Sunday, December 25, 2016

3rd quarter GDP revision, November income and outlays, durable goods, new and existing home sales

despite the holiday, it's been a pretty busy week, as it appears several of the reports that are normally released the last week of the month were accelerated into this one...that meant we got the 3rd estimate of 3rd quarter GDP from the Bureau of Economic Analysis, and the November report on Personal Income and Spending, also from the Bureau of Economic Analysis and the advance report on durable goods for November, in addition to the Existing Home Sales Report for November from the National Association of Realtors (NAR) and the November report on new home sales from the Census bureau...we also saw the release of the Chicago Fed National Activity Index (CFNAI) for November, a weighted composite index of 85 different economic metrics, which fell to −0.27 in November from −0.05 in October, which was revised from the -0.08 that had been reported for October last month….however, the widely watched 3 month average of the index rose to –0.14 in November, up from a revised –0.20 in October, which still indicates that national economic activity remains somewhat below the historical trend over recent months....in addition, the week also saw the release of the  Kansas City Fed manufacturing survey for December, covering an area that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +11 in December from +1 in November, the highest composite reading since May 2014, suggesting an improving expansion for that region's manufacturing...

3rd Quarter GDP Revised to Indicate Growth at a 3.5% Rate

the Third Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 3.5% annual rate in the quarter, revised from the 3.2% growth rate reported in the second estimate last month, as personal consumption growth was revised higher, state and local government shrunk less than was previously estimated, and private non-residential fixed investment increased, rather than decreased as was previously reported...in current dollars, our second quarter GDP grew at a 5.0% annual rate, revised up from the 4.6% reported in the 2nd estimate, increasing from what would extrapolate to $16,583.1 billion annually in the 2nd quarter of this year to an annualized $16,727.0 billion in the 3rd quarter, with the headline 3.5% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was applied to the current dollar change...

recall that the press release for the 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 which actually occurred over the 3 month period, and that the prefix "real" is used to indicate that the change has been adjusted for inflation using prices chained from 2009, from which all percentage changes in this report are calculated, as those changes thus represent the change in quantity of goods and services output...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd 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 the 2nd quarter of 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 3rd quarter’s second estimate, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.8% growth rate reported last month to a 3.0% rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 4.47% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 1.5% annual rate in the 3rd quarter, which was revised from the PCE inflation rate of 1.4% reported a month ago...real personal consumption of durable goods grew at a 11.6% annual rate, which was unrevised from the growth rate shown in the 2nd estimate, and added 0.84 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 20.0% rate accounted for more than half the durables goods increase...real consumption of nondurable goods by individuals shrunk at at a 0.5% annual rate, revised from the 0.6% rate of decrease reported in the 2nd estimate, and subtracted 0.07 percentage points from 3rd quarter economic growth, as higher consumption of food and beverages at home was more than offset by lower consumption of clothing, energy goods, and other non-durables….at the same time, consumption of services rose at a 2.7% annual rate, revised from the 2.5% growth rate reported last month, and added 1.26 percentage points to the final GDP tally, as real consumption of recreation services rose at a 3.6% rate while real consumption of all other services increased as well...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 3.0% annual rate in the 3rd quarter, revised from the 2.1% growth estimate reported last month, as real private fixed investment grew at a 0.1% rate, rather than shrinking at at a 0.9% rate as reported in the 2nd estimate, while real inventory growth was a bit less than previously estimated...investment in non-residential structures was revised from growth at a rate of 10.1% to growth at a 10.0% rate, while real investment in equipment was revised to show contraction at a 4.5% rate, not quite as bad as the 4.8% contraction rate previously reported, while the quarter's investment in intellectual property products was revised from growth at a 1.0% rate to growth at a 3.2% rate...at the same time, real residential investment was shown to be shrinking at a 4.1% annual rate, rather than the 4.4% contraction rate previously reported…after those revisions, the increase in investment in non-residential structures added 0.30 percentage points to the 3rd quarter's growth rate, the decrease in investment in equipment subtracted 0.26 percentage points from growth, lower residential investment subtracted 0.16 percentage points from GDP, while growth in investment in intellectual property added 0.13 percentage points to 3rd quarter GDP...

