Sunday, September 30, 2018

3rd estimate of 2nd quarter GDP; 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 will account 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 comparing relative prices for May, June and July repeat home sales to their earlier selling prices, and which reported that home prices nationally for those 3 months averaged 6.0% higher than prices for the same homes that sold during the same 3 month period a year earlier, down from the 6.2% 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 was unchanged at +0.18 in August, after the July index was revised from +0.13 to +0.18;  that left the 3 month moving average of the index at +0.24, up from +0.02 in July, which indicates national economic activity has been above the historical trend over the summer months...

This week also 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 fell from +30.9 in August to +21.8 in September, still suggesting a strong expansion of 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 from +24 in August to +29 in September, indicative of an ongoing robust 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 slipped to +13 in September, down from +14 in August and +23 in July, but still suggesting an ongoing expansion of that region's manufacturing...

Third Estimate of 2nd Quarter GDP Has Growth at a 4.2% Rate, Same as Second Estimate

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 4.2% annual rate in the quarter, revised but unchanged from from the 4.2% growth rate reported in the second estimate a month ago, largely because a big downward revision to inventory investment was completely offset by upward revisions to fixed investment, our trade balance, and state and local government consumption and investment...in current dollars, our second quarter GDP grew at a 7.6% annual rate, increasing from what would work out to be a $20,041.0 billion annual rate in the 1st quarter to a $20,411.9 billion annual rate in the 2nd quarter of this year, with the headline 4.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 3.0%, 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 2012, and then that all percentage changes in this report are calculated from those 2012 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; and table 4, which shows the change in the price indexes for each of the components; and table 5...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 3.8% growth rate reported last month in this estimate…that growth rate figure was arrived at by deflating the 5.9% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated that consumer inflation was at a 2.0% annual rate in the 2nd quarter, which was revised from the 1.9% PCE inflation rate reported a month ago...real (inflation adjusted) consumption of durable goods grew at a 8.6% annual rate, which was unrevised from the growth rate shown in the second estimate, and added 0.60 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 9.4% rate accounted for a third of the durables goods increase...real personal consumption of nondurable goods rose at a 4.0% annual rate, revised from the 3.7% rate shown in the 2nd estimate, and added 0.56 percentage points to 2nd quarter economic growth, as greater consumption of food at home accounted for 40% of the quarter's non-durable growth, while there was a modest contraction in consumption of energy goods….meanwhile, real consumption of services rose at a 3.0% annual rate, revised from the 3.1% growth rate reported last month, and added 1.42 percentage points to the final GDP tally, as real consumption of food services and accommodations rose at a 8.1% rate and accounted for nearly a third of the 2nd quarter growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment contracted at a 0.5% annual rate in the 2nd quarter, revised from the 0.4% investment growth reported last month, as real private fixed investment grew at a 6.4% rate, rather than at the 5.2% rate reported in the second estimate, while the previously reported contraction in inventory growth was greater than previously reported.....real investment in non-residential structures was revised from growth at a 13.2% rate to growth at a 14.5% rate, while real investment in equipment was revised to show growth at a 6.4% rate, revised from the 6.2% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised lower, from growth at a 11.0% rate to growth at a 10.5% rate, while the contraction rate of residential investment was revised from -1.6% to -1.3% annually…after those revisions, the increase in investment in non-residential structures added 0.43 percentage points to the 2nd quarter's growth rate, the increase in investment in equipment added 0.27 percentage points to the quarter's growth, the growth in investment in intellectual property added 0.45 percentage points, while the decrease in investment in residential structures subtracted 0.05 percentage points from the 2nd quarter's GDP...

At the same time, investment in real private inventories contracted at an inflation adjusted $36.8 billion rate in the 2nd quarter, revised from the inventory shrinkage at a $26.9 billion rate that was reported a month ago...this came after inventories had grown at an inflation adjusted $30.3 billion rate in the 1st quarter, and hence the $67.2 billion decrease in the rate of real inventory growth subtracted 1.17 percentage points from the quarter's growth rate, revised from the 0.97 percentage point subtraction due to inventory contraction that was shown in the second estimate....however, since shrinkage of inventories indicates that less of the goods produced during the quarter were left ‘sitting on the shelf’ or in a warehouse, the $67.2 billion quarter over quarter decrease in their growth meant that real final sales of GDP were relatively greater by that much, or enough to boost 2nd quarter growth in real final sales of GDP to a 5.4% rate, revised from the 5.3% real final sales growth rate shown in the second estimate, and a big jump from the real final sales growth at a 1.9% rate in 1st quarter, when that quarter's increase in inventory growth meant that part of the increase in GDP had not been sold..

The previously reported increase in real exports was revised higher with this estimate, while at the same time the previously reported decrease in real imports was larger than was previously reported, so as a result our foreign trade was an even greater contributor to GDP than was reported in the second estimate...our real exports grew at a 9.3% rate rather than the 9.1% 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 1.12 percentage points to the 2nd quarter's growth rate, up from the 1.10 percentage point addition shown in the previous report....meanwhile, the previously reported 0.4% decrease in our real imports was revised to a 0.6% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.10  percentage points to 2nd quarter GDP, up from the 0.07 percentage points addition indicated last month....hence, our improving trade balance added a net 1.22 percentage points to 2nd quarter GDP, revised from the 1.17 percentage point addition that had been indicated in the second estimate…

Finally, there were also upward revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 2.5% rate, revised from the 2.3% growth rate previously reported...real federal government consumption and investment was seen to have grown at a 3.7% rate from the 1st quarter in this estimate, which was unchanged from the growth rate shown in the 2nd estimate...real federal outlays for defense were revised to show growth at a 5.9% rate, rather than the 6.0% growth rate previously reported, and added 0.22 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 0.5% rate, unchanged from the previous report, and added 0.01 percentage points to 2nd quarter GDP.......meanwhile, real state and local consumption and investment grew at a 1.8% rate in the quarter, which was revised from the 1.6% growth rate reported in the 2nd estimate, and added 0.20 percentage points to 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 there was an increase in the output of those goods or services...

August Personal Income up 0.3%; 2 Months PCE Would Add 2.13 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 nearly 70% 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 metrics 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 August’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 this report tell us "Personal income increased $60.3 billion (0.3 percent) in August", they mean that the annualized figure for seasonally adjusted personal income in August, $17,679.5 billion, was $60.3 billion, or somewhat more than 0.3% greater than the annualized personal income figure of $17,619.2 billion for July; the actual, unadjusted change in personal income from July to August, which would be roughly one-twelfth the size, is not given...similarly, annualized disposable personal income, which is income after taxes, rose by more than 0.3%, from an annual rate of an annual rate of $15,566.0 billion in July to an annual rate of $15,617.4 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 $60.3 billion annual rate of increase in personal income were a $41.4 billion increase in wages and salaries and a $11.9 billion increase in personal current transfer receipts…

For personal consumption expenditures (PCE), BEA reports that they increased at a $46.4 billion annual rate, or also by more than 0.3 percent, as the annual rate of PCE rose from $14,003.8 billion in July to $14,050.1 in August; that was after the July PCE figure was revised up from the originally reported $13,980.0 billion annually and prior months were revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP.....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $47.1 billion to $14,585.1 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,032.3 billion annual rate in August, up just a bit from the revised $1,028.0 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 6.6% in August, same as in July..

