforementioned GGO posts, contact me…)

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