Sunday, June 28, 2020

1st Quarter GDP Revision, May's Reports on Personal Income and Outlays, Durable Goods, and New & Existing Home Sales

The key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis and the May report on Personal Income and Spending, also from the BEA, which includes two months of 2nd quarter data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP....other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the May report on existing home sales from the National Association of Realtors (NAR)....this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised a record low –17.89 in April to to +2.61 in May; that left the 3 month average of the index at –6.65 in May, up from –7.50 in April, still indicating national economic activity has been in a deep recession over these recent months...

In addition, this week also saw the results of two more regional Fed manufacturing surveys for June; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to 0 in June, up from -27 in May, indicating that an equal number of that region's manufacturers reported a deeper slowdown as those who reported a return to growth, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +1 in June, up from -19 in May and up from the a record low of - 30 in April, also indicating that this region's manufacturing has stabilized a lower level...

1st Quarter GDP Contraction Rate Remains at 5.0% in 3rd Estimate

The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services decreased at a 5.0% annual rate in the quarter, revised but statistically unchanged from the 5.0% growth rate reported in the second estimate last month, as upward revisions to domestic fixed investment and government outlays were offset by downward revisions to inventories and exports...in current dollars, our first quarter GDP fell at a 3.56% annual rate, decreasing from what would work out to be a $21,729.1 billion a year rate in the 4th quarter of last year to a $21,539.7 billion annual rate in the 1st quarter of this year, with the headline 5.0% annualized rate of decrease in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was computed and applied to the current dollar change of each of the GDP components....

As we review this month's revisions, remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change usually 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 Full Release & Tables for the third estimate of 1st quarter GDP, which is linked to on the BEA's main GDP page...specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2016; 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 full pdf for the 1st quarter's 2nd estimate, which this estimate revises, is here...

Real personal consumption expenditures (PCE), the largest component of GDP, were revised but still showed contraction at a 6.8% annual rate in the 1st quarter, the same contraction rate reported last month...that PCE contraction figure was arrived at by deflating the 5.9% lower rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 1.3% annual rate in the 1st quarter, same PCE inflation rate that was published a month ago....real consumption of durable goods fell at a 13.8% annual rate, which was revised from the 13.2% drop shown in the second estimate, and subtracted 1.03 percentage points from GDP, as a drop in real consumption of automobiles at a 30.0% rate accounted for more than four-fifths of the decrease in durable goods....however, real consumption of nondurable goods by individuals rose at a 8.0% annual rate, revised from the 7.7% increase rate reported in the 2nd estimate, and added 1.08 percentage points to 1st quarter economic growth, as a increase in the real consumption of food at home at a 30.4% annual rate more than offset decreased consumption of clothing and energy goods….at the same time, consumption of services shrunk at a 9.8% annual rate, revised from the 9.7% contraction rate reported last month, and subtracted 4.78 percentage points from the final GDP tally, as an annualized 16.5% contraction in health care services accounted for 45% of the 1st quarter decrease in services...

Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 10.2% annual rate in the 1st quarter, revised from the 10.5% contraction estimate reported last month, as real private fixed investment shrunk at a 1.3% rate, rather than at the 2.4% rate reported in the second estimate, while business and farm inventories fell by more than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 3.9% rate to growing at a 2.6% rate, while real investment in equipment was revised to show it contracted at a 16.6% rate, revised from the 16.7% contraction rate reported in the 2nd estimate...at the same time, the 1st quarter's investment in intellectual property products was revised from real growth at a 1.0% rate to real growth at a 1.3% rate, and growth in real residential investment was revised from a 18.5% annual rate to growth at a 18.2% rate…after those revisions, the growth in investment in non-residential structures reduced the decrease in 1st quarter GDP by 0.07 percentage points, while the decrease in investment in equipment subtracted 0.99 percentage points from the quarter's growth...partly offsetting that, the increase in investment in intellectual property added 0.06 percentage points and the increase in residential investment added 0.65 percentage points to the 1st quarter's growth rate...

At the same time, the decrease in real private inventories was revised from the previously reported $67.2 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $74.8 billion rate...this came after inventories had grown at an inflation adjusted $13.1 billion rate in the 4th quarter, and hence the $87.8 billion negative change in real inventories from those of the 4th quarter subtracted 1.56 percentage points from the 1st quarter's growth rate, revised from the 1.43 percentage point subtraction due to inventory growth shown in the second estimate....however, since shrinking inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by $87.8 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA found that real final sales of GDP only fell at a 3.5% rate in the 1st quarter, revised from the 3.7% rate of decrease shown in the second estimate...

The previously reported decrease in real exports was revised even lower, while the decrease in real imports was also greater than previously reported, and with those changes mostly offsetting one another, our net trade was a just slightly smaller addition to GDP than was previously reported...our real exports of goods and services shrunk at a 9.0% rate in the 1st quarter, revised from the 8.7% contraction rate shown in 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 decrease conversely subtracted 1.06 percentage points from the 1st quarter's growth rate, revised from the 1.02 percentage point subtraction shown last month...meanwhile, the previously reported 15.5% decrease in our real imports was revised to a 15.7% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their decrease conversely added 2.37 percentage points to 1st quarter GDP, revised from the 2.34 percentage point addition shown a month ago....thus, the improving trade balance that accompanied the collapse in trade added a rounded 1.31 percentage points to 1st quarter GDP, down from the 1.32 percentage point addition resulting from an improving foreign trade balance that was indicated by the advance estimate..