in addition, investment in real private inventories grew by an inflation adjusted $7.1 billion in the 3rd quarter, revised from the previously reported $7.6 billion of inventory growth...this came after inventories had shrunk at an inflation adjusted $9.5 billion rate in the 2nd quarter, and hence the $16.5 billion (rounded) increase in real inventory growth added 0.49 percentage points to the quarter's growth rate, oddly unchanged from the 0.49 percentage point addition from inventory growth that was indicated in the 2nd estimate....since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or "sitting on the shelf”, their increase by $16.5 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 3.0% rate in the 3rd quarter, up from the real final sales increase at a 2.6% rate in the 2nd quarter, when the change in inventories was negative, thus raising real final sales comparatively…

the previously reported increase in real exports was revised a bit lower with this estimate, while the reported increase in real imports was revised marginally higher, and as a result the change in our net trade was a smaller addition to GDP rather than was previously reported...our real exports grew at a 10.0% rate rather than the 10.1% 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 growth added 1.16 percentage points to the 3rd quarter's growth rate, down a bit from the 1.18 percentage point addition shown in the previous report....meanwhile, the previously reported 2.1% increase in our real imports was revised by a small fraction to a 2.2% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.31 percentage points from 3rd quarter GDP, actually unrevised from the subtraction shown last month....thus, our improving trade balance added a net 0.85 percentage points to 3rd quarter GDP, rather than the 0.87 percentage point addition that had been indicated by the advance estimate…

finally, there were upward revisions to real government consumption and investment in this 3rd estimate, as the entire government sector grew at an 0.8% rate, rather than at the 0.2% rate that was shown in the 2nd estimate, as there were positive revisions to real state & local government consumption and investment, while federal government consumption and investment was revised a bit lower...real federal government consumption and investment was seen to have grown at a 2.4% rate from the 2nd quarter in this estimate, revised from the 2.5% growth shown previously, as real federal outlays for defense grew at a 2.0% rate and added 0.08 percentage points to 3rd quarter GDP, revised from the 0.12  percentage point addition shown last month, while all other federal consumption and investment grew at a 3.0% rate and also added 0.08% percentage points to 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 0.2% rate in the quarter, which was revised from the 1.1% contraction rate reported in the 2nd estimate, and subtracted 0.02% percentage points from 3rd quarter GDP, rather than the 0.25 percentage point subtraction shown last month....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 an increase in the output of those goods or services...

our FRED bar graph for GDP below has been updated with these latest GDP revisions...each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real 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 real 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 therefore 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, they'll appear below the zero line..

3rd estimate 3rd quarter 2016 GDP

it's fairly clear from the above graph that the increase in exports in purple was a major and unusual contributor to making the 3rd quarter's growth the best in two years...there have been many stories attributing that increase to a sudden surge of soybean exports, but that's only half the story...while we did have a record soybean crop, the jump in our soybean exports in July and August came out of inventories to meet an unusual out of seasonal Chinese demand...since we normally don't export many soybeans during those months when the crop is still growing, those summer exports were spiked even higher by the seasonal adjustment to our trade figures...at the same time, soybean inventories were reduced, taking part of that gain back out of the inventory component of GDP...in the 4th quarter, most of that will be reversed; newly harvested soybeans will be added to inventories, adding to GDP, while diminished exports will be reduced even further by the seasonal adjustment that expects soybean exports in the late fall, lowering the export component of the 4th quarter GDP figures..

