Sunday, October 1, 2017

2nd quarter GDP, 3rd revision; August’s income and outlays, durable goods, and new home sales

the key economic releases of the past week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence accounts for more than 46% of 3rd quarter GDP....other widely watched releases included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for July, which is an index generated by averaging relative prices of May, June and July repeat sales home sales, and which reported that home prices nationally for those 3 months averaged 5.9% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 5.8% YoY increase shown in the prior report...the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which fell to –0.31 in August, down from a revised +0.03 in July;  that left the 3 month moving average of the index at –0.04, down from zero in July, which indicates national economic activity has been slightly below the historical trend over the summer months...

this week saw the release of the last three regional Fed manufacturing surveys for September: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity index rose from +17.0 in August to +21.3 in September, their highest reading in seven months, indicative of an ongoing robust expansion in the Texas oil patch economy; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to +19 in September from +14 in August, also suggesting a strong ongoing expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to +17 in September, up from +16 in August and +10 in July, also suggesting an ongoing expansion of that region's manufacturing.....

2nd Quarter GDP Revised to Indicate Growth at a 3.1% Rate, the Strongest Since Q1 of 2015

the Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 3.1% annual rate in the quarter, revised from the 3.0% growth rate reported in the second estimate a month ago, largely because inventory investment increased more than was previously estimated...in current dollars, our second quarter GDP grew at a 4.1% annual rate, up from the 4.0% reported in the 2nd estimate, increasing from what would extrapolate to $19,057.7 billion annually in the 1st quarter of this year to an annualized $19,250.0 billion in the 2nd quarter, with the headline 3.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.0%, aka the GDP deflator, was applied to the current dollar change...

remember that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 2nd quarter GDP, which 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 3rd quarter of 2013; 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 second estimate, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, remained the same as the 3.3% growth rate reported last month in this estimate…that growth rate figure was arrived at by deflating the 3.6% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated that consumer inflation was at a 0.3% annual rate in the 2nd quarter, which was statistically unrevised from the PCE inflation rate reported a month ago...real (inflation adjusted) consumption of durable goods grew at a 5.4% annual rate, which was revised from the 5.9% growth rate shown in the second estimate, and added 0.56 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 13.2% rate accounted for more than half of the durables goods increase...real personal consumption of nondurable goods rose at a 4.2% annual rate, revised from the 4.3% rate shown in the 2nd estimate, and added 0.61 percentage points to 2nd quarter economic growth, as all non-durable goods saw higher real consumption in the quarter….at the same time, real consumption of services rose at a 2.3% annual rate, revised from the 2.1% growth rate reported last month, and added 1.11 percentage points to the final GDP tally, as real consumption of housing and utilities rose at a 3.4% rate and accounted for nearly 40% of the 2nd quarter growth in services...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 3.9% annual rate in the 2nd quarter, revised from the 3.6% growth estimate reported last month, even as real private fixed investment grew at a 3.2% rate, rather than at the 3.6% rate reported in the second estimate, because inventory growth was greater than previously estimated....real investment in non-residential structures was revised from growth at a 6.2% rate to growth at a 7.0% rate, while real investment in equipment was revised to show growth at a 8.8% rate, unchanged from the growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised lower, from growth at a 4.9% rate to growth at a 3.7% rate, while the contraction rate of residential investment was revised from -6.5% to -7.3% annually…after those revisions, the increase in investment in non-residential structures added 0.20 percentage points to the 2nd quarter's growth rate, the increase in investment in equipment added 0.48 percentage points to the quarter's growth, the smaller growth in investment in intellectual property added 0.15 percentage points, while the decrease in investment in residential structures subtracted 0.30 percentage points from the 2nd quarter's GDP...

at the same time, investment in real private inventories grew by an inflation adjusted $5.5 billion in the 2nd quarter, revised from the previously reported real inventory growth of $1.8 billion...this came after inventories had grown at an inflation adjusted $1.2 billion rate in the 1st quarter, and hence the $4.3 billion increase in real inventory growth added 0.12 percentage points to the quarter's growth rate, in contrast to the 0.02 percentage point addition that was shown in the advance estimate....however, since growth in inventories indicates that more of the goods produced during the quarter were left "sitting on the shelf”, their increase by $4.3 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP were revised from growth at a 3.0% rate to growth at a 2.9% rate...

