The key 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 July advance report on durable goods and the July report on new home sales, both from the Census Bureau, the S&P CoreLogic Case-Shiller Home Price Index for June from S&P Case-Shiller, which is an index derived from the relative average of home sales prices, and which reported that home prices nationally for April, May and June averaged 4.3% 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 +1.18 in July, down from a revised +5.33 in June...however, the 3 month average of the CFNAI rose to +3.59 in July, up from –2.78 in June, which would indicate national economic activity has been well above the historical trend over those recent months...
In addition, this week saw the release of two more 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 +10 in July to +18 in August, suggesting an ongoing expansion of that region's manufacturing, and the Kansas City Fed manufacturing survey for August, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico; they reported their broadest composite index rose to +14 in August, up from readings of +3 in July and +1 in June, also suggesting a pickup in that region's manufacturing...
2nd Quarter GDP Revised to Show Our Economy Shrunk at a 31.7% Rate
The Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 31.7% annual rate in the 2nd quarter, revised from the 32.9% contraction rate reported in the advance estimate last month, as personal consumption expenditures, private fixed investment, inventories, and exports all shrunk less than was previously estimated, while prices for goods and services fell by more than was previously indicated, meaning there was correspondingly more real output for the dollars spent....in current dollars, our second quarter GDP fell at a 33.28% annual rate, decreasing from what would work out to be a $21,561.1 billion a year rate in the 1st quarter to a $19,486.5 billion annual rate in the 2nd quarter, with the headline 31.7% annualized rate of decrease in real output arrived at after annualized GDP inflation adjustments averaging minus 2.0% were computed and applied to the current dollar change of the components, revised from the negative 1.8% GDP deflator indicated by the advance report..
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 that’s roughly 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 are then used as quantity indexes, rather 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 second 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 3rd 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 the inflation adjusted value in 2012 dollars of each of those 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 advance estimate, which this estimate revises, is here...
The decrease of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 34.6% contraction rate reported last month to indicate PCE shrunk at a 34.1% rate in this month’s estimate…that PCE contraction figure was arrived at by deflating the 35.3% contraction rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation shrunk at a 1.8% annual rate in the 2nd quarter, revised from the minus 1.9% PCE inflation rate published a month ago...real consumption of durable goods fell at a 1.3% annual rate, which was revised from the 1.4% decrease shown in the advance report, but added 0.03 percentage points to GDP, as increases in real consumption of automobiles and recreational goods and vehicles offset the decreases in furniture, appliances and other durable goods....meanwhile, real consumption of nondurable goods by individuals shrunk at a 14.9% annual rate, revised from the 15.9% increase reported in the 1st estimate, and subtracted 2.02 percentage points from the 2nd quarter's economic growth, as real decreases in consumption of clothing and energy goods accounted for nearly 90% of the quarter's drop….at the same time, consumption of services shrunk at a 43.1% annual rate, revised from the 43.5% contraction rate reported last month, and subtracted 22.77 percentage points from the final GDP figure, as health care services, recreation services, and food services and accommodation all fell at rates exceeding 50%...
At the same time, seasonally adjusted real gross private domestic investment shrunk at a 46.2% annual rate in the 2nd quarter, revised from the 49.0% contraction estimate reported last month, as real private fixed investment fell at a 28.9% rate, rather than at the 29.9% rate reported in the advance estimate, while business and farm inventories fell by less than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 27.0% rate to shrinking at a 26.0% rate, while real investment in equipment was revised to show it contracted at a 33,4% rate, revised from the 34.9% contraction rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from shrinking at a 7.2% rate to shrinking at a 7.7% rate, and the contraction in real residential investment was revised from shrinking at a 38.7% annual rate to shrinking at a 37.9% rate…after those revisions, the contraction in investment in non-residential structures subtracted 1.10 percentage points from the increase in 2nd quarter GDP and the decrease in investment in equipment subtracted 2.02 percentage points from the quarter's growth, while the decrease in investment in intellectual property subtracted 0.35 percentage points and the decrease in residential investment subtracted 1.72 percentage points from the 2nd quarter's growth rate...