November Personal Income Flat; Personal Spending up 0.2%, PCE Price Index Little Changed

the November report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month's data for our personal consumption expenditures (PCE), which accounts for roughly 69% of the month's GDP, and with it 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...in addition, this release reports our 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 amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if November’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 October to November....

thus, when the opening line of the press release for this report tell us "Personal income increased $1.6 billion (less than 0.1 percent) in November", they mean that the annualized figure for seasonally adjusted personal income in November, $16,233.8 billion, was less than $1.6 billion higher, or virtually unchanged from the annualized personal income figure of $16,232.3 billion extrapolated for October; the actual, unadjusted change in personal income from October to November is not given...at the same time, annualized disposable personal income, which is income after taxes, actually fell a bit, from an annual rate of $14,226.5 billion in October to an annual rate of $14,225.1 billion in November...(this was after personal income for October was revised down from $16,260.0 billion annually and October's disposable personal income was revised down from $14,251.3 billion annually)...the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in November, increases of $6.6 billion in rental income and $5.1 billion in dividend and interest income were offset by a $12.2 billion decrease in wages and salaries...

for the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $24.0 billion rate, or a bit less than 0.2%, as the annual rate of PCE rose from $12,946.4 billion in October to 12,970.4 billion in November....at the same time, October PCE was revised from $12,924.9 billion annually to $12,946.4 billion....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $26.6 billion to $13,444.2 billion annually in November, which left total personal savings, which is disposable personal income less total outlays, at a $780.9 billion annual rate in November, down from the revised $809.1 billion in annualized personal savings in October ... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 5.5% in November from the October savings rate of 5.7%...

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 2009 prices = 100, and which is included in Table 9 in the pdf for this report...that index rose from 111.424 in October to 111.470 in November, a month over month inflation rate that's statistically 0.0413%, which BEA reports as unchanged, following the 0.3% PCE price index increase they reported for October...applying the actual November inflation adjustment to the nominal amount of spending left real PCE up 0.1% in November, after a real PCE increase of 0.1% in October...notice 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 our familiar chained 2009 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 November's chained dollar consumption total works out to 11,636.1 billion annually, 1.446% more than October's 11,619.3 billion, a difference that the BEA rounds down and reports as +0.1%...

however, to estimate the impact of the change in PCE on the change in GDP,  the month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare October's and November's real PCE to the the real PCE of the 3 months of the third quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 11,569.0 billion in chained 2009 dollars..(that's the same as what's shown in table 3 of the pdf for the revised 3rd quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for October and November, 11,619.3 billion and 11,636.1 billion, we get an equivalent annualized PCE for the two months of the 4th quarter that we have data for so far....when we compare that average of 11,627.7 to the 3rd quarter real PCE of 11,569.0, we find that 4th quarter real PCE has grown at a 2.05% annual rate for the two months of the 3rd quarter we have...(notice the math we used to get that annual growth rate: (((11,636.1 + 11,619.3)/ 2) / 11,569.0)  ^ 4 = 1.020451 )...that's a pace that would add 1.39 percentage points to the GDP growth rate of the 4th quarter by itself, assuming there is no improvement in December PCE from that average... 

November Durable Goods: New Orders Down 4.6%, Shipments and Inventories Both Up 0.1%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for November (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $11.0 billion or 4.6 percent to $228.2 billion in November, after October's new orders were revised from the $239.4 billion reported last month to $239.2 billion, still 4.8% greater than September's new orders... year to date new orders are now 0.3% below those of 2015, vs the -0.2% year over year change we saw in this report last month....a reversal of the volatile monthly new orders for transportation equipment was responsible for the big drop, as new transportation equipment orders fell $11.7 billion or 13.2 percent to $88.2 billion, on a 73.5% decrease to $5,798 million in new orders for commercial aircraft....excluding orders for transportation equipment, new orders rose 0.5%, while excluding just new orders for defense equipment, new orders fell 6.6%.... at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $553 million or 0.9% to $63,360 million...