the previously reported increase in real exports was revised smaller with this estimate, while at the same time the reported increase in real imports was also revised lower by a similar amount, and as a result the net impact of our foreign trade was little changed from what was previously reported...our real exports grew at a 3.5% rate rather than the 3.7% 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 0.42 percentage points to the 2nd quarter's growth rate, down from the 0.45 percentage point addition shown in the previous report....meanwhile, the previously reported 1.6% increase in our real imports was revised to a 1.5% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.22 percentage points from 2nd quarter GDP....thus, our improving trade balance added a net 0.21 percentage points (rounded) to 2nd quarter GDP, essentially the same as was shown in the second estimate…

finally, there was a small upward revision to real government consumption and investment in this 3rd estimate, as the entire government sector shrunk at a 0.2% rate, revised from the shrinkage at a 0.3% rate previously reported...real federal government consumption and investment was seen to have grown at a 1.9% rate from the 1st quarter in this estimate, which was essentially unrevised from the growth rate shown in the 2nd estimate...real federal outlays for defense grew at a 4.7% rate, and added 0.18% percentage points to 2nd quarter GDP, while all other federal consumption and investment shrunk at a 1.9% rate, also the same as was previously reported, and subtracted 0.05% percentage points from 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 1.5% rate in the quarter, which was revised from the 1.7% contraction rate reported in the 2nd estimate, and subtracted 0.16 percentage points from 2nd quarter GDP....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...

August Personal Income up 0.2%; 2 Months PCE Would Add 0.98 Percentage Points to Q3 GDP

the August report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 3rd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this report also gives us August's 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 July’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August....

thus, when the opening line of the press release for this report tell us "Personal income increased $28.6 billion (0.2 percent) in August", they mean that the annualized figure for seasonally adjusted personal income in August, $16,468.8 billion, was $28.6 billion, or somewhat less than 0.2% greater than the annualized  personal income figure of $16,440.2 billion for July; the actual, unadjusted change in personal income for July to August is not given...similarly, annualized disposable personal income, which is income after taxes, rose by 0.1%, from an annual rate of an annual rate of $14,402.5 billion in July to an annual rate of $14,417.4 billion in August....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also thus annualized...in August, the largest contributors to the $28.6 billion annual rate of increase in personal income were a $5.1 billion increase in rental income and a $9.6 billion increase in personal current transfer receipts…wages and salaries, on the other hand, only represented $3.3 billion of August's annualized increase in personal income...

for personal consumption expenditures (PCE), BEA reports that they increased at a $18.0 billion annual rate (rounded), or by more than 0.1 percent, as the annual rate of PCE rose from $13,372.7 billion in July to $13,390.6 in August; that happened as the July PCE figure was revised down from the originally reported $13,383.3 billion annually and prior months were slightly revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP....the current dollar increase in August spending resulted from a $26.7 billion annualized increase in spending for services, which was partially offset by a $8.8 billion decrease in annualized spending for goods, which we saw evidence of in the August retail sales report....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $16.8 billion to $13,894.5 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $522.9 billion annual rate in August, down just a bit from the revised $524.8 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained unchanged at 3.6% in August...

