Sunday, August 1, 2021

2nd quarter GDP and annual revision; June’s income and outlays, durable goods, and new home sales

The key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior twenty-two years...other releases this week included the June report on Personal Income and Spending from the BEA, which also saw an annual revision before being incorporated into the GDP report, the June advance report on durable goods and the June report on new home sales, both from the Census bureau...the major privately issued report released this week was the Case-Shiller house price indexes for May from S&P Case-Shiller, who reported that their national home price index based on relative March, April and May home sales prices was 16.6% higher than the price index for the same three months of a year ago...

This week also saw the release of the last two regional Fed manufacturing surveys for July: the Dallas Fed's Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, indicated its general business activity index fell to +27.3 in July, down from +31.1 in June, and from +34.9 in May, indicating a slightly less robust expansion of the Texas area economy, while 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 +26 in June to +27 in July, indicating a continuing broad based expansion among that region's manufacturers...

Advance Estimate of 2nd Quarter GDP & Revisions From 1999 to Present

The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Thursday included the usual end-of-July annual revision, which in this year's case revised GDP data from first quarter of 1999 through the first quarter of 2021, resulting in revisions to GDP, GDI, and their major components... on a business cycle basis, this report indicates that overall economic growth during the expansion from the first quarter of 1991 thru the first quarter of 2001 was statistically unchanged from the previously reported growth rate of 3.6%; that economic growth during the slump from the first quarter of 2001 thru the fourth quarter of 2001 was revised from the previously reported 0.6% to 0.7%; that economic growth during the expansion from the fourth quarter of 2001 thru the fourth quarter of 2007 was statistically unchanged from the previously reported growth rate of 2.9%, that the contraction beginning with the Financial Crisis of 2008 through the second quarter of 2009 was revised from a decrease of 2.7% to a decrease of 2.6%; that during the economic expansion from the second quarter of 2009 through the fourth quarter of 2019, real GDP increased at an annual rate of 2.3%, the same as was previously published, that during the pandemic contraction from the fourth quarter of 2019 through the second quarter of 2020, real GDP decreased at an annual rate of 19.2%, also the same as previously published, and that during the period of economic expansion from the second quarter of 2020 through the first quarter of 2021, real GDP increased at an annual rate of 14.1 percent, an upward revision of 0.1 percentage point from the previously published estimate.

On an annual basis, this report showed that the GDP growth rate for 2016 was unchanged from the previously reported 1.7%; that GDP growth for 2017 was unchanged from the previously reported 2.3% rate, that the GDP growth rate for 2018 was revised from the previously reported 3.0% to 2.9%, that the growth rate of 2019 was revised from the previously reported 2.2% to 2.3%, and that the Covid contraction of 2020 was revised from the previously reported 3.5% shrinkage to a contraction of 3.4%...for 2020, that meant that 1st quarter GDP contracted at an unrevised 1.3% rate, that the second quarter contraction was revised from the previously published 9.0% to 8.9%, that the 3rd quarter's GDP growth rate was unrevised at 7.5%, and that the fourth quarter's growth rate was unrevised at 1.1%...

Over the 5 year period from the end of 2015 to the end of 2020, personal consumption grew at a 1.5% rate, statistically unchanged from what was previously reported...total private investment, on the other hand, saw its five year growth rate revised higher, from 2.7% to 2.9%, while exports actually fell at a 0.8% rate over the period, revised down from a 0.7% contraction rate...meanwhile, imports grew at a 1.8% annual rate over those 5 years, revised from the 1.7% growth indicated by previous reports, while the growth of government investment and consumption was revised to a 1.5% rate from the 1.3% rate that had been indicated by reports prior to this revision...

The growth rate of first quarter of 2021, which had been reported at 6.4% when we reviewed the 3rd estimate of 1st quarter GDP a month ago, was revised to indicate real growth at a 6.3% rate, as downward revisions to exports, and federal, state and local government spending were only partly offset by an upward revision to nonresidential fixed investment...the first quarter's PCE growth rate was unrevised at 11.4%, as a downward revision of services growth from 4.2% to 3.9% was offset by an upward revision in the goods consumption growth rate from 26.6% to 27.4%...the growth rate of first quarter fixed domestic investment was revised from 12.1% to 13.0%, primarily reflecting a major revision of the previously reported 2.0% contraction in nonresidential structures to show nonresidential structures actually grew at a 5.4% rate...meanwhile, the shrinkage of first quarter exports was revised from a 2.1% rate to a 2.9% contraction rate, the first quarter growth rate of the federal government was revised from 13.8% to 11.3%, as both defense and non-defense spending were revised lower, while state and local governments are now seen contracting at a 0.1% rate in the first quarter, rather than growing at an 0.8% rate...the first quarter's current dollar spending growth was revised from a 10.97% rate to a 10.86% rate, while the PCE price index for the first quarter was revised from +3.7% to +3.8%...