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 2012 prices = 100, and which is included in Table 9 in the pdf for this report....that index rose from 108.353 in July to 108.470 in August, a month over month inflation rate that's statistically 0.1080%, which BEA reports as an increase of 0.1 percent, following the rounded +0.1% change in the PCE price index they reported for July...applying the August inflation adjustment to the nominal amount of August spending left real PCE up a rounded 0.2% in August, after a real PCE increase of 0.3% in July ...note 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 2012 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 12,953.5 billion annually, 0.222% more than July's 12,924.8 billion, a difference that the BEA rounds and reports as +0.2%...

  However, to estimate the impact of the change in PCE on the change in GDP,  month over month changes like that 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 12,842.0 billion in chained 2012  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 2012 dollar figures for July and August, 12,924.8 billion and 12,953.5 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 12939.15 to the 2nd quarter real PCE of 12,842.0, we find that 3rd quarter real PCE has grown at a 3.06% annual rate for the two months of the 3rd quarter we have...(note the math to get that annual growth rate: (((12,924.8 + 12,953.5) / 2 ) / 12,842.0) ^ 4 = 1.030605)...that's a pace that would add 2.13 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 Up 4.5%, Shipments Up 0.8%, Inventories Down 0.4%

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 $11.1 billion or 4.5 percent to $259.6 billion in August, after falling by a revised 1.2% in July...July's new orders were revised from the $246.9 billion reported last month to $248.5 billion, with the month over month percentage decrease revised from 1.7% to 1.2%...with this month's increase and July's revision, year to date new orders are now 9.2% above those of 2017, up from the 8.6% year over year change we saw in this report last month....the volatile monthly change in new orders for transportation equipment drove the August headline change, as those transportation equipment orders rose $10.9 billion or 13.0 percent to $95.3 billion, on a 69.1% increase to $17,101 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.1% in August, as new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.5% to $69,475 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 $1.9 billion or 0.8 percent to $253.1 billion, after July shipments were revised from $250.8 billion to $251,238 million, thus revising the previously reported shipments decrease of 0.2% to one of 0.1% from June....an increase in shipments of transportation equipment led the August increase, as transportation equipment rose $1.6 billion or 1.9 percent to $86.0 billion, while shipments of nondefense capital goods excluding aircraft rose 0.1% and all other shipments rose 0.2%...meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in 20 months, decreasing by $1.4 billion or 0.4 percent to $407.0 billion, after the increase in July inventories was revised from a 1.3% increase to a 1.2% increase...a  decrease in inventories of transport equipment was the cause of the August inventory decrease, as they fell $1.8 billion or 1.4 percent to $129.3 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 9th time in 10 months, increasing by $10.4 billion or 0.9 percent to $1,176.5 billion, after July's unfilled orders were revised from $1,164.7 billion to $1,166,073 million, now a 0.1% increase from June...unfilled orders for transportation equipment rose $9.3 billion or 1.2 percent to $811.0 billion on an increase in unfilled orders for transportation equipment other than motor vehicles or aircraft, while all other unfilled orders rose 0.3%....compared to a year earlier, the unfilled order book for durable goods is now 4.9% above the level of last August, with unfilled orders for transportation equipment 4.7% above their year ago level, partly on a 4.2% increase in the backlog of orders for commercial aircraft...

August New Home Sales Reported Higher After Prior 3 Months Sales Were Revised Lower

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 629,000 new homes a year, which was 3.5 percent (±13.7 percent)* above the revised July rate of 608,000 new single family home sales a year and 12.7 percent (±20.7 percent)* above 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....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in July were revised from the annual rate of 627,000 reported last month down to a 608,000 a year rate, while home sales in June, initially reported at an annual rate of 631,000 and revised to a 638,000 a year rate last month, were revised down to a 618,000 a year rate with this report, and while May's annualized home sale rate, initially reported at a 689,000 rate and revised from a 666,000 a year to a 654,000 rate last month, were revised down to a 653,000 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 50,000 new single family homes sold in August, down from the estimated 52,000 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 $320,200, down from the median sales price of $328,900 in July and but up from the median sales price of $314,200 in August a year ago, while the average August new home sales price was $388,400, down from the $389,000 average sales price in July, but up from the average sales price of $369,200 in August a year ago....a seasonally adjusted estimate of 318,000 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 5.9 months of supply reported for July...for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increase to 629,000 Annual Rate in August and A few Comments on August 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 picked from the aforementioned GGO posts, contact me…)      

Sunday, September 23, 2018

August’s new home construction and existing home sales

The only widely watched monthly reports that were released this week were the August report on New Residential Construction from the Census Bureau and the Existing Home Sales Report for August from the National Association of Realtors (NAR)...in addition, the Bureau of Labor Statistics released the Regional and State Employment and Unemployment for August, which breaks down the two surveys of the monthly employment report by state and region...and the week also saw the release of the first two regional Fed manufacturing surveys for September: the Empire State Manufacturing Survey from the New York Fed, which covers New York, northern New Jersey and Puerto Rico, reported their headline general business conditions index fell from +25.6 in August to +19.0 in September, still suggesting a broad based expansion of First District manufacturing, while the Philadelphia Fed Manufacturing Survey for September, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions rose from +11.9 in August to +22.9 in September, suggesting a return to strong growth rate for that region's manufacturing... 

New Housing Construction Reported Higher in August; New Building Permits Fall

The August report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started during the month was at a seasonally adjusted annual rate of 1,282,000, which was 9.2 percent (±11.4 percent)* above the revised July estimated annual rate of 1,174,000 housing unit starts, and 9.4 percent (±9.4 percent) above last August's pace of 1,164,000 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, August's housing starts could have been down by 3.2% or up by as much as 20.6% from those of July, with a 10% chance that the actual change could be outside of that wide range...in this report, the annual rate for July housing starts was revised from the 1,168,000 reported last month  to 1,174,000, while June starts, which were first reported at a 1,173000 annual rate, were revised up from last month's initial revised figure of 1,158,000 annually to 1,177,000 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 Census field agents, which estimated that 113,400 housing units were started in August, up 2.3% from the 110,900 units started in July...of those housing units started in August, an estimated 79,100 were single family homes and 33,100 were units in structures with more than 5 units, down from the revised 81,700 single family starts in July, but up from the 28,600 units started in structures with more than 5 units in July...

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 August, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,229,000 housing units, which was 5.7 percent (±1.6 percent) below the revised July rate of 1,303,000 permits, and was 5.5 percent (±1.6 percent) below the rate of building permit issuance in August a year earlier...the annual rate for housing permits issued in July was revised from 1,311,000 to 1,303,000  annually....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for roughly 114,800 housing units were issued in August, up from the revised estimate of 113,000 new permits issued in July...the August permits included 77,800 permits for single family homes, unchanged from July, and 33,200 permits for housing units in apartment buildings with 5 or more units, up from 22,800 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 1.282 Million Annual Rate in August and Comments on August Housing Starts...