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 112.392 in July to 112.623 in August, a month over month inflation rate that's statistically 0.2055%, which BEA reports as an increase of 0.2 percent, following the +0.1% change in the PCE price index they reported for July...applying that August inflation adjustment to the nominal amount of spending left real PCE down 0.1% in August, after a real PCE increase of 0.2% in July ...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 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 August's chained dollar consumption total works out to 11,890.4 billion annually, 0.071% less than July's 11,898.9 billion, a difference that the BEA rounds 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 July and August's real PCE to the the real PCE of the 3 months of the second 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 2nd quarter was represented by 11,853.0 billion in chained 2009 dollars..(note that's also what's shown in table 3 of the pdf for the revised 2nd quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for July and August, 11,898.9 billion and 11,890.4 billion, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far....when we compare that average of 11,894.65 to the 2nd quarter real PCE of 11,853.0, we find that 3rd quarter real PCE has grown at a 1.41% annual rate for the two months of the 3rd quarter we have...(note the math to get that annual growth rate: (((11,898.9 + 11,890.4) / 2 ) / 11,853.0) ^ 4 = 1.01413 )...that's a pace that would add 0.98 percentage points to the growth rate of the 3rd quarter, should there be no improvement in September PCE from that average... 

August Durable Goods: New Orders U 1.7%, Shipments Up 0.3%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods grew by $3.9 billion or 1.7 percent to $232.8 billion in August, after falling by 6.8% in July...July's new orders were revised from the $229.2 billion reported last month to $228.9 billion, but the 6.8 percent month over month decrease remained the same...year to date new orders are still 5.0% above those of 2016, the same year over year change we saw in this report last month....the volatile monthly change in new orders for transportation equipment drove the headline change, as those transportation equipment orders rose $3.6 billion or 4.9 percent to $77.4 billion, on a 44.8% increase to $10,521 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.2% in August, as new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 0.9% to $64,752 million...

at the same time, the seasonally adjusted value of August's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $0.7 billion or 0.3 percent to $237.2 billion, after July shipments were revised from a increase of 0.4% to one of 0.1% from June....an increase in shipments of machinery led the August increase, as those machinery shipments rose $0.3 billion or 1.1 percent to $31.4 billion...meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 13th time in 14 months, increasing by $1.4 billion or 0.3 percent to $400.5 billion, after the increase in July inventories was revised from a 0.3% increase to a 0.4% increase...an increase in inventories of machinery were also a major factor in the August inventory increase, as they rose $0.6 billion or 0.8 percent to $69.0 billion...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the 2nd time in 3 months, but increased by just $0.1 billion to $1,132.3 billion, which is considered statistically unchanged...unfilled orders for transportation equipment fell 0.1% to $770,982 million on a 1.4% drop in unfilled orders for motor vehicles and parts, while all other unfilled rose 0.3% on a $0.5 billion or 0.6 percent increase to $79.3 billion in unfilled orders for fabricated metal products....compared to a year earlier, the unfilled order book for durable goods is now 0.8% above the level of last August, with unfilled orders for transportation equipment 0.6% below their year ago level, largely on a 1.1% decrease in the backlog of orders for commercial aircraft...

August New Home Sales

the Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 560,000 new homes a year, which was 3.4 percent (±13.0 percent)* below the revised July rate of 580,000 new single family home sales a year and 1.2 percent (±18.5 percent)* below the estimated annual rate that new homes were selling at in August of last year....the asterisks indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of July, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....with this report; sales new single family homes in July were revised from the annual rate of 571,000 reported last month to a 580,000 a year rate, while home sales in June, initially reported at an annual rate of 610,000 and revised to a 630,000 a year rate last month, were revised back dwon to a 614,000 a year rate with this report, and while May's annualized home sale rate, initially reported at a 610,000 and revised from a 605,000 a year to a 618,000 rate last month, were revised down to a 606,000 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 45,000 new single family homes sold in August, down from the estimated 50,000 new homes that sold in July and the 56,000 that sold in June....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in August was $300,200, down from the median sale price of $319,900 in July and but up from the median sales price of $298,900 in August a year ago, while the average August new home sales price was $368,100, down from the $371,300 average sales price in July, but up from the average sales price of $355,100 in August a year ago....a seasonally adjusted estimate of 284,000 new single family houses remained for sale at the end of August, which represents a 6.1 month supply at the August sales rate, up from the 5.8 months of supply reported for July...for more details and graphics on this report, see Bill McBride's three posts, New Home Sales decrease to 560,000 Annual Rate in August, New Home Prices, and A few Comments on June New 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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