Those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Thursday, with some of June's data still not reported, with a grain of salt...the BEA cautions that the 2nd quarter source data is incomplete and also subject to revisions, which have historically averaged +/-0.6% in either direction from the advance to the third estimate, and as much as +/- 1.2% from the advance estimate to the final reading...note that June construction and non-durables inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is explained in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions...

The Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 6.5% annual rate over the output of the 1st quarter of this year, which we have just seen grew at a 6.3% rate...the increase in the 2nd quarters' growth over the first was due to increases in personal consumption expenditures and exports and smaller subtractions from inventory investment and imports, which were partly offset by slower growth of fixed investment and a decrease in federal government spending. In current dollars, our second quarter GDP grew at a 13.01% annual rate, increasing from what would work out to be a $22,038.2 billion a year rate in the 1st quarter to a $22,722.6 billion annual rate in the 2nd quarter, with the headline 6.5% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 6.0% was computed from the price changes of the components and applied to their current dollar change, as we will illustrate below...

While we cover the details on the 2nd quarter, remember that the GDP news 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 1st estimate of 2nd quarter GDP, which we find linked to on the BEA's GDP page, which also links to just the tables on Excel and other technical notes. Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually since 2018 and quarterly since Q3 of 2017, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the GDP components...

Personal consumption expenditures (PCE), which now accounts for more than 70% of GDP, grew at a 19.01% rate in current dollars in the 2nd quarter, up from the first quarter’s personal spending increase at a revised 15.7% rate, but after inflation adjustments were made with annualized PCE price indices increases of 3.8% for the first quarter and 6.4% for the 2nd quarter, real PCE rose 11.8% rate in the 2nd quarter after rising at a 11.4% rate in the first....consumer spending for durable goods rose at a 28.3% rate, on big increases in spending for both motor vehicles and recreational goods and vehicles, but since the weighted prices for those durable goods rose at a 16.8% rate, the real output of durable goods represented by that spending only increased at a 11.6% rate...at the same time, current dollar consumer spending for non-durable goods rose at 18.3% rate, but the PCE price index for non-durable goods rose by 5.0%, which meant that real growth in consumption of non durable goods was at a 12.6% rate....similarly, the 17.4% current dollar growth in personal spending for services was deflated by the 4.9% PCE services price index increase to show the 2nd quarter's real growth in services was at a 12.0% rate...thus, with strong real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.87 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 1.81 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 5.10 percentage points to the growth rate of 2nd quarter GDP...

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had shrunk at a 2.3% annual rate in the 1st quarter as investment in inventories tanked, shrunk at a 3.5% annual rate in the 2nd quarter, as fixed investment growth slowed and inventory growth contracted further...real nonresidential fixed investment grew at a 8.0% annual rate, down from the revised 12.9% growth now reported for the first quarter, as real investment in non-residential structures fell at a 7.0% rate against the revised first quarter growth of 5.4%, real investment in equipment grew at a 14.1% rate, compared to the first quarter's 13.0% growth, and investment in intellectual property grew at 10.7% rate, down from the first quarter's 15.6% growth rate....as a result, investment in real non residential fixed investment added 1.06 percentage points to the growth in 2nd quarter GDP as real investment in non-residential structures subtracted 0.18 percentage points, while real investment in equipment added 0.70 percentage points to the growth of GDP and investment in intellectual property added 0.54 percentage points to GDP....on the other hand, real residential investment fell at a 9.8% rate, after growing at a 13.3 rate in the first quarter, and subtracted 0.49 percentage points from the 2nd quarter's GDP, leaving the total fixed investment contribution to GDP at just 0.57 percentage points...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