August Existing Home Sales Unchanged from July

The National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales was statistically unchanged in August, after four consecutive monthly sales decreases, projecting that 5.34 million homes would sell over an entire year if the August home sales pace were extrapolated over that year, a pace that was 1.5% below the 5.42 annual sales rate they projected in August of a year ago….July sales, also at a 5.34 million annual rate, were essentially unrevised...the NAR also reported that the median sales price for all existing-home types was $264,800 in August, 4.6% higher than in August a year earlier, which they report as "the 78th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Remain Flat Nationally, Mixed Results Regionally", 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 539,000 homes sold in August, up by 3.1% from the 523,000 homes that sold in July, and up by 0.7% from the 535,000 homes that sold in August of last year, so we can see that it was the seasonal adjustment that caused the annualized published figures up to show a decrease...that same pdf indicates that the median home selling price for all housing types fell 1.7%, from a revised $269,300 in July to $264,800 in August, while the average home sales price was $303,200, down 1.4% from the $307,600 average in July, but up 3.0% from the $294,400 average home sales price of August a year ago, with the regional average home sales prices ranging from a low of $238,000 in the Midwest to a high of $410,100 in the West....for both seasonally adjusted and unadjusted graphs and additional commentary on this report, check out the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Unchanged at 5.34 million in August and A Few Comments on August 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 picked from the aforementioned GGO posts, contact me…)      

Sunday, September 16, 2018

August’s consumer and producer prices, retail sales, and industrial production; July’s business inventories and JOLTS

Major reports released this past week included the August Consumer Price Index, the August Producer Price Index, the August Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) report for July, all from the Bureau of Labor Statistics; the Retail Sales Report for August, Wholesale Trade, Sales and Inventories for July and Business Sales and Inventories for July, all from the Census Bureau; and August’s Industrial Production and Capacity Utilization from the Fed...this week also saw the Fed's release of the Consumer Credit Report for July, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $16.6 billion, or at a 5.1% annual rate, as non-revolving credit expanded at a 6.4% rate to $2,881.4 billion and revolving credit outstanding expanded at a 1.5% rate to $1,036.6 billion....

Consumer Prices Rose 0.2% in August on Higher Gasoline and Rent

The consumer price index was 0.2% higher in August, as higher prices for shelter, energy, and most services were only partially offset by lower prices for medical care and apparel...the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.2% in August after rising 0.2% in July, 0.1% in June, 0.2% in May, 0.2% in April but after falling 0.1% in March after it had risen by 0.2% in February, 0.5% in January, 0.1% in December, 0.4% in November, 0.1% in October, 0.5% in September, and by 0.4% last August....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 252.006 in July to 252.146 in August, which left it statistically 2.699% higher than the 245.519 index reading in August of last year, which is reported as a 2.7% increase....with higher prices for energy partially responsible for the August index increase, seasonally adjusted core prices, which exclude food and energy, rose by 0.1% for the month, with the unadjusted core price index rising from 257.867 to 258.012, which left the core index 2.199% ahead of its year ago reading of 252.460, which is reported as a 2.2% annual increase, down from last month's 2.4%..

The volatile seasonally adjusted energy price index rose by 1.9% in August, after it had decreased by 0.3% in July and by 0.3% in June, increased by 0.9% in May and by 1.4% in April, decreased by 2.8% in March, increased by 0.1% in February and by 3.0% in January, and is now 10.2% higher than in August a year ago...prices for energy commodities were 3.0% higher in August, while the index for energy services rose by 0.4%, after falling by 0.4% in July...the energy commodity index was higher on a 3.0% increase in price of gasoline, the largest component, and a 2.2% increase in the index for fuel oils, while prices for other energy commodities, such as propane, kerosene, and firewood, averaged 0.7% higher...within energy services, the index for utility gas service rose by 0.9% after falling by 0.5% in July and is now priced 0.1% higher than it was a year ago, while the electricity price index was up 0.3%, after it was down 0.4% in July....energy commodities are now 20.4% higher than their year ago levels, with gasoline prices averaging 20.3% higher than they were a year ago, while the energy services price index is still 0.4% lower than last August, as electricity prices have decreased by 0.5% over that period…

The seasonally adjusted food price index rose 0.1% in August, after rising 0.1% in July, 0.2% in June, being unchanged in May, rising 0.3% in April, 0.1% in March, being unchanged in February, rising 0.2% in January, 0.2% in December, being unchanged in October and November, rising 0.1% in September, and 0.1% last August, as the index for food purchased for use at home was unchanged in August, while prices for food bought for eating away from home were 0.2% higher, as prices at fast food outlets rose 0.3% and prices at full service restaurants rose 0.1%, while food prices at employee sites and schools were 1.2% lower...

In the food at home categories, the price index for cereals and bakery products was unchanged as bread prices rose 0.4%, prices for rice rose 1.8%, cookies prices fell 1.7%, and the index for bakery such as sweetrolls, coffeecakes and doughnuts fell 1.1%...at the same time, the price index for the meats, poultry, fish, and eggs group was 0.1% higher, as the fish and seafood price index rose 1.7% while the poultry price index was 1.0% lower.... the index for dairy products was also 0.1% higher, on a 0.7% increase in the price of fresh whole milk...on the other hand, the fruits and vegetables index was 0.3% lower on a 1.4% decrease in the price index for fresh fruits and a 1.0% decrease in prices for tomatoes.... meanwhile the beverages index was 0.2% higher, as carbonated drink prices were priced 2.2% higher...lastly, the index for the ‘other foods at home’ category was unchanged, as the index for butter and margarine fell 1.7% while peanut butter prices rose 3.2% and prices for salad dressing rose 1.3%....among food at home line items, only prices for eggs, which are still up 14.7% since last August, have seen prices increase greater than 10% over the past year, while no food item has fallen in price by more than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2 for this release, which gives us a line item breakdown for prices of more than 200 CPI items overall...

Among the seasonally adjusted core components of the CPI, which rose by 0.1% in August after rising by 0.2% in July,0.2% in June, 0.2% in May, 0.1% in April, 0.1% in March, 0.2% in February, 0.3% in January, 0.3% in December, 0.1% in November, 0.2% in October, 0.1% in September, 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods was down 0.3% in August, while the more heavily weighted composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust August retail sales for inflation in national accounts data, the index for household furnishings and supplies decreased by 0.3%, as the index for major appliances fell 0.5%, and the index for window coverings was 2.4% lower...at the same time, the apparel price index was 1.6% lower, as prices for women's outerwear fell 5.5% and the index for men's suits, sport coats, and outerwear was 2.8% lower...on the other hand, prices for transportation commodities other than fuel were up 0.1%, as prices for used cars and trucks rose 0.4% while new car prices were unchanged...however, prices for medical care commodities were 0.3% lower as nonprescription drugs prices fell 0.5% and the index for medical equipment and supplies was 0.8% lower...meanwhile, the recreational commodities index fell 0.5% on 2.3% lower prices for audio equipment and 1.8% lower prices for sports vehicles including bicycles, while the education and communication commodities index was 0.1% higher on a 1.4% increase in prices for personal computers...lastly, a separate price index for alcoholic beverages was unchanged, as was the price index for ‘other goods’...

Within core services, the price index for shelter rose 0.3% on a 0.4% increase in rents, a 0.3% increase in homeowner's equivalent rent, and a 0.6% increase in costs for lodging away from home at hotels and motels, while the sub-index for water, sewers and trash collection rose 0.3%, and other household operation costs were on average unchanged....on the other hand, the price index for medical care services was down by 0.2%, as dental services fell 0.8%, while health insurance fell 0.3%...meanwhile, the transportation services index was up by 0.3% as vehicle body work rose 0.6% and airline fares rose 2.4%....at the same time, the recreation services index rose 0.1% as cable and satellite television service rose 0.9% and photo processing rose 1.6%....in addition, the index for education and communication services rose 0.2%, as the price index for elementary and high school tuition rose 1.1% and the index for child care and nursery school rose 0.7%...lastly, the index for other personal services was up 0.1% as apparel services other than laundry and dry cleaning rose 0.7%...among core line items, prices for televisions, which are still 18.0% cheaper than a year ago, the price index for audio equipment, which has fallen 14.1% over the past year, the price index for women's outerwear, which is down by 10.3% from a year ago, and the price index for dishes and flatware, which is now 12.8% lower than last August, have all seen prices fall by more than 10% over the past year, while only prices for laundry equipment, which have risen 13.6% over the past year, have seen prices rise by a double digit magnitude over that span..

