In advance of the holidays, several of the reports that are normally released during the last week of the month were accelerated into this week...that meant that we had the 3rd estimate of 3rd quarter GDP and the November report on Personal Income and Spending, both from the Bureau of Economic Analysis, and the advance report on durable goods for November from the Census Bureau all released at the same time on Friday morning...meanwhile, earlier in the week we also had the November report on New Residential Construction from the Census bureau, and the Existing Home Sales Report for November from the National Association of Realtors (NAR)....
The week also saw the release of three regional Fed manufacturing surveys for December: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, a county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index fell from +23.3 in November to +10.9 in December, suggesting slower growth of First District manufacturing; the Philadelphia Fed Manufacturing Survey for December, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions decreased from a reading of +12.9 in November to +9.4 in December, indicating a more subdued expansion of that the region's manufacturing; and the Kansas City Fed manufacturing survey for December, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +3 in December from +15 in November and from +8 in October, suggesting a much slower expansion of that region's manufacturing...
3rd Quarter GDP Growth Revised to a 3.4% Rate on Deflator Increase; Real Final Sales Only 1.0%
The Third Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 3.4% annual rate in the quarter, revised from the 3.5% growth rate reported in the second estimate last month, as growth in personal consumption, fixed investment, and exports were revised lower than was previously reported even as the change in our inventories was a greater addition to GDP than in the 2nd estimate...in current dollars, our third quarter GDP grew at a 4.91% annual rate, increasing from what would work out to be a $20,411.9 billion a year output rate in the 2nd quarter to a $20,658.2 billion annual rate in the 3rd quarter, with the headline 3.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.8%, aka the GDP deflator, was applied to the current dollar change...that GDP deflator was previously reported at 1.7% and hence its revision accounts for the revision of GDP growth by itself, other revisions notwithstanding....
Recall 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 representing quantity indexes than any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 3rd quarter GDP, which is linked to on the BEA GDP landing page...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 4th quarter of 2014; 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 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, was revised from the 3.6% growth rate reported last month to a 3.5% rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 5.14% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation increased at a 1.6% annual rate in the 3rd quarter, which was revised from the 1.5% PCE inflation rate reported a month ago...real personal consumption of durable goods grew at a 3.7% annual rate, revised from the 3.9% growth rate shown in the 2nd estimate, and added 0.26 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 9.0% rate accounted for more than two-thirds of the durables goods increase...real consumption of nondurable goods by individuals grew at a 4.6% annual rate, revised from the 5.3% rate reported in the 2nd estimate, and added 0.64 percentage points to the 3rd quarter economic growth rate, as lower consumption of energy goods was more than offset by greater consumption of food, clothing and other non-durables….at the same time, consumption of services rose at a 3.2% annual rate, revised from the 3.1% growth rate reported last month, and added 1.47 percentage points to the final GDP tally, as real health care services accounted for more than a third of the growth in services...
Meanwhile, seasonally adjusted real gross private domestic investment grew at a 15.2% annual rate in the 3rd quarter, revised from the 15.1% growth reported last month, as real private fixed investment grew at a 1.1% rate, revised from the 1.4% growth shown in the second estimate, while inventories grew more than was previously estimated....investment in non-residential structures was revised to show contraction at a 3.4% rate, double the 1.7% contraction rate previously reported, while real investment in equipment was revised from growth at a rate of 3.5% to growth at a 3.4% rate, and the quarter's investment in intellectual property products was revised from growth at a 4.3% rate to growth at a 5.6% rate...on the other hand, real residential investment was shown to be shrinking at a 3.6% annual rate, rather than the 2.6% contraction rate previously reported…after those revisions, the decrease in investment in non-residential structures subtracted 0.11 percentage points from the 3rd quarter's growth rate, the increase in investment in equipment added 0.21 percentage points to the quarter's growth rate, lower residential investment subtracted 0.14 percentage points from GDP, while growth in investment in intellectual property added 0.25 percentage points to the growth rate of 3rd quarter GDP...
In addition, investment in real private inventories grew at a 31.9% annual rate, increasing by an inflation adjusted $89.8 billion in the 3rd quarter, revised from the previously reported $86.6 billion of real inventory growth...this came after inventories had shrunk at an inflation adjusted $36.8 billion rate in the 2nd quarter, and hence the quarter’s $126.6 billion increase in real inventory growth added 2.33 percentage points to the quarter's growth rate, revised from the 2.27 percentage point addition from inventory growth that was indicated in the second estimate....however, since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or "sitting on the shelf”, their quarter over quarter increase by $126.6 billion meant that growth of real final sales of GDP was relatively smaller by that much, and hence real final sales of GDP only rose at a rounded 1.0% rate in the 3rd quarter, down from the real final sales growth rate of 5.4% in the 2nd quarter, when the decrease in inventory growth meant that growth in real final sales was greater than the real growth in GDP...
