Sunday, December 24, 2017

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

in advance of the holidays, several of the reports that are normally released during the last week of the month were accelerated into this one...that means this week had the 3rd estimate of 3rd quarter GDP and the November report on Personal Income and Spending, both from the Bureau of Economic Analysis, the advance report on durable goods for November, the November report on New Residential Construction, and the November report on new home sales, all from the Census bureau, and the Existing Home Sales Report for November from the National Association of Realtors (NAR)...we also had the release of the Chicago Fed National Activity Index (CFNAI) for November, a weighted composite index of 85 different economic metrics, which fell to +0.15 in November from +0.76 in October, which was revised from the +0.65 that had been reported for October last month….however, the widely watched 3 month average of the CFNAI index still rose to +0.41 in November, up from a revised + 31 in October, which indicates that national economic activity continues at a pace above the historical trend over recent months....

in addition, the week also saw the release of the Philadelphia Fed Manufacturing Survey for December, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions increased from a reading of +22.7 in November to +26.2 in December, indicating a robust expansion of that the region's manufacturing, and the Kansas City Fed manufacturing survey for December, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index slipped to +14 in December from +16 in November, still suggesting an ongoing expansion for that region's manufacturing...

3rd Quarter GDP Revised to Indicate Growth at a 3.2% 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 3.2% annual  rate in the quarter, revised from the 3.3% growth rate reported in the second estimate last month, as personal consumption growth was revised lower than was previously reported and the change in our net trade was a smaller addition to GDP than in the 2nd estimate...in current dollars, our third quarter GDP grew at a 5.3% annual rate, revised down from the rounded 5.5% reported in the 2nd estimate, increasing from what would extrapolate to $19,250.0 billion annually in the 2nd quarter of this year to an annualized $19,500.6 billion in the 3rd quarter, with the headline 3.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, aka the GDP deflator, was applied to the current dollar change...

as we review this month's revisions, 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 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 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 4th quarter of 2013; table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components in the most recent quarters; table 4, which shows the change in the price indexes for each of those components; and table 5, which shows the quantity indexes for each of the GDP components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the second estimate of the 3rd quarter, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.3% growth rate reported last month to a 2.2% rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 3.7% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation at a 1.5% annual rate in the 3rd quarter, which was statistically unrevised from the PCE inflation rate reported a month ago...real personal consumption of durable goods grew at a 8.6% annual rate, which was revised from the 8.1% growth rate shown in the 2nd estimate, and added 0.97 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 12.2% rate accounted for more than a third of the durables goods increase...real consumption of nondurable goods by individuals grew at a 2.3% annual rate, revised from the 2.0% rate reported in the 2nd estimate, and added 0.34 percentage points to the 3rd quarter economic growth rate, as slightly lower consumption of clothing and energy goods was more than offset by greater consumption of food and other non-durables….at the same time, consumption of services rose at a 1.1% annual rate, revised from the 1.5% growth rate reported last month, and added 0.52 percentage points to the final GDP tally, as real consumption of health care services rose at a 4.5% rate while real consumption of all other services averaged slightly lower...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 7.3% annual rate in the 3rd quarter, on net unrevised from last month, as real private fixed investment grew at a 2.4% rate, also statistically the same as the second estimate, while inventory growth was slightly less than previously estimated...investment in non-residential structures was revised to show contraction at a 7.0% rate, worse than the 6.8% contraction rate previously reported, while real investment in equipment was revised from growth at a rate of 10.4% to growth at a 10.8% rate, and the quarter's investment in intellectual property products was revised from growth at a 5.8% rate to growth at a 5.3% rate...on the other hand, real residential investment was shown to be shrinking at a 4.7% annual rate, rather than the 5.1% contraction rate previously reported…after those revisions, the decrease in investment in non-residential structures subtracted 0.21 percentage points from the 3rd quarter's growth rate, the increase in investment in equipment added 0.58 percentage points to the quarter's growth rate, lower residential investment subtracted 0.18 percentage points from GDP, while growth in investment in intellectual property added 0.21 percentage points to the growth rate of 3rd quarter GDP...

in addition, investment in real private inventories grew by an inflation adjusted $38.6 billion in the 3rd quarter, revised from the $39.0 billion of inventory growth last month...this came after inventories had grown at an inflation adjusted $5.5 billion rate in the 2nd quarter, and hence the $33.0 billion increase in real inventory growth added 0.79 percentage points to the quarter's growth rate, revised from the 0.80 percentage point addition from inventory growth that was indicated in the second 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 $33.0 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 2.4% rate in the 3rd quarter, down from the real final sales growth rate of 2.9% in the 2nd quarter, when the smaller increase in inventory growth meant that growth in real final sales was fairly close to real growth in GDP...