Retail Sales Up by 0.1% in August after June and July Sales Revised Higher

Seasonally adjusted retail sales inched higher in August after retail sales for June and July were revised higher...the Advance Retail Sales Report for August (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $509.0 billion during the month, which was up 0.1 percent (±0.4%)* from July's revised sales of $508.6 billion and 6.6 percent (±0.5 percent) above the adjusted sales in August of last year...July's seasonally adjusted sales were revised from the $507.5 billion reported last month to $508.6 billion, while June sales were also revised higher, from $504.95 billion to $505.17 billion, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 3.3%, from $508,986 million in July to $525,743 million in August, while they were up 6.9% from the $492,031 million of sales in August a year ago...the revision to June sales means that 2nd quarter sales were a bit more than $0.9 billion higher at an annual rate than previously reported, which would be enough to add 0.02 percentage points to 2nd quarter GDP when the 3rd estimate is published at the end of the month…

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the August Census Marts pdf....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from July to August in the first sub-column, and then the year over year percentage change for those businesses since last August in the 2nd column; the second pair of columns gives us the revision of last month’s July advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the June to July change under "Jun 2018 (r)evised", and the revised July 2017 to July 2018 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance July sale estimates, before this month's revision, is here....

August 2018 retail sales table

In computing the real personal consumption of goods data for national accounts from this August retail sales report, the BEA will be using the corresponding price changes from the August consumer price index, which we reviewed earlier..since that report showed that the composite price index for all goods less food and energy goods was down 0.3% in August, we can thus figure that real retail sales excluding food and energy will on average be 0.3% higher than the core retail sales shown above...however, the adjustment for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were down 0.8%, the price index for transportation commodities other than fuel was up 0.1%, as prices for new cars and trucks was unchanged while prices for used cars and trucks rose 0.4%; that would mean that real unit sales at auto & parts dealers was actually on the order of 0.9% lower...on the other hand, while sales at clothing stores were 1.7% lower in August, the apparel price index was down 1.6%, meaning that real sales of clothing probably only fell 0.1%%...similarly, since sales at drug stores were up 0.5% while prices for medical care commodities were  0.3% lower, that suggests that real sales at drug stores rose 0.8%…

In addition to those core sales, adjusting food and energy retail sales for price changes must be done separately; the CPI report showed that the food price index rose 0.1% in July, with the index for food purchased for use at home unchanged, while prices for food bought for eating away from home was 0.2% higher.... hence, with nominal sales at food and beverage stores unchanged in August with no corresponding price change, real sales of food at groceries would also be unchanged.…likewise, the 0.2% nominal increase in sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests little change in real sales at bars and restaurants either...meanwhile, while sales at gas stations were up 1.7%, there was a 3.0% increase in the retail price of gasoline, which would suggest real sales of gasoline were down on the order of 1.3%, with the caveat that gasoline stations do sell more than gasoline...averaging real sales computed thusly together, we'd estimate that income and outlays report for August will show that real personal consumption of goods rose 0.2% in August, after rising by a revised 0.4% in July... each single month of that metric will account for almost 8% of 3rd quarter GDP…

Industrial Production Up 0.4% in August After 5 Prior Months Were Revised Lower

The Fed's G17 release on Industrial production and Capacity Utilization report indicated that industrial production rose by 0.4% in August, after rising by a revised 0.4% in July...while industrial production is now up 4.9% from a year ago, in contrast to last month's year over year increase of 4.2%, the year ago industrial production figures had been impacted by industrial shutdowns in advance of Hurricane Harvey and unseasonably cool temperatures on the East Coast ....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 108.2 in August from 107.8 in July, which was revised from the 108.0 that was reported for July a month ago...at the same time, the June reading for the index was revised from 107.9 to 107.4, the May reading for the index was revised from 106.8 to 106.7, the April index reading was revised from 107.7 to 107.6, and the March index was revised from 106.5 to 106.4...

The manufacturing index, which accounts for more than 77% of the total IP index, rose by 0.3, from 104.3 in July to 104.6 in August, after July's manufacturing index was revised down from 104.6, June's manufacturing index was revised from 104.3 to 104.0, and April and May's manufacturing indexes were both revised 0.1 lower...nonetheless, the manufacturing index is still up 3.1% from a year ago....meanwhile, the mining index, which includes oil and gas well drilling, rose from 123.2 in July to 124.1 in August, after the July index was revised down  from 123.4....however, the mining index still remains 14.1% higher than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 1.2%, from 104.2 in July to 105.4 in August, after the July utility index was revised down from 104.5 in July, and after the June utility index was revised from 105.0 to 104.1...nonetheless, the utility index also still remains 4.8% above its year ago reading of 100.5..

This report also provides capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose from 77.9% in July to 78.1% in August...capacity utilization of NAICS durable goods production facilities rose from 75.4 in July to 76.0 in August, after July's figure was revised down from 75.9%, while capacity utilization for non-durables producers fell from an upwardly revised 77.5% to 77.1%...capacity utilization for the mining sector rose to 92.0% in August from 91.9% in July, which was originally reported as 92.0%, while utilities were operating at 78.0% of capacity during August, up from their 77.2% of capacity during July, which was revised down from 77.2%...year over year capacity growth rates have been 1.2% for manufacturing, 4.5% for mining, and 1.9% for utilities, for a total industry capacity growth rate of 1.7%....for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....

Producer Prices Fall in August on Lower Margins for Trade, Transportation and Warehousing Services

The seasonally adjusted Producer Price Index (PPI) for final demand was 0.1% lower in August, the first drop in the index in 18 months, as prices for finished wholesale goods were unchanged, while margins of final services providers decreased by 0.1%...that followed a July report that indicated the PPI was unchanged, with prices for finished wholesale goods up 0.1%, while margins of final services providers decreased by 0.1%, and a June report that indicated the PPI rose 0.3%, as prices for finished wholesale goods averaged 0.1% higher, while margins of final services providers increased by 0.4%....on an unadjusted basis, producer prices are still 2.8% higher than a year ago, albeit down from the year over year increase of 3.3% that was indicated by last month's report...meanwhile, the core producer price index, which excludes food, energy and trade services, was up by 0.1% for the month, and is now 2.9% higher than in July a year ago...

As noted, the price index for final demand for goods, aka 'finished goods', was unchanged in August, after rising by  0.1% in July, 0.1% in June and by a revised 0.9% in May, but after being unchanged in April...the price index for wholesale energy was up 0.4% in August after falling 0.5% in July, rising 0.8% in June and a revised 4.2% in May, while the price index for wholesale foods fell 0.6%, and the index for final demand for core wholesale goods (ex food and energy) was unchanged....the largest wholesale energy price change was a 1.8% increase in wholesale prices for residential natural gas, while wholesale gasoline prices were 0.6% higher...the wholesale food price index, meanwhile, included a 16.5% decrease in wholesale prices for fresh eggs and an 11.3% decrease in wholesale prices for fresh fruits and melons....among wholesale core goods, wholesale prices for industrial chemicals rose 0.8% and wholesale prices for passenger cars increased 0.7%, while wholesale prices for iron and steel scrap decreased 5.6%…

At the same time, the index for final demand for services fell 0.1% in August, after falling 0.1% in July, rising 0.4% in June, 0.3% in May, 0.2% in April and 0.3% in March, as the August index for final demand for trade services fell 0.9%, the index for final demand for transportation and warehousing services fell 0.6%, while the core index for final demand for services less trade, transportation, and warehousing services rose 0.3%....among trade services, seasonally adjusted margins for hardware, building materials, and supplies retailers fell 3.2%, margins for computer hardware, software, and supplies retailers fell 2.9%, and margins for machinery and equipment wholesalers fell 1.7%... among transportation and warehousing services, margins for airline passenger services fell 2.0% and margins for air transportation of freight fell 0.9%...among the components of the core final demand for services index, the index for loan services (partial) rose 3.0% while margins for bundled wired telecommunication access services rose 3.4%..