The previously reported decrease in real exports was revised even lower with this estimate, while the previously reported increase in real imports was revised a bit higher, and as a result the change in our net trade was a greater subtraction from GDP than was previously reported....our real exports shrunk at a 4.9% rate rather than the 4.4% 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 shrinkage conversely subtracted 0.62 percentage points from the 3rd quarter's growth rate, revised from the 0.55 percentage point subtraction shown in the previous report...meanwhile, the previously reported 9.2% increase in our real imports was revised to a 9.3% increase, and since imports are subtracted from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 1.37 percentage points to 3rd quarter GDP, rather than the 1.36 percentage point subtraction shown last month....thus, our deteriorating trade balance subtracted a total of 1.99 percentage points from 3rd quarter GDP, rather than the 1.91 percentage point subtraction that had been indicated by the second estimate…
Finally, the entire government sector grew at a 2.6% rate, unrevised from the previous report, as growth of federal government consumption and investment was unchanged from the second estimate, as was growth of real state & local government consumption and investment...real federal government consumption and investment was seen to have grown at a 3.5% rate from the 2nd quarter in this estimate, unrevised from the growth rate shown in the second estimate, as real federal outlays for defense grew at a 4.9% rate and added 0.18 percentage points to 3rd quarter GDP, unrevised from the contribution shown previously, while all other federal consumption and investment grew at a slightly revised 1.6% rate but still added 0.04 percentage points to 3rd quarter GDP....meanwhile, real state and local consumption and investment grew at a 2.0% rate in the quarter, which was also the same growth rate reported in the 2nd estimate, and added 0.22 more percentage points to 3rd quarter GDP....note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services...
November Personal Income Up 0.2%; Personal Spending up 0.4%; PCE Price Index Up < 0.1%
The November report on Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 4th 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 November’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 in a year if November’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from October to November....
Hence, when the opening line of the press release for this report tell us "Personal income increased $40.2 billion (0.2 percent) in November", they mean that the annualized figure for seasonally adjusted personal income in November, $17,821.7 billion, was $40.2 billion higher, or more than 0.2% higher than the annualized personal income figure of $17,781.5 billion extrapolated for October; the actual, unadjusted change in personal income from October to November is not given...at the same time, annualized disposable personal income, which is income after taxes, also rose by more than 0.2%, from an annual rate of $15,705.0 billion in October to an annual rate of $15,742.8 billion in November...those figures were arrived at after personal income for October was revised up from $17,776.0 billion annually and October's disposable personal income was revised up from $15,700.5 billion annually....the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in November, the largest contributors to the $40.2 billion annual rate of increase in personal income were a $16.3 billion increase in wages and salaries and a $15.8 billion increase in proprietors' income, $14.9 billion of which was an increase in farmer's income…
For the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $54.4 billion rate, or at a bit less than a 0.4% rate, as the annual rate of PCE rose from $14,189.1 billion in October to $14,243.5 billion in November....at the same time, October PCE was revised higher, from $14,177.5 billion annually to $14,189.1 billion....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $56.6 billion to $14,798.6 billion annually in November, which left total personal savings, which is disposable personal income less total outlays, at a $944.2 billion annual rate in November, down from the revised $962.9 billion in annualized personal savings in October ... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 6.0% in November, from the October savings rate of 6.1%...
As you know, before personal consumption expenditures are used in the computation of GDP, 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, mostly from CPI source data, 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 108.810 in October to 108.871 in November, a month over month inflation rate that's statistically 0.05606%, which BEA reports as a 0.1% increase, following the rounded 0.2% PCE price index increase they reported for October...applying the actual November inflation adjustment to the nominal amount of spending left real PCE up 0.3% in November, after October's real PCE growth of 0.6%...notice that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 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 November's chained dollar consumption total works out to 13,040.8 billion annually in 2012 dollars, 0.3259% more than October's 13,083.3 billion, a difference that the BEA rounds down and reports as +0.3%...
However, to estimate the impact of the change in PCE on the change in GDP, month over month changes expressed like that don't help us much, since GDP is reported quarterly.....thus we have to compare October's and November's real PCE to the the real PCE of the 3 months of the third quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 12,953.3 billion in chained 2012 dollars...(note that's the same as what's shown in table 3 of the pdf for the revised 3rd quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for October and November, 13,040.8 billion and 13,083.3 billion, we get an equivalent annualized PCE for the two months of the 4th quarter data that we have so far....when we compare that average of 13,062.05 to the 3rd quarter real PCE of 12,953.3, we find that 4th quarter real PCE has grown at a 3.40% annual rate for the two months of the 4th quarter included in this report...(notice the math we used to get that annual growth rate: [ (((13,040.8 + 13,083.3) /2 ) /12,953.3 ) ^ 4 = 1.0340075 ]...that's a growth rate that would add 2.29 percentage points to the GDP growth rate of the 4th quarter by itself, even if there is no improvement in December PCE from that average...
November Durable Goods: New Orders up 0.8%, Shipments Up 0.7%, Inventories Up 0.3%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for November (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $1.9 billion or 0.8 percent to $250.8 billion in November, after October's new orders were revised from the $248.5 billion reported last month to $248.9 billion, now down 4.3% from September's new orders...year to date new orders are now 8.4% above those of 2017, down from the + 8.7% year over year change we saw in this report last month....a reversal of the volatile monthly new orders for transportation equipment was responsible for this month's increase, as new transportation equipment orders rose $2.5 billion or 2.9 percent to $87.0 billion, on a 31.5% increase to $6,813 million in new orders for defense aircraft and a 6.7% increase to $10,189 million in new orders for commercial aircraft.... excluding orders for transportation equipment, new orders actually fell 0.3%, while excluding just new orders for defense equipment, new orders fell 0.1%....worse, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, fell by $403 million or 0.6% to $69,288 million...