Meanwhile, the drop in real private inventories was revised from the originally reported $315.5 billion in inflation adjusted dollars to show inventories decreased at an inflation adjusted $286.4 billion rate...this came after inventories had shrunk by an inflation adjusted $80.9 billion rate in the 1st quarter, and hence the $205.5 billion negative change in real inventories from those of the 1st quarter subtracted 3.46 percentage points from the 2nd quarter's growth rate, revised from the 3.98 percentage point subtraction due to inventory shrinkage shown in the advance 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 an adjusted $205.5 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 fell at a 28.5% rate in the 2nd quarter, revised from the 29.3% rate of decrease shown in the advance estimate...
The previously reported decrease in real exports was a bit less with this estimate, while the previously reported decrease in real imports was revised higher, and as a result our net trade was a larger addition to GDP than was previously reported...our real exports of goods and services shrunk at a 63.2% rate in the 1st quarter, revised from the 64.1% shrinkage rate shown 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 decrease conversely subtracted 9.22 percentage points from the 1st quarter's growth rate, revised from the 9.38 subtraction shown last month...meanwhile, the previously reported 53.4% decrease in our real imports was revised to a 54.0% 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 10.12 percentage points to 1st quarter GDP, revised from the 10.06 percentage point addition shown a month ago....thus, the improving US trade balance that accompanied the collapse in global trade added a rounded 0.90 percentage points to 2nd quarter GDP, up from the 0.68 percentage point addition resulting from an improving foreign trade balance that was indicated by the advance estimate..
Finally, there was a small upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown growing at a 2.8% rate, revised from the 2.7% growth rate for government indicated by the 1st estimate....real federal government consumption and investment was seen to have grown at a 17.6% rate from that of the 1st quarter in this estimate, which was revised from the 17.4% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 4.2% rate, revised from the previously reported 4.1% growth and added 0.08 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 40.1% rate, revised from last month's 39.7% rate, and added 1.03 percentage points to GDP....meanwhile, real state and local consumption and investment shrunk at a 5.5% rate in the quarter, revised from the 5.6% contraction rate shown in the 1st estimate, and subtracted 0.41 percentage points from 2nd quarter GDP, which was revised from the 0.40 percentage point subtraction shown in the advance 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...
July Personal Income Up 0.4%, Personal Spending Up 1.9%, PCE Price Index Up 0.3%
The monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is one of 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...moreover, this report also computes 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, and reports monthly personal income data, disposable personal income, which is income after taxes, and our monthly national 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, the figure are 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 $70.5 billion (0.4 percent) in July", they mean that the annualized figure for seasonally adjusted personal income in July, $20,042.7 billion, was $70.5 billion, or somewhat less than 0.4% greater than the annualized personal income figure of $19,972.2 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 given...at the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.2%, from an annual rate of $17,841.6 billion in June to an annual rate of $17,881.5 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 reasons for the $70.5 billion annual rate of increase in personal income were an annualized $125.5 billion increase in wages and salaries and an annualized $34.4 billion increase in non-farm business proprietors income, which were partially offset by an annualized $84.1 billion decrease in personal current transfer receipts from government programs…
For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at $267.6 billion rate, or by 1.9% from June, as the annual rate of PCE rose from $13,931.9 billion in June to $14,199.5 billion in July....June's PCE was revised from $13,851.2 billion annually to $13,931.9 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 usually released a business day later than the GDP release, is concurrent with the GDP data)....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $270.6 billion to $14,694.8 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $3,186.7 billion annual rate in July, down from the revised $3,417.4 billion in annualized personal savings in June...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 17.8% in July from the revised June savings rate of 19.2%...
As you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report...that index rose from 110.791 in June to 111.146 in July, a month over month inflation rate that's statistically 0.3204%, which BEA reports as an increase of 0.3 percent, following the rounded increase of 0.5 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 12,778.2 billion annually, 1.5949% more than June's 12,577.6 billion, a difference in real PCE that the BEA reports as a 1.6% increase for July...
However, to estimate the impact of the change in PCE on the change in GDP, that month over month change in PCE 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 11,819.6 billion in chained 2012 dollars..(note, that's the same as was shown in table 3 of the pdf for the 2nd quarter GDP report)....when we compare July's inflation adjusted PCE of 12,778.2 billion to the 2nd quarter’s real PCE of 11,819.6 billion, we find that July’s real PCE has grown at a 36.605% annual rate from the 2nd quarter....that means that even if July’s real PCE growth does not improve from the July level during August and September, growth in PCE would still add 25.03 percentage points to the growth rate of 3rd quarter GDP...