This report also showed the price index for intermediate processed goods was unchanged in August, after being unchanged in July, rising 0.7% in June, rising a revised 1.3% in May and a revised 0.4% in April....the price index for intermediate energy goods fell 0.3%, as refinery prices for diesel fuel fell 3.8% and producer prices for natural gas sold to industry fell 1.7%...prices for intermediate processed foods and feeds fell 0.9%, as the intermediate price index for meats fell 1.7% and dairy prices fell 1.2%...meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.2% higher on a 2.6% increase in the index for steel mill products and a 2.2% increase in prices for fabricated ferrous wire products....prices for intermediate processed goods are still 6.3% higher than in August a year ago, now the 21st consecutive year over year increase, after 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods fell 5.8% in August, after rising 2.7% in July, falling 1.0% in June, and rising a revised 1.9% in May and a revised 0.9% in April....that was as the August price index for crude energy goods fell 7.9% as crude oil prices fell 13.4%, while the index for unprocessed foodstuffs and feedstuffs fell 5.2%, as producer prices for oilseeds fell 15.0%, prices for slaughter hogs fell 29.8% and producer prices for slaughter poultry fell 17.1%...at the same time, the index for core raw materials other than food and energy materials was 1.9% lower, as prices for iron and steel scrap fell 5.6% and prices for copper base scrap fell 9.3%...this raw materials index is now up by just 2.9% from a year ago, down from the 8.2% year over year increase that we saw in July...

Lastly, the price index for services for intermediate demand rose 0.1% in August, after rising 0.2% in July, 0.1% in June, 0.3% in May, 0.3% in April, 0.3% in March and 0.3% in February...the price index for intermediate trade services was down 1.1%, as margins for intermediate hardware, building material, and supplies retailers fell 3.2% and margins for margins for metals, minerals, and ores wholesalers fell 10.5%…the index for transportation and warehousing services for intermediate demand fell 0.1%, as the index for air transportation of freight fell 0.9% and the index for truck transportation of freight fell 0.2%...meanwhile, the core price index for intermediate services less trade, transportation, and warehousing was 0.5% higher, as the index for gross rents for retail properties rose 5.5%, the index for passenger car rental rose 3.7%, and the index for portfolio management rose 2.9%....over the 12 months ended in July, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is still 2.9% higher than it was a year ago... 

July Business Sales Up 0.2%, Business Inventories Up 0.6%

After the release of the August retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for July (pdf), which incorporates the revised July retail data from that August report and the earlier published wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,454.1 billion in July, up 0.2 percent (±0.1%) from June revised sales, and up 8.1 percent (±1.2 percent) from July sales of a year earlier...note that total June sales were concurrently revised down from the originally reported $1,452.2 billion to $1,451,814 million....manufacturer's sales were up but statistically unchanged at $501,690 million in July, while retail trade sales, which exclude restaurant & bar sales from the revised July retail sales reported earlier, rose 0.5% to $446,797 million, while wholesale sales were also statistically unchanged at $505,605 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,950.0 billion at the end of July, up 0.6% (±0.1%) from June, and 4.3 percent (±1.3 percent) higher than in July a year earlier...the value of end of June inventories was revised up slightly from the $1,937.2 billion reported last month to $1,937.57 billion...seasonally adjusted inventories of manufacturers were estimated to be valued at $675,839 million, 0.8% higher than in June, inventories of retailers were valued at $637,796 million, 0.5% more than in June, while inventories of wholesalers were estimated to be valued at $636,341 million at the end of July, up 0.6% from June...

In national accounts, all types of business inventories are adjusted for inflation with an item-appropriate component of the producer price index...the July producer price index reported that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were on average unchanged, while prices for unprocessed goods were 2.7% higher....since real private inventories contracted at an inflation adjusted $26.9 billion rate in the 2nd quarter and subtracted 0.97 percentage points from the quarter's growth rate, any real inventory growth in the 3rd quarter will reverse that and correspondingly add to GDP by whatever percentage of GDP that real inventory growth ends the 3rd quarter at...

Job Openings and Job Quitting at Record Highs in July,  with Layoffs Down

The Job Openings and Labor Turnover Survey (JOLTS) report for July from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 117,000, from 6,822,000 in June to a record high of 6,939,000 in July, after June job openings were revised 160,000 higher, from 6,662,000 to 6,822,000...July's jobs openings were also 11.9% higher than the 6,202,000 job openings reported for July a year ago, as the job opening ratio expressed as a percentage of the employed remained unchanged at 4.4% in July, while it was up from 4.1% in July a year ago....job openings increased in several sectors, with the 72,000 job opening increase to 1,003,000 openings in the leisure and hospitality sector the largest increase for the month (see table 1 for more details)...like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in July, seasonally adjusted new hires totaled 5,679,000, up by 2,000 from the revised 5,677,000 who were hired or rehired in June, as the hiring rate as a percentage of all employed remained unchanged at 3.8% in July, while it was up from 3.7% in July a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations rose by 20,000, from 5,514,000 in June to 5,534,000 in July, while the separations rate as a percentage of the employed was unchanged at 3.7%, which was also unchanged from the separations rate in July a year ago (see table 3)...subtracting the 5,534,000 total separations from the total hires of 5,679,000 would imply an increase of 145,000 jobs in July, in line with and confirming the revised payroll job increase of 147,000 for July reported by the August establishment survey last week...

Breaking down the seasonally adjusted job separations, the BLS finds that a record 3,583,000 of us voluntarily quit our jobs in July, up by 106,000 from the revised 3,477,000 who quit their jobs in June, while the quits rate, widely watched as an indicator of worker confidence, rose to 2.4% of total employment, up from 2.3% in June and from 2.2% in July a year earlier (see details in table 4)....in addition to those who quit, another 1,602,000 were either laid off, fired or otherwise discharged in July, down by 50,000 from the revised 1,652,000 who were discharged in June, as the discharges rate remained unchanged at 1.1% of all those who were employed during the month, while it was down from the discharges rate of 1.2% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 349,000 in July, down from 384,000 in June, for an 'other separations’ rate of 0.2%, which was down from 0.3% in June but the same rate as in July of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

 

(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 picked from the aforementioned GGO posts, contact me…)      

Sunday, September 9, 2018

August’s jobs report; July’s trade deficit, construction spending & factory inventories

In addition to the Employment Situation Summary for August from the Bureau of Labor Statistics, this week also saw the release of three July reports that provide us with inputs to 3rd quarter GDP, and in some cases suggest revisions to 2nd quarter GDP: the July report on our International Trade from the Bureau of Economic Analysis, and the July report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for July, both from the Census Bureau...

The week’s major privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.60 million annual rate in August, down from the 16.68 million annual rate in July, but up from the hurricane impacted 16.03 million annual rate in August a year ago; and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the August Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 61.3% in August, up from 58.1% in July, and the highest index reading since May 2004, and the August Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 58.5% in August, up from 55.7% in July, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in August than in July...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally...   