Meanwhile, the seasonally adjusted value of November shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $1.8 billion or 0.7 percent to $256.7 billion, after the value of October shipments was revised from from $254.5 billion to $254.9 billion, now down 0.4% from September, with the October change revised from the 0.6% decrease reported last month...shipments of transportation equipment accounted for the November increase, as they rose $1.8 billion or 2.0 percent to $89.5 billion, on a 16.8% increase to $14,975 million in shipments of commercial aircraft, while shipments of defense aircraft fell 4.3%...shipments of nondefense capital goods less aircraft fell 0.1% to $68,958 million, after September’s capital goods shipments were revised 0.5% higher...
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 22nd time in the past 23 months, increasing by $1.1 billion or 0.3 percent to $412.8 billion, after October inventories were revised from $410.9 billion to $ 411.79 billion, now up 0.2% from September...inventories of primary metals led the November increase, rising $0.3 billion or 0.9 percent to $36.1 billion, while inventories of transportation equipment were up 0.1% to $131,155 million, without which all other inventories were up 0.3%…
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the second month in a row, falling by $1.7 billion or 0.1 percent to $1,181.7 billion, after unfilled orders for October were revised from $1,183.0 billion to $1,183.352 billion, still a 0.2% decrease from September...a $2.5 billion or 0.3 percent to $812.4 billion decrease in unfilled orders for transportation equipment was responsible for the decrease, as unfilled transportation equipment orders other than transportation equipment were up 0.2% to $369,213 million...compared to a year earlier, the unfilled order book for durable goods is 4.5% higher than the level of last November, with unfilled orders for transportation equipment 4.4% above their year ago level, largely on a 15.6% increase in the backlog of orders for defense aircraft...
November Report Shows New Housing Starts and Permits Higher
The November report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,256,000 units during the month, which was 3.2 percent (±9.8 percent)* above the revised October estimated annual rate of 1,217,000 housing unit starts, but was 3.6 percent (±9.4 percent)* below last November's rate of 1,303,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, November housing starts could have been down by 6.6% or up by as much as 13.0% from those of October, with even larger revisions possible...in this report, the annual rate for October housing starts was revised from the 1,228,000 units reported last month to 1,217,000, while September starts, which were first reported at a 1,201,000 annual rate, were revised up from last month's initial revised figure of 1,210,000 annually up to 1,237,000 annually with this report....
Those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 95,600 housing units were started in November, down from the 106,100 units that were started in October...of those housing units started in November, an estimated 60,300 were single family homes and 34,000 were units in structures with more than 5 units, down from last month's revised 74,900 single family starts, but up from the 26,900 units started in structures with more than 5 units in October...
The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in November, Census estimated new building permits were being issued at a seasonally adjusted rate of 1,328,000 housing units annually, which was 5.0 percent (±1.6 percent) above the revised October annual rate of 1,265,000 permits, and was 0.4 percent (±1.7 percent)* above the rate of building permit issuance in November a year earlier...the annual rate for housing permits issued in October was revised up slightly from the originally reported 1,263,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 101,700 housing units were issued in November, down from the revised estimate of 112,600 new permits issued in October...the November permits included 60,900 permits for single family homes, down from 73,900 single family permits issued in October, and 37,700 permits for housing units in apartment buildings with 5 or more units, up from 35,400 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts Increased to 1.256 Million Annual Rate in November and Comments on November Housing Starts...
November Existing Home Sales Up 1.9% in October, Still Down 7.0 from a Year Ago
The National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 1.9% from October to November, the second monthly increase after seven decreases, projecting that 5.32 million existing homes would sell over an entire year if the November home sales pace were extrapolated over that year, a pace that was still 7.0% below the annual sales rate they projected for November of a year ago...October sales were at a 5.22 million annual rate, unrevised from last month's report...the NAR also reported that the median sales price for all existing-home types was $257,700 in November, up from from the revised $255,100 reported for October and 4.2% higher than in November a year earlier, which they report as "the 81st straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Increase for Second Consecutive Month", 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 that info in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…
Since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation of the actual number of homes that sold each month...this unadjusted data indicates that roughly 406,000 homes sold in November, down by 9.0% from the 446,000 homes that sold in October, and down by 4.5% from the 425,000 homes that sold in November of last year, so we can see that it was a seasonal adjustment that caused the annualized published figures to indicate a month over month increase....that same pdf indicates that the median home selling price for all housing types rose 1.0%, from a revised $255,100 in October to $257,700 in November, while the average home sales price was $296,300, up 0.8% from the $293,900 average sales price in October, and up 2.3% from the $289,500 average home sales price of November a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Increased to 5.32 million in November and Comments on November Existing Home Sales...
(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most picked from the aforementioned GGO posts, contact me…)
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