meanwhile, the seasonally adjusted value of November shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $0.2 billion or 0.1 percent to $234.2 billion, after the value of October shipments was revised from from $234.6 billion to $234.0 billion, now down 0.1% from September...shipments of transportation equipment were down 0.5% on a 0.6% decrease in shipments of motor vehicles and a 8.2% decrease in shipments of commercial aircraft, while shipments of defense aircraft rose 7.3%...a $0.3 billion or 1.7% increase to $18.0 billion in shipments of primary metals was the largest shipments increase percentage-wise...at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 4th time in the past 5 months, after being down the prior 6 months, increasing by $0.6 billion or more than 0.1 percent to $384.0 billion, after October inventories were revised from $383.7 billion to $383.443 billion, statistically unchanged from September...a $0.3 billion or 0.2 percent increase to $124.1 billion in inventories of transportation equipment accounted for half the increase, but without them other inventories were still up by 0.1%...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the fifth time in 6 months, falling by $2.3 billion or 0.2 percent to $1,126.7 billion, following a October increase of 0.8%, which was revised from the previously reported 0.7% increase...a $3.6 billion or 0.5 percent to $769.8 billion drop in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders were up $1,307 million or 0.4% to $356,980 million...compared to a year earlier, the unfilled order book for durable goods is still 1.3% below the level of last November, with unfilled orders for transportation equipment now 2.5% below their year ago level, largely on a 9.0% decrease in the backlog of orders for motor vehicles...  

November New Home Sales Reported Higher (likely due to clement weather)

the Census report on New Residential Sales for November (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 592,000 homes annually, which was 5.2 percent (±14.1%)* above the October rate of 563,000 new single family home sales a year and 16.5 percent (±19.3%)* above the estimated annual rate that new homes were selling at in November of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether November new home sales rose or fell from those of October, or even from November sales 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....with this report; sales new single family homes in October were unrevised from the annual rate of 563,000 reported last month, while home sales in September, initially reported at an annual rate of 593,000 and revised to a 574,000 a year rate last month, were revised to a 571,000 a year rate with this report, and while August's annualized home sale rate, initially reported at an annual rate of 609,000 and revised from the initially revised 575,000 a year rate to a 567,000 a year rate last month, were further revised down to a 559,000 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 41,000 new single family homes sold in November, down from the estimated 45,000 new homes that sold in October and the 44,000  that sold in September.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in November was $305,400, up from the median sale price of $302,700 in October but down from the median sales price of $317,000 in November a year ago, while the average November new home sales price was $359,900, up from the $354,700 average sales price in October, but down from the average sales price of $376,800 in November a year ago....a seasonally adjusted estimate of 250,000 new single family houses remained for sale at the end of November, which represents a 5.1 month supply at the November sales rate, down from the reported 5.2 months of new home supply in October...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 592,000 Annual Rate in November and A few Comments on November New Home Sales..

November Existing Home Inch Up After October Sales Revised Down (ditto)

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 0.7% from October to November, projecting that a post recession record 5.61 million existing homes would sell over an entire year if the November home sales pace were extrapolated over that year, a pace that was also 15.4% above the annual sales rate projected in November of a year ago...October sales, now shown at a 5.57 million annual rate, were revised down from the 5.60 million annual rate indicated by last month's report...the NAR also reported that the median sales price for all existing-home types was $234,900 in November, up from $234,100 in October and 6.8% higher than in November a year earlier, which they report as "the 57th consecutive month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Forge Ahead in November", 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 like to 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 415,000 homes sold in November, down by 6.7% from the 445,000 homes that sold in October, but up by 18.2% from the 351,000 homes that sold in November of last year, so we can see that it was a seasonal adjustment that caused the annualized published figures to show an month over month increase....that same pdf indicates that the median home selling price for all housing types rose 0.3%, from a revised $234,100 in October to $234,900 in November, while the average home sales price was $276,800, up 0.4% from the $275,500 average sales price in October, and up 4.9% from the $263,800 average home sales price of November a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: Existing Home Sales increased in November to 5.61 million SAAR and A Few Comments on November Existing Home Sales...

 

(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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