Employers Add 201,000 Jobs in August but Employment Rate Falls; Those ‘Not in Labor Force’ at a Record High

The Employment Situation Summary for August reported modest job creation but a large drop in the number employed, and hence a drop in both the employment rate and the labor participation rate, while the unemployment rate remained unchanged….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 201,000 jobs in August, after the payroll job increase for July was revised down from 157,000 to 147,000, and the payroll jobs increase for June was revised down from 248,000 to 208,000…those revisions mean that this report represents a total of just 151,000 more seasonally adjusted payroll jobs than were reported last month, less than the increase in the working age population...the unadjusted data shows that there were actually 334,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,148,000, so seasonal adjustments continue to impact the monthly headline job count...

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors, slightly offset by smallish decreases of 6,000 jobs in the information sector, 5,900 jobs in retail, 3,000 in manufacturing, and 3,000 in government....the broad professional and business services category added 53,000 jobs, as 8,000 more were added by management and technical consulting services and 10,000 more workers found work with temporary employment services....employment in health care and social assistance rose by 40,700, with the addition of 7,900 jobs with home health care services and 8,200 jobs in hospitals....employment in construction increased by 23,000, with 15,300 of those working for specialty trade contractors....employment in the wholesale trade sector increased by 22,400, with 13,600 of those in durable goods trade.....there were also 20,200 more jobs in transportation and warehousing, with the addition of 5,700 in trucking, and the leisure and hospitality sector added a seasonally adjusted 17,000 jobs, by virtue of the addition of 17,500 more jobs in bars and restaurants....in addition, employment in private education increased by 11,700 and employment in the financial sector rose by 11,000, with the addition of 4,900 jobs in real estate.....meanwhile, the other major sectors, including mining and logging and utilities all saw increases of less than 10,000 in payroll employment over the month...

The establishment survey also showed that average hourly pay for all employees rose by 10 cents an hour to $27.16 an hour, after it had increased by a revised 8 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $22.73 an hour, after July's pay figure was also revised a penny higher....employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours in August, while hours for production and non-supervisory personnel remained at 33.8 hours for the fifth consecutive month...meanwhile, the manufacturing workweek was unchanged at 41.0 hours, while average factory overtime was unchanged at 3.5 hours...

At the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who would self-report being employed fell by an estimated 423,000 to 155,542,000, while the similarly estimated number of those who would report unemployment fell by 46,000 to 6,234,000; which together meant that August saw a net decrease of 469,000 in the total labor force...since the working age population had grown by 223,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 692,000 to a record 96,290,000, which was enough to lower the labor force participation rate by 0.2% to 62.7%....at the same time, the drop in number employed vis-a-vis the increasing population was great enough to decrease the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.3%...on the other hand, decrease in count of those unemployed as a percentage of the smaller labor force was not enough to change the unemployment rate, as it remained at 3.9%.....meanwhile, the number who reported they were involuntarily working part time fell by 188,000 to 4,379,000 in August, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.5% in July to 7.4% in August, the lowest since April 2001.....

Like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page..

July Trade Deficit Up 9.5% on Record Imports and Lower Exports

Our trade deficit rose by 9.5% in July as the value of our exports decreased and the value of our imports increased....the Census report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit increased by $4.34 billion to $50.08 billion in July from a revised June deficit of $45.74 billion...after rounding, the value of our July exports fell by $2.1 billion to $211.1 billion on a $2.3 billion decrease to $140.8 billion in our exports of goods, which was slightly offset by a $0.2 billion increase to $70.3 billion in our exports of services, while our imports rose by $2.2 billion to a record $261.2 billion on a $1.9 billion increase to a $213.9 billion in our imports of goods and a $0.3 billion increase to $47.2 billion in our imports of services...export prices were on average 0.5% lower in July, so the relative real change in exports for the month was greater than the nominal change by that percentage, while import prices were on average unchanged, meaning that real growth in imports would be at the same percentage as the nominal dollar growth change reported here...

The decrease in our July exports was mostly due to lower exports of capital goods and farm products, or more specifically commercial aircraft and soybeans....referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of capital goods fell by $949 million to $46,335 million due to a $1,568 million decrease in our exports of civilian aircraft, and that our exports of foods, feeds and beverages fell by $880 million to $13,175 million on a $682 million decrease in our exports of soybeans...in addition, our exports of consumer goods fell by $389 million to $15,974 million on a $285 million decrease in our exports of artwork, antiques, and other collectibles, and our exports of other goods not categorized by end use fell by $514 million to $5,118 million...partially offsetting those decreases, our exports of automotive vehicles, parts, and engines rose by $597 million to $12,967 million on a $986 million increase in our exports of new and used passenger cars, and our exports of industrial supplies and materials rose by $241 million to $46,530 million on a $411 million increase in our exports of natural gas liquids and a $277 million increase in our exports of petroleum products other than fuel oil, which were partly offset by a $413 million decrease in our exports of fuel oil..

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that greater imports of capital goods, industrial supplies and materials, and automotive vehicles, parts and engines were responsible for the $2.2 billion jump in our goods imports...our imports of capital goods rose by $665 million to $58,159 million on an increase of $467 million in our imports of computers, a $320 million increase in our imports of computer accessories, and a $268 million increase in our imports of semiconductors, while our imports of industrial supplies and materials rose by $531 million to $49,289 million on an increase of $348 million in our imports of fuel oil, an increase of $273 million in our imports of crude oil and an increase of $218 million in our imports of iron and steel mill products, while our imports of automotive vehicles, parts and engines rose by $503 million to $30,710 million on a $469 million increase in our imports of trucks, buses, and special purpose vehicles...in addition, our imports of foods, feeds, and beverages rose by $286 million to $12,440 million and our imports of other goods not categorized by end use rose by $650 million to $9,030 million....partially offsetting the increases in those categories, our imports of consumer goods fell by $777 million to $52,618 million because our imports of pharmaceuticals fell by $1,307 million, offsetting increased imports in a slew of other consumer goods..

To gauge the impact of July trade in goods on 3rd quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except they are not annualized here....from that table, we can compute that 2nd quarter real exports of goods averaged 151,601.7 million monthly in 2012 dollars, while inflation adjusted July exports were at 149,577 million in that same 2012 dollar quantity index representation... annualizing the change between the two figures, we find that July's real exports are running at a 5.2% annual rate below those of the 2nd quarter, or at a pace that would subtract about 0.41 percentage points from 3rd quarter GDP if continued through August and September.....in a similar manner, we find that our 2nd quarter real imports averaged 229,085.3 million monthly in chained 2012 dollars, while inflation adjusted July imports were at 232,034 million...that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of more than 5.2% from those of the 2nd quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 5.2% rate would subtract about 0.59 percentage points from 3rd quarter GDP....hence, if the July trade deficit is maintained throughout the 3rd quarter, our deteriorating balance of trade in goods over that of the 2nd quarter would subtract a full percentage point from the growth of 3rd quarter GDP....however, note that we have not computed the impact of the less volatile change in services here because the BEA does not provide inflation adjusted data on those, and we don't have easy access to all their price changes...

Construction Spending Rose 0.1% in July after Prior Months Were Revised Lower

The Census Bureau report on construction spending for July (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,315.4 billion annually if extrapolated over an entire year, which was a scant 0.1 percent (±1.5 percent)* above the revised annualized estimate of $1,314.2 billion of construction spending in June but still 5.8 percent (±1.8 percent) above the estimated annualized level of construction spending in July of last year...the June construction spending estimate was revised 0.2% lower, from $1,317.2 billion to $1,314.2 billion, while the annual rate of construction spending for May was revised 0.6% lower, from $1,332.2 billion to $1,324.347 billion....together, those revisions would suggest a downward revision of 0.08 percentage points to 2nd quarter GDP when the third estimate is released at the end of September, assuming the net impacts from the inflation adjustments are similar to those we saw in the 2nd estimate...