Meanwhile, a larger shrinkage of private inventories in the 2nd quarter reduced gross investment and hence GDP, as real private inventories fell by an inflation adjusted $165.9 billion in the quarter, down from the revised $88.3 billion of inflation adjusted inventory shrinkage now reported for the first quarter, and as a result the $77.6 billion reduction in real inventory growth subtracted 1.13 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $177.1 billion decrease in inventory growth in the 1st quarter had subtracted 2.62 percentage points from that quarter's GDP growth rate...however, smaller inventories indicate that less of the goods produced during the quarter were left "sitting on the shelf”, so their quarter over quarter decrease by $234.6 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP grew at a 7.7% rate in the 2nd quarter, after real final sales had increased at a 9.1% rate in the 1st quarter, when the larger decrease in inventories meant that real final sales of GDP were that much higher…

After adjustment for much higher export and import prices, both real exports and real imports still increased during the second quarter, but our imports increased by more. Our real exports of goods and services rose at a 6.0% rate in the second quarter, after falling at a revised 2.9% rate in the 1st quarter, while our real imports rose at a 7.8% rate in the 2nd quarter, after rising at a revised 9.3% rate in the 1st quarter. As you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....Thus the 2nd quarter increase in real exports added 0.64 percentage points to 2nd quarter GDP, after the first quarter decrease had subtracted 0.30 percentage points from first quarter GDP. On the other hand, since imports subtract from GDP, their increase at a 7.8% rate subtracted 1.09 percentage points from 2nd quarter GDP, after first quarter imports had subtracted 1.25 percentage points from that quarter's growth....as a result, our deteriorating trade balance subtracted a rounded total of 0.44 percentage points from 2nd quarter GDP growth, after our worse first quarter trade deficit had subtracted 1.56 percentage points from GDP growth in that quarter..

Finally, real consumption and investment by the branches of government shrunk at a 1.5% annual rate in the 2nd quarter, after increasing at a revised 4.2% rate in the first quarter, as federal government consumption and investment shrunk at a 5.0% rate while state and local consumption and investment grew at a 0.8% rate...inflation adjusted federal spending for defense shrunk at a 0.8% rate after shrinking at a 5.8%% rate in the first quarter, and that subtracted 0.03 percentage points from 2nd quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 10.4% rate, after growing at a 40.8% rate in the first quarter, and that subtracted 0.33 percentage points from GDP....note that federal 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....meanwhile, state and local government investment and consumption expenditures, which grew at a 0.8% annual rate, added 0.09 percentage points to the quarter's growth rate, as a decrease in real state and local investment at a 10.4% rate offset most of the gains from increased state and local consumption spending...

June Personal Income Up 0.1%, Personal Spending Up 1.0%; PCE Price Index Up 0.5%

Like the GDP report, the June Income and Outlays report also went through an annual revision, with revisions from the first quarter of 1999 through the first quarter of 2021 for all of the metrics it reports, including personal consumption expenditures (PCE), the personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets....A summary of those revisions and comparisons to previously published data is provided by Tables 12 through 14 in the full pdf for this month's report...since all the revisions made to personal consumption expenditures had already been incorporated into the GDP revisions that we have just reviewed, today we'll only consider those revisions from recent months that are relevant to putting the June change in perspective...

Also like the GDP report, all the dollar values reported in this release are seasonally adjusted and at an annual rate, ie, they tell us what income, spending and saving would be for an entire year if June's adjusted income and spending were extrapolated over a whole year....however, the percentage changes are computed monthly, from one 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 May to June....thus, when the opening line of the news release for this report tell us "Personal income increased $26.1 billion (0.1 percent) in June..", they mean that the annualized figure for all types of personal income in June, $20,414.3 billion, was $26.1 billion, or more than 0.1% above the $20,388.2 billion annualized personal income figure for May; the actual increase in personal income in June over May is not given....at the same time, disposable personal income, which is income after taxes, was statistically unchanged month over month, slipping from an annual rate of $17,958.0 billion in May to an annual rate of $17,955.4 billion in June...the components of the June change 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 led by a $76.8 billion or 0.8% increase to $10,139.8 billion annualized wages and salaries and a $19.5 billion or a 1.1% increase to $1,868.4 billion in proprietor's income, and was mostly offset by a $83.6 billion or a 2.0% decrease to $4,066.8 billion annually in personal transfer receipts from government programs, as Covid relief measures continued to unwind..