July Durable Goods: New Orders Up 11.2%, Shipments Up 7.3%, Inventories Down 0.5%, Unfilled Orders Down 0.8%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $23.2 billion or 11.2 percent to $230.7 billion in July, following a revised increase of 7.7% to $207.5 billion in June's new orders, which had been originally reported as a 7.3% increase to $206.9 billion of new June orders...despite those back to back increases, however, year to date new orders are still running 12.1% below those of 2019, a modest increase from the 13.3% year to date decrease in new orders we saw in this report last month...as is usually the case, the volatile monthly change in new orders for transportation equipment led the July headline change, as transportation equipment orders rose $19.6 billion or 35.6 percent to $74.7 billion, on a $4.7 billion decrease to $5.8 billion in cancellations of orders for commercial aircraft and a 77.1% increase to $4,665 million in new orders for defense aircraft....excluding new orders for such ‘transportation’ equipment, other new orders were up 2.4% in July, while new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, rose 1.9% to $66,099 million...
The seasonally adjusted value of July's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $16.6 billion or 7.3 percent to $244.0 billion, after the value of June shipments were revised from a 14.9% increase to $227.1 billion to a 15.2% increase to $227,447 million....a 17.8% jump in shipments of transportation equipment led the July increase, as they rose $12.6 billion to $83.2 billion, on a 23.8% increase in shipments of motor vehicles and parts…excluding shipments of transportation equipment, shipments of other durable goods still rose 2.5%, as shipments of nondefense capital goods excluding aircraft rose 2.4%…
Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 2nd consecutive month, decreasing by $1.9 billion or 0.5 percent to $422.6 billion, after the change in June's durables goods inventories was revised from a 0.1% increase to $425.3 billion to a 0.1% decrease to $424.5 billion ...an decrease in inventories of machinery led the July inventory decrease,falling 1.0% to $69.7 billion, while inventories of transportation equipment were up 0.1% to $146,489 million on a 1.2% increase in inventories of commercial aircraft...
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, fell for the fourth time in five months, and by $8.2 billion or 0.8 percent to $1,084.4 billion...that followed a June decrease of 1.4% to $1,092.66 billion that was revised from the previously reported 1.4% decrease to $1,092.4 billion.....a decrease of $8.4 billion or 1.1 percent to $735.2 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment were up 0.1% to $349,266 million....compared to a year earlier, the unfilled order book for durable goods is 5.5% below the level of last July, as unfilled orders for transportation equipment are now 7.8% below their year ago level, largely due to a 14.0% decrease in the backlog of orders for commercial aircraft...
New Home Sales Reported at 13 Year High in July After May and June Sales Revised Higher
The Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 901,000 new homes a year, which was a post recession high, 13.9 percent (±20.0 percent)* above the revised June annual rate of 791,000, and 36.3 percent (±27.4 percent) above the estimated annual rate that new homes were selling at in July of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether July new home sales rose or fell from those of June, 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 June were revised from the annual rate of 776,000 reported last month to a 791,000 a year rate, while home sales in May, initially reported at an annual rate of 676,000 and revised up to a 682,000 a year rate last month, were further revised up to a 687,000 annual rate with this report, and while April's annualized home sales rate, initially reported at 623,000 and revised from a rate of 615,000 down to 571,000 last month, were revised a bit lower, to a 570,000 annual 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 showed that approximately 78,000 new single family homes sold in July, up from the 75,000 new homes that sold in June and the 64,000 that sold in May....the raw numbers from Census field agents were further used to estimate that the median sales price of new single family houses that sold in July was $330,600, down from the median sale price of $337,000 in June but up from the median price of $308,300 in July a year ago, while the average July new home sales price was $391,300, up from $381,900 average sales price in June, and up from the average sales price of $373,500 in July a year ago....a seasonally adjusted estimate of 299,000 new single family houses remained for sale at the end of July, which represents a 4.0 month supply at the July sales rate, down from the revised 4.6 month supply of unsold homes in June, and down from the 6.0 months of supply in July a year ago....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 901,000 Annual Rate in July and A few Comments on June New Home Sales...
(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most picked from the aforementioned GGO posts, contact me…)
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