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,010.9 billion, 0.1 percent (±0.7 percent)* below the revised June estimate of $1,011.9 billion. Residential construction was at a seasonally adjusted annual rate of $560.1 billion in July, 0.6 percent (±1.3 percent)* above the revised June estimate of $556.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.9 billion in July, 1.0 percent (±0.7 percent) below the revised June estimate of $455.3 billion.
  • Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $304.5 billion, 0.7 percent (±3.0 percent)* above the revised June estimate of $302.3 billion. Educational construction was at a seasonally adjusted annual rate of $71.6 billion, 2.1 percent (±5.9 percent)* above the revised June estimate of $70.1 billion. Highway construction was at a seasonally adjusted annual rate of $94.2 billion, 0.4 percent (±7.1 percent)* above the revised June estimate of $93.8 billion.

Construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of July spending reported in this release on 3rd quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment, so in lieu of trying to adjust for all of those price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed for our estimate...

That price index showed that aggregate construction costs were up 0.4% in July, after rising 0.2% in and June but after being unchanged from April to May...on that basis, we can estimate that July construction costs were roughly 0.6% more than those of May and those of April, and obviously 0.4% more than those of June...we then use those percentages to inflate the lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes...annualized construction spending in millions of dollars for the second quarter is given as 1,314,235 for June, 1,324,347 for May, and 1,314,692 for April, while it was at 1,315,441 million in July ...thus to compare July's inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,315,441 / (((1,314,235 * 1.004)+ ( 1,324,347 * 1.006) + (1,314,692 * 1.006)) /3) = 0.9929, meaning real construction spending in July was down 0.7% vis a vis the 2nd quarter, or down at a 2.8% annual rate...to figure the effect of that change on GDP,  we take the difference between the second quarter spending average and that of July and take that result as a fraction of 2nd quarter GDP, and find that aggregate July construction spending is falling at a rate that would subtract approximately 0.20 percentage points from 3rd quarter GDP should we see no improvement in August or September…

Factory Shipments Flat in July, Factory Inventories Up 0.8%

The July Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $3.9 billion or 0.8 percent to $497.8 billion in July, following an increase of 0.6% to $501.6 billion in June, which was revised from the 0.7% increase to $501.7 billion reported last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the July advance report on durable goods we reported on two weeks ago...on those revisions, the Census Bureau's own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we'll just quote directly from that summary here:

  • New orders for manufactured goods in July, down following two consecutive monthly increases, decreased $3.9 billion or 0.8 percent to $497.8 billion, the U.S. Census Bureau reported today. This followed a 0.6 percent June increase. Shipments, up fourteen of the last fifteen months, increased less than $0.1 billion or virtually unchanged to $501.7 billion. This followed a 1.0 percent June increase. Unfilled orders, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion. This followed a 0.4 percent June increase. The unfilled orders-to-shipments ratio was 6.73, up from 6.64 in June. Inventories, up twenty-one consecutive months, increased $5.6 billion or 0.8 percent to $675.8 billion. This followed a 0.2 percent June increase. The inventories-to-shipments ratio was 1.35, up from 1.34 in June.
  • New orders for manufactured durable goods in July, down three of the last four months, decreased $4.3 billion or 1.7 percent to $247.2 billion, unchanged from the previously published decrease. This followed a 0.9 percent June increase. Transportation equipment, also down three of the last four months, drove the decrease, $4.6 billion or 5.2 percent to $83.0 billion. New orders for manufactured nondurable goods increased $0.5 billion or 0.2 percent to $250.6 billion.
  • Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $0.4 billion or 0.2 percent to $251.1 billion, unchanged from the previously published decrease. This followed a 1.7 percent June increase. Transportation equipment, down three of the last four months, drove the decrease, $1.4 billion or 1.7 percent to $84.2 billion. Shipments of manufactured nondurable goods, up thirteen of the last fourteen months, increased $0.5 billion or 0.2 percent to $250.6 billion. This followed a 0.4 percent June increase. Petroleum and coal products, up twelve of the last thirteen months, led the increase, $0.2 billion or 0.4 percent to $56.2 billion.
  • Unfilled orders for manufactured durable goods in July, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion, unchanged from the previously published increase. This followed a 0.4 percent June increase. Machinery, up five of the last six months, drove the increase, $0.4 billion or 0.4 percent to $104.9 billion.
  • Inventories of manufactured durable goods in July, up twenty of the last twenty-one months, increased $5.1 billion or 1.3 percent to $408.6 billion, unchanged from the previously published increase. This followed a virtually unchanged June increase. Transportation equipment, up three of the last four months, led the increase, $4.5 billion or 3.5 percent to $131.4 billion. Inventories of manufactured nondurable goods, up thirteen consecutive months, increased $0.5 billion or 0.2 percent to $267.3 billion. This followed a 0.6 percent June increase. Petroleum and coal products, up three of the last four months, led the increase, $0.5 billion or 1.1 percent to $42.0 billion. .

To estimate the effect of those July factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories was statistically unchanged at $235,002 million; the value of work in process inventories rose 2.1% to $209,065 million, and materials and supplies inventories were valued 0.6% higher at $231,772 million...the July producer price index reported that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were on average unchanged, while prices for unprocessed goods were 2.7% higher....assuming similar valuations for like types of inventories, that would suggest that April's real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were 2.1% higher, and real raw material inventory inventories were about 2.1% lower...since real NIPA factory inventories were substantially lower in the 2nd quarter, the fact that this report indicates little real change in aggregate July factory inventories will therefore have a corresponding positive impact on the growth rate of 3rd quarter GDP...

 

(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 picked from the aforementioned GGO posts, contact me…)     

Sunday, September 2, 2018

2nd estimate of 2nd quarter GDP; July’s income and outlays

The most important economic reports that were released this week were the 2nd estimate of 2nd quarter GDP and the July report on Personal Income and Spending, both from the Bureau of Economic Analysis ....the week also saw the release of the Case-Shiller Home Price Index for June, which is an index derived from the relative average of April, May and June home prices, and which reported that home prices nationally for those 3 months averaged 6.2% higher than the prices for the same homes that sold during the same 3 month period a year earlier, and the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, which fell to +0.13 in July, down from a revised +0.48 in June...that left the 3 month average of the CFNAI at +0.05, down from +0.20 in June, which indicates national economic activity has been close to the historical trend over those recent months...

In addition, this week saw the release of the last two regional Fed manufacturing surveys for August: 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 from +20 in July to +24 in August, suggesting an even stronger expansion of that region's manufacturing, and the Dallas Fed Texas Manufacturing Outlook Survey for August, which indicated its general business activity index slipped from +32.2 in July to +30.9 in August, still indicating an ongoing robust expansion in manufacturing within the energy focused Texas economy...