the previously reported increase in real exports was revised a bit lower with this estimate, while the previously reported decrease in real imports was was not as large as previously  estimated, 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 2.1% rate rather than the 2.2% 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 0.25 percentage points to the 3rd quarter's growth rate, down from the 0.27 percentage point addition shown in the previous report....meanwhile, the previously reported 1.1% decrease in our real imports was revised to a 0.7% decrease, and since imports are subtracted from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.11  percentage points to 3rd quarter GDP, rather than the 0.17 percentage point addition indicated by the larger contraction estimate last month....thus, our improving trade balance added a total of 0.36 percentage points to 3rd quarter GDP, rather than the (rounded) 0.43 percentage point addition that had been indicated by the second estimate…

finally, the entire government sector grew at a 0.7% rate, revised from the 0.4% rate previously reported, as federal government consumption and investment was unchanged from the second estimate, while real state & local government consumption and investment grew rather than shrinking as was previously reported...real federal government consumption and investment was seen to have grown at a 1.3% rate from the 2nd quarter in this estimate, unrevised from the second estimate, as real federal outlays for defense grew at a 2.4% rate and added 0.09 percentage points to 3rd quarter GDP, while all other federal consumption and investment shrunk at a 0.2% rate, revised from last month's 0.3% contraction, and subtracted 0.01 percentage point from 3rd quarter GDP....meanwhile, real state and local consumption and investment grew at a 0.2% rate in the quarter, which was revised from the 0.1% contraction rate reported in the 2nd estimate, and added 0.03 percentage points to 3rd 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, indicating an increase in the output of those goods or services...

November Personal Income Up 0.3%; Personal Spending up 0.6%; PCE Price Index Up 0.2%

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 dollar value change reported for each of those metrics is 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....

hence, when the opening line of the press release for this report tell us "Personal income increased $54.0 billion (0.3 percent) in November", they mean that the annualized figure for seasonally adjusted personal income in November, $16,629.1 billion, was $54.0 billion higher, or more than 0.3% higher than the annualized personal income figure of $16,575.1 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, also rose by more than 0.3%, from an annual rate of $14,515.6 billion in October to an annual rate of $14,566.5 billion in November...these figures were arrived at after personal income for October was revised up from $16,574.6 billion annually and October's disposable personal income was revised up from $14,513.3 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, the largest contributors to the $54.0 billion annual rate of increase in personal income were a $34.3 billion increase in wages and salaries and a $11.4 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $87.1 billion rate, or at a rate greater than 0.6%, as the annual rate of PCE rose from $13,548.7 billion in October to $13,635.8 billion in November....at the same time, October PCE was revised lower, from $13,557.4 billion annually to $13,548.7 billion....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $91.7 billion to $14,140.3 billion annually in November, which left total personal savings, which is disposable personal income less total outlays, at a $426.2 billion annual rate in November, down from the revised $466.9 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 a post recession low of 2.9% in November, from the October savings rate of 3.2%...

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 113.242 in October to 113.504 in November, a month over month inflation rate that's statistically 0.02314%, which BEA reports as a 0.2% increase, following the 0.1% PCE price index increase they reported for October...applying the actual November inflation adjustment to the nominal amount of spending left real PCE up 0.4% in November, after October's real PCE was statistically unchanged...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 those 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 12,014.2 billion annually in 2009 dollars, 4.014% more than October's 11,965.1 billion, a difference that the BEA rounds down and reports as +0.4%...

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 11,916.6 billion in chained 2009 dollars...(ie, 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, 11,965.1 billion and 12,014.2 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 11,989.65 to the 3rd quarter real PCE of 11,916.6, we find that 4th quarter real PCE has grown at a 2.47% annual rate for the two months of the 3rd quarter we have so far...(notice the math we used to get that annual growth rate: [ (((12,014.2 + 11,965.1) / 2) / 11,916.6) ^4 = 1.02474681 ]...that's a pace that would add 1.71 percentage points to the GDP growth rate of the 4th quarter by itself, even if there is no improvement in December PCE from that average... 

November Durable Goods: New Orders up 1.3%, Shipments Up 1.0%, Inventories Up 0.2%

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 increased by $3.1 billion or 1.3 percent to $241.4 billion in November, after October's new orders were revised from the $236.0 billion reported last month to $238.3 billion, now down just 0.4% from September's new orders...year to date new orders are now 5.4% above those of 2016, up from the +4.9% 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 this month's increase, as new transportation equipment orders rose $3.3 billion or 4.2 percent to $80.9 billion, on a 14.5% decrease to $12,513 million in new orders for commercial aircraft....excluding orders for transportation equipment, new orders actually fell 0.1%, while excluding just new orders for defense equipment, new orders rose 1.0%....at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, slipped by $56 million or less than 0.1% to $67,142 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 $2.4 billion or 1.0 percent to $244.5 billion, after the value of October shipments was revised from from $241.0 billion to $242.1 billion, still up 0.5% from September...shipments of transportation equipment were up $2.1 billion or 2.6 percent to $81.3 billion on a 1.4% increase in shipments of motor vehicles and a 11.7% increase in shipments of commercial aircraft, while shipments of defense aircraft fell 1.7%...at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 16th time in the past 17 months, increasing by $0.9 billion or 0.2 percent to $405.2 billion, after October inventories were revised from $404.1 billion to $404.3 billion, up 0.2% from September...a $0.3 billion or 0.2 percent increase to $124.1 billion in inventories of transportation equipment were down 0.2% to $130,699 million, without which all other inventories were up 0.4%…