Finally, there were also revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown to have grown at a 1.1% rate, revised from the 0.8% growth rate for government indicated by the 2nd estimate....real federal government consumption and investment was seen to have grown at a 2.0% from the 4th quarter in this estimate, which was revised from the 1.9% growth rate shown in the 2nd estimate, as real federal outlays for defense grew at a 1.1% rate, revised from the 1.0% shown a month ago, and added 0.05 percentage points to 1st quarter GDP, while all other federal consumption and investment grew at a upwardly revised 3.1% rate and added 0.09 percentage points to GDP, revised from the 0.08 percentage point addition shown last month...meanwhile, real state and local consumption and investment grew at a 0.5% rate in the quarter, revised from the 0.2% growth rate in the 2nd estimate, and added 0.06 percentage points to 1st quarter GDP, which was revised from the 0.02 addition shown in the second estimate...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, thereby indicating an increase in the output of those goods or services...

May Personal Income Down 4.2%, Spending up 8.2%; 2 Months PCE Would Subtract 29.06 Percentage Points from Q2 GDP

The May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd 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 same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if May’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 April to May....

Thus, when the opening line of the news release for this report tell us "Personal income decreased $874.2 billion (4.2 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $19,839.3 billion, was $874.2 billion, or a bit more than 4.2% less than the annualized  personal income figure of $20,713.5 billion for April; the actual, unadjusted change in personal income from April to May is not given here...similarly, annualized disposable personal income, which is income after taxes, fell by nearly 4.9%, from an annual rate of an annual rate of $18,698.6 billion in April to an annual rate of $17,787.5 billion in May....the reasons for the decrease in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were due to a $1,097.8 billion decrease to $5,290.1 billion in personal current transfer receipts from government programs, partially reversing the $3,027.7 increase in personal current transfer receipts in April as coronavirus stimulus checks went out, and which more than offset a $258.3 billion increase to $8,733.3 billion in wages and salaries, partially reversing the $839.7 billion decrease in April's wages and salaries due to the lockdown...again, remember those are all annualized figures...

For the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $994.5 billion annual rate, or by roughly 8.2 percent, partially rebounding from the decreases of 12.6% in April and 6.6% in March, as the annual rate of PCE rose from $12,168.2 billion in April to $13,162.6 billion in May...that was after the April PCE figure was revised up from the originally reported $12,013.3 billion annually and March PCE was revised from an annual rate of $13,906.8 billion to an annual rate of $13,925.8 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier....the current dollar increase in May spending included a $338.8 billion or 28.6% increase to an annualized $1,523.9 billion in spending for durable goods, a $208.6 billion or 7.7% increase to an annualized $2,910.7 billion in spending for non-durable goods and a $447.1 billion or 5.4% increase to $8,728.0 billion in annualized spending for services....total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $989.9 billion to a $13,666.1 billion annual rate, which left national personal savings, which is disposable personal income less total outlays, at a $4,121.4 billion annual rate in May, down from the revised record $6,022.4 billion annualized personal savings in April... as a result of that decrease, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 23.2% in May, after April's record savings rate was revised from 33.0% to 32.2%...

As you know, before those 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 based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report....that index rose from 110.006 in April to 110.112  in May, a month over month inflation rate that's statistically 0.09636%, which BEA reports as an increase of 0.1 percent, following a similarly rounded PCE price index decrease of 0.5% reported for April...applying that May inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 8.1% in May, after a real PCE decrease of 12.2% in April and a real PCE decrease of 6.4% in March....note that when those PCE price indexes are applied to each month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar 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....those results are shown in table 7 of the PDF, where we see that May's chained dollar consumption total works out to 11,954.8 billion annually, 8.0689% more than April's 11,062.2 billion, a difference that the BEA reports as 8.1%, even as the full decimal fractions are used in all their computations...

  However, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first 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 1st quarter was represented by 13,179.0 billion in chained 2012 dollars..(note that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for April and May, 11,062.2 billion and 11,954.8 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far....when we compare that average of 11508.5 billion to the 1st quarter real PCE representation of 13,179.0 billion, we find that 2nd quarter real PCE has fallen at a 41.85% annual rate for the two months of the 2nd quarter that we have data for at this point...(note the math used to get that annual growth rate: 1 - ((( 11,062.2 + 11,954.8) /2 ) / 13,179.0 ) ^ 4  = 0.418506)....that's a pace that would subtract 29.06 percentage points from the growth rate of the 2nd quarter by itself, with that computation based on the unlikely assumption that there'd be no improvement in June PCE from the April-May average...