2nd Quarter GDP Revised to Indicate Growth at a 4.2% Rate

The Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 4.2% rate in the quarter, revised from the 4.1% growth rate reported in the advance estimate last month, as growth in fixed investment was greater than previously estimated, while imports decreased rather than increased, the impact of which more than offset the smaller downward revisions to personal consumption expenditures and exports.....in current dollars, our second quarter GDP grew at a 7.6% annual rate, increasing from what would work out to be a $20,041.0 billion annual rate in the 1st quarter to a $20,411.9 billion annual rate in the 2nd quarter of this year, with the headline 4.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 3.0%, 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 from one 3 month period to the next, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 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 2nd estimate of 2nd quarter GDP, which is linked to by 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; and table 4, which shows the change in the price indexes for each of the GDP components...the 2nd quarter advance estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 4.0% growth rate reported last month to a 3.8% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 5.7% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 1.9% annual rate in the 2nd quarter, which was revised from the 1.8% PCE inflation rate reported a month ago...real consumption of durable goods grew at a 5.4% annual rate, which was revised from the 5.9% growth rate shown in the advance report, and added 0.60 percentage points to GDP, as real consumption of motor vehicles, furniture, recreational goods and vehicles and other durables all contributed significantly to the durable goods increase....real consumption of nondurable goods by individuals rose at a 8.6% annual rate, revised from the 9.3% increase rate reported in the 1st estimate, and added 0.52 percentage points to 2nd quarter economic growth, as growth in real clothing consumption at a 8.9% annual rate accounted for a third of the non-durables growth….at the same time, consumption of services grew at a 3.1% annual rate, statistically unrevised from the growth rate reported last month, and added 1.43 percentage points to the final GDP tally, with 8.7% growth in real consumption of food services providing the largest contribution...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 0.4% annual rate in the 2nd quarter, revised from the 0.5% investment contraction reported last month, as real private fixed investment grew at a 6.2% rate, rather than at the 5.4% rate reported in the advance estimate, while the previously reported contraction in inventory growth was revised slightly lower....real investment in non-residential structures was revised from growth at a 13.3% rate to growth at a 13.2% rate, while real investment in equipment was revised to show growth at a 4.4% rate, up from the 3.9% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 8.2% rate to growth at a 11.0% rate, while the contraction rate of residential investment was revised from -1.1% to -1.6% annually…after those revisions, the increase in investment in non-residential structures added 0.39 percentage points to the 2nd quarter's growth rate, the increase in investment in equipment added 0.27 percentage points to the quarter's growth, greater investment in intellectual property added 0.47 percentage points, while the decrease in investment in residential structures subtracted 0.06 percentage points from the 2nd quarter's GDP growth...

At the same time, investment in real private inventories contracted at an inflation adjusted $26.9 billion rate in the 2nd quarter, revised from the originally reported inventory shrinkage at a $27.9 billion rate...this came after inventories had grown at an inflation adjusted $30.3 billion rate in the 1st quarter, and hence the $57.3 billion decrease in the rate of real inventory growth subtracted 0.97 percentage points from the quarter's growth rate, revised from the 1.00 percentage point subtraction due to inventory contraction that was shown in the advance estimate....however, since shrinkage of inventories indicates that less of the goods produced during the quarter were left ‘sitting on the shelf’ or in a warehouse, the quarter over quarter decrease in their growth by $57.3 billion meant that real final sales of GDP were relatively greater by that much, or enough to boost 2nd quarter growth in real final sales of GDP to a 5.3% rate, revised from the 5.1% real final sales growth rate shown in the advance estimate, and a big jump from the real final sales growth at a 1.9% rate in 1st quarter, when that quarter's increase in inventory growth meant that part of the increase in GDP had not been sold..

The previously reported increase in real exports was revised a bit smaller with this estimate, but at the same time the previously reported increase in real imports was revised to show a decrease, and as a result our foreign trade was an even greater contributor to GDP than was reported in the advance estimate...our real exports grew at a 9.1% rate rather than the 9.3% rate reported in the first 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 1.10  percentage points to the 2nd quarter's growth rate, a bit less than the 1.12  percentage point addition shown in the previous report....meanwhile, the previously reported 0.5% increase in our real imports was revised to a 0.4% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.07 percentage points to 2nd quarter GDP, rather than subtracting 0.06 percentage points....thus, our improving trade balance added a net 1.17 percentage points to 2nd quarter GDP, revised from the 1.06% percentage point addition that had been indicated in the advance estimate…

Finally, there were positive revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 2.3% rate, revised from the 2.1% growth rate previously reported...real federal government consumption and investment was seen to have grown at a 3.7% rate from the 1st quarter in this estimate, which was revised from the 3.5% growth rate in the 1st estimate...real federal outlays for defense were revised to show growth at a 6.0% rate, rather than the 5.5% growth rate previously reported, and added 0.22% percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 0.5% rate, down from the 0.6% rate previously reported, and added 0.01% percentage points to 2nd quarter GDP...meanwhile, real state and local consumption and investment grew at a 1.6% rate in the quarter, which was revised from the 1.4% growth rate reported in the 1st estimate, and added 0.17% percentage points to 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 there was an increase in the output of those goods or services...

July Personal Income Up 0.3%, Personal Spending Up 0.4%, PCE Price Index Up 0.1%

Other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important regular economic release we see monthly, since each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter's GDP by itself...in addition, this report also includes 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, 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 metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if July's change in seasonally 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 June to July..

Thus, when the opening line of the press release for the July report tell us "Personal income increased $54.8 billion (0.3 percent) in July", they mean that the annualized figure for seasonally adjusted personal income in July, $17,616.5 billion, was $54.8 billion, or a bit more than 0.3% greater than the annualized personal income figure of $17,561.7 billion extrapolated for June; the actual, unadjusted change in national personal income from June to July, which is an order of magnitude lower, is not yet given, despite an indication last month that unadjusted data would be made available...at the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.3%, from an annual rate of $15,514.0 billion in June to an annual rate of $15,566.5 billion in July....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in July, the largest contributors to the $54.8 billion annual rate of increase in personal income were a $31.4 billion increase in wages and salaries and a $10.2 billion increase in personal current transfer receipts from government programs such as social security…

For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at a $49.3 billion rate, or by somewhat less than 0.4% from June, as the annual rate of PCE rose from $13,930.7 billion in June to $13,980.0 billion in July....June PCE was revised from $13,937.1 billion annually to $13,930.7 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the revised 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although released a business day later than the GDP release, is concurrent with GDP data)....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $52.7 billion to $14,518.4 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $1,048.1 billion annual rate in July, virtually unchanged from the revised $1,048.4 billion in annualized personal savings in June...nonetheless, the personal saving rate, which is personal savings as a percentage of disposable personal income, still slipped to 6.7% in July from the June savings rate of 6.8%...

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....that's done with the price index for personal consumption expenditures, which is a chained price index now based on 2012 prices = 100, which is included in Table 9 in the pdf for this report...that index rose from 108.180 in June to 108.314 in July, a month over month inflation rate that's statistically 0.1239%, which BEA reports as an increase of 0.1 percent, following an increase of 0.1 percent in the PCE price index reported for June...note that when the PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 2012 dollars, which are the means that the BEA uses to compare the real goods and services produced in one month or one quarter to the real goods and services produced in another....that result is shown in table 7 of the PDF, where we see that July's chained dollar consumption total works out to 12,907.5 billion annually, 0.2306% more than June's 12,877.8 billion, a difference in real PCE that the BEA reports as +0.2%...

However, to estimate the impact of the change in PCE on the change in GDP, the month over month change doesn't help us much, since GDP is reported quarterly....thus we have to compare July's real PCE to the the real PCE of the 3 months of the second quarter....while this report shows real PCE for those three months at an annual rate monthly, the BEA also provides the quarterly 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 12,841.2 billion in chained 2009 dollars..(note, that's the same as is shown in table 3 of the pdf for the 2nd quarter GDP report)....when we compare July's adjusted PCE of 12,907.5 billion to the 2nd quarter real PCE of 12,841.2 billion, we find that July real PCE has grown at a 2.08% annual rate compared to the 2nd quarter....that means that even if July’s real PCE growth does not improve during August and September, growth in PCE would still add 1.44 percentage points to the growth rate of 3rd quarter GDP...

 

(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 picked from the aforementioned GGO posts, contact me…)