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, increased for the third month in a row, rising by $1.1 billion or 0.1 percent to $1,137.0 billion, following a statistically insignificant October increase...a $0.5 billion or 0.6 percent to $81.3 billion increase in unfilled orders for fabricated metal products was responsible for nearly half the increase, while unfilled transportation equipment orders were down 0.4% to $769,844 million...compared to a year earlier, the unfilled order book for durable goods is 0.7% higher than the level of last November, with unfilled orders for transportation equipment still 1.0% below their year ago level, largely on a 2.0% decrease in the backlog of orders for defense aircraft...  

November Report Shows New Housing Starts Up, Permits Down

the November report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,297,000 units during the month, which was 3.3 percent (±9.1 percent)* above the revised October estimated annual rate of 1,256,000 housing unit starts, and was 12.9 percent (±11.7) above last November's rate of 1,149,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, with the figure in parenthesis the most likely range of the change indicated; in other words, November housing starts could have been down by 5.8% or up by as much as 12.4% from those of October, with even larger revisions possible...in this report, the annual rate for October housing starts was revised from the 1,290,000 reported last month to 1,256,000, while September starts, which were first reported at a 1,127,000 annual rate, were revised down from last month's initial revised figure of 1,135,000 annually up to 1,159,000 annually with this report....

those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 98,400 housing units were started in November, down from the 109,000 units that were started in October...of those housing units started in November, an estimated 67,900 were single family homes and 29,800 were units in structures with more than 5 units, down from the revised 75,200 single family starts and the 32,300 units started in structures with more than 5 units in October...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in November, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,298,000 housing units, which was 1.4 percent (±1.7 percent)* below the revised October rate of 1,316,000 permits, but was 3.4 percent (±2.3 percent) above the rate of building permit issuance in November a year earlier...the annual rate for housing permits issued in October was revised up from the originally reported 1,297,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 95,600 housing units were issued in November, down from the revised estimate of 114,000 new permits issued in October...the November permits included 61,700 permits for single family homes, down from 70,900 single family permits issued in October, and 31,600 permits for housing units in apartment buildings with 5 or more units, down from 40,100 such multifamily permits a month earlier... for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.297 Million Annual Rate in November and Comments on November Housing Starts...

November New Home Sales Much Higher After Prior Months Revised Way Down

the Census report on New Residential Sales for November (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 733,000 homes annually, which was 17.5 percent (±10.4 percent) above the revised October rate of 624,000 new single family home sales a year and 26.6 percent (±16.6 percent) above the estimated annual rate that new homes were selling at in November of last year...the figures in parenthesis indicate 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 revised down from the annual rate of 685,000 reported last month to 624,000, while home sales in September, initially reported at an annual rate of 677,000 and revised to a 645,000 a year rate last month, were also revised lower to a 635,000 a year rate with this report, and while August's annualized home sale rate, initially reported at an annual rate of 580,000 and revised from the initially revised 561,000 a year rate to a 565,000 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 52,000 new single family homes sold in November, up from the estimated 49,000 new homes that sold in October and in September.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in November was $318,700, down from the median sale price of $319,600 in October but up from the median sales price of $315,000 in November a year ago, while the average November new home sales price was $377,100, down from the $394,700 average sales price in October, but up from the average sales price of $363,400 in November a year ago....a seasonally adjusted estimate of 283,000 new single family houses remained for sale at the end of November, which represents a 4.6 month supply at the November sales rate, down from the reported 4.9 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 733,000 Annual Rate in November and A few Comments on November New Home Sales...

November Existing Home Sales Up 5.6% to Eleven Year High

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 5.6% from October to November, projecting that a post recession record 5.81 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 3.8% above the annual sales rate they projected in November of a year ago...October sales, now shown at a 5.50 million annual rate, were revised up from the 5.48 million annual rate indicated by last month's report...the NAR also reported that the median sales price for all existing-home types was $248,000 in November, up from from the $247,000 reported in October and 5.8% higher than in November a year earlier, which they report as "the 69th consecutive month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Soar 5.6 Percent in November to Strongest Pace in Over a Decade", 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 of the actual number of homes that sold each month...this unadjusted data indicates that roughly 427,000 homes sold in November, down by 6.8% from the 458,000 homes that sold in October, but up by 2.2% from the 418,000 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 indicate a month over month increase and a record high....that same pdf indicates that the median home selling price for all housing types rose 0.8%, from a revised $246,000 in October to $248,000 in November, while the average home sales price was $289,900, also up 0.8% from the $287,600 average sales price in October, and up 4.8% from the $276,600 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: NAR: "Existing-Home Sales Soar 5.6 Percent in November" 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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