May Durable Goods: New Orders Up 15.8%, Shipments Up 4.4%, Inventories Up 0.1%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $26.6 billion or 15.8 percent to $194.4 billion in May, following a revised decrease of 18.1% to $167.8 billion in April’s new orders, which had originally been reported as a 17.2% decrease to $170.0 billion...however, year to date new orders are still running 13.6% lower than they were a year ago, despite the May increase....as is usually the case, the volatile monthly change in new orders for transportation equipment led the May headline increase, as those transportation equipment orders rose $20.9 billion or 80.7 percent to $46.9 billion, as the $8.6 billion cancellation in new orders for commercial aircraft indicated for April was reversed to a $3.1 billlion increase and new orders for motor vehicles rose 27.5% to $28.2 billion....excluding new orders for transportation equipment, other new orders just rose 4.0% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 3.2% to $62,729 million...

Meanwhile, the seasonally adjusted value of May's shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the first time in 3 months, increasing by $8.4 billion or 4.4 percent to $198.5 billion, after April shipments were revised from a decrease of 17.7% to $192.3 billion to a decrease of 18.6% to $190.1 billion....shipments of transportation equipment led the May increase, as they rose $5.0 billion or 12.1 percent to $46.5 billion, while shipments of nondefense capital goods excluding aircraft rose 1.8% to $62,371 million…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 3rd consecutive month, increasing by $0.3 billion or 0.1 percent to $425.1 billion, after the value of end of April inventories were revised from $425.6 billion to $424.8 billion, now just a statistically insignificant increase from March...a $1.3 billion or 0.9 percent increase to $144.1 billion in the value of inventories of transportation equipment was responsible for the May inventory increase, as inventories of other durable goods fell 0.4% to $281.0 billion...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the first time in three months, increasing by $0.8 billion or 0.1 percent to $1,108.6 billion, following an April decrease of 1.5% to $1,107.77 billion, revised from the 1.6% decrease to $1,107.8 billion reported a month ago...a $0.3 billion increase to $760.0 billion in unfilled orders for transportation equipment was responsible for part of the increase, but unfilled orders excluding transportation equipment orders were also up 0.1% to $348,571 million.... compared to a year ago, the unfilled order book for durable goods is now 4.1% lower than the level of last May, with unfilled orders for transportation equipment 5.7% below their year ago level, on a 4.3% decrease in the backlog of orders for motor vehicles and a 10.3% decrease in the order book for commercial aircraft...

New Homes Sales Reported Higher in May; Prices Also Higher

The Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 676,000 homes annually during the month, which was 16.6 percent (±15.5 percent) above the revised April rate of 580,000 new single family homes a year and 12.7 percent (±23.5 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of May 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 of new single family homes in April were revised from the annual rate of 623,000 reported last month to a 615,000 annual rate, and March's annualized home sale rate, initially reported at 627,000, was revised from last months downwardly revised figure of 619,000 to a 612,000 rate, while the annual rate of February's sales, initially reported at an annual rate of 765,000 and revised from a revised annual rate of 741,000 to an annual rate of 717,000 last month, were further revised to an annual rate of 716,000 with this report...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 64,000 new single family homes sold in May, up from the 54,000 new homes that sold in April, and up from the estimated 59,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $317,900, up from the median sales price of $303,000 in April, and up from the median sales price of $312,700 in May of last year, while the average May new home sales price was $368,800, up from a $352,300 average price in April, but down from the average home sales price of $379,100 in May a year ago....a seasonally adjusted estimate of 318,000 new single family houses remained for sale at the end of May, which represents a 5.6 month supply at the May sales rate, down from a revised 6.7 month supply in April....for more details and graphics on this report, see Bill McBride's two posts on this month's report, “New Home Sales increased to 676,000 Annual Rate in May. and “A few Comments on May New Home Sales”....

Existing Home Sales Fell 9.7% in May; Median Sale Price Also Slips 0.7% from April

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell 9.7% from April to May, projecting that 3.91 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was also 26.6% lower than the annual sales rate projected in May of a year ago....that came after homes sold at an annual sales rate of 4.33 million in April, which was unrevised from last month's report, and an annual home sales rate of 5.27 million in March, and an annual home sales rate of 5.76 million in February...the NAR also reported that the median sales price for all existing-home types in May was $284,600, which was 2.3% higher than in May a year earlier, which they report "marks 99 straight months of year-over-year gains"....the NAR press release, which is titled Existing-Home Sales Fall 9.7% in May While NAR Expects Strong Rebound in Coming Months, is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distr essed 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 usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this data indicates that roughly 372,000 homes sold in May, down by 0.3% from the 373,000 homes that sold in April and 31.4% less than the 542,000 homes that sold in May of last year, so we can see the effect of the seasonal adjustment to reduce the large springtime increase typical for May home sales...that same pdf indicates that the median home selling price for all housing types fell 0.7%, from a revised $286,700 in April to $284,600 in May, while the average home sales price was at $319,300, down 0.6% from the $321,100 average in April, but up 1.5% from the $314,600 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $252,600 in the Midwest to a high of $422,300 in the West...for additional details and long term graphs on this report, see "NAR: Existing-Home Sales Decreased to 3.91 million in May, Rebound Expected in Coming Months" and "Comments on May Existing Home Sales" from Bill McBride at Calculated Risk..

 

(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…)      

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