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in 2nd quarter GDP, rose at a $155.4 billion annual rate to an annual rate of $15,771.6 billion in consumer spending, an increase of 1.0% from May's PCE, which itself was revised from the previously reported annual rate of $15,659.3 billion to $15,616.2 billion....total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $158.8 billion to $16,258.8 billion, which left personal savings, which is disposable personal income less total outlays, at a $1,696.6 billion annual rate in June, down from the revised $1,857.9 billion in annualized personal savings in May...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 9.4% in June, down from a revised 10.3% in May, and the lowest personal savings rate since February 2020...

While our personal consumption expenditures accounted for 70.6% of our second quarter GDP, before those expenditures were included in the national measurement of the change in our output they were first 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 was done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2012 prices = 100....from Table 9 in the pdf for the June release, we find that the PCE index rose from 114.753 in May to 115.342 in June, giving us a month over month inflation rate of 0.51328%, which BEA reports as an increase of +0.5%, even as the full decimal fraction is used in all their computations....at the same time, Table 11 gives us a year over year PCE price index rounded to an increase of 4.0%, and a core price increase, excluding food and energy, of 3.5% for over the past year, both well above the Fed's inflation target....applying the June inflation adjustment to the change in June PCE shows that real PCE was up 0.479% in June, which the BEA reports as a 0.5% change in their rounded tables...note that when those PCE price indexes are applied to a given month's annualized current dollar PCE, it yields that month's annualized real PCE in chained 2012 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another’s....those results are shown in tables 7 and 8 of this report’s PDF, where you'll see the quarterly figures given are identical to those shown in table 3 of the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP..

June's Durable Goods: New Orders Rose 0.8%, Shipments rose 1.0%, Inventories Rose 0.9%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $2.1 billion or by 0.8 percent to $257.6 billion, following a revised jump of 3.2% to $255.5 billion in May's new orders, which had originally been reported as a 2.3% increase to $253.3 billion...with new orders for durable good now up 13 out the last fourteen months, year to date new orders are 26.8% higher than those of 2020, up from the year to date increase of 25.7% reported last month..

As is usually the case, the volatile monthly change in new orders for transportation equipment led this month's headline change, as those transportation equipment orders rose $1.6 billion or 2.1 percent to $77.5 billion, on a 17.0% increase to $16,117 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were still up 0.3% in June, while new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 0.5% to $76,066 million...

The seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after their nominal value was adjusted for price changes, increased by $2.5 billion or 1.0 percent to $250.7 billion, after the value of May shipments increased 0.4% to $248.3 billion, statistically unchanged from what was reported last month....an $0.8 billion or 1.1 percent increase to $71.6 billion in shipments of transportation equipment was a major contributor, as the value of shipments of commercial aircraft rose 15.4% to $8,678 million, even as shipments of motor vehicles fell 0.5% to $49,371 million...excluding that volatile sector, the value of other shipments of durable goods still rose 0.9%, while shipments of nondefense capital goods excluding aircraft were up 0.6% to $73,654 million, an increase that was already reflected in the 2nd quarter GDP equipment investment figures...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the fifth consecutive month, increasing by $3.9 billion or 0.9 percent to $450.5 billion, after the value of May's inventories was revised from $445.3 billion to $446.6 billion, now a 0.9% increase from April...an increase in inventories of transportation equipment contributed to the June inventory increase, as they rose $1.4 billion or 9 percent to $151.6 billion, on a 1.8% increase in inventories of motor vehicles and parts...

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 fifth consecutive month, increasing by $11.4 billion or 0.9 percent to $1,223.0 billion, following a 1.0% increase to $1,211.6 billion in May, which was revised from the 0.8% increase to $1,209.3 billion reported last month... a $5.8 billion or 0.7 percent increase to $814.0 billion in unfilled orders for transportation equipment contributed to the June increase, while unfilled orders excluding transportation equipment increased 1.4% to $409,029 million.... compared to a year earlier, the unfilled order book for durable goods is now 1.1% above the level of last June, but with unfilled orders for transportation equipment still 4.2% below their year ago level, reflecting a 5.2% decrease in the backlog of orders for commercial aircraft and a 6.6% decrease in the order book for defense aircraft...

New Home Sales Reported Lower on Lower Prices in June After March, April and May Sales Revised Lower

The Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 676,000 homes annually during the month, which was 6.6 percent (±16.5 percent)* below the revised May rate of 724,000 new single family home sales annually and 19.4 percent (±13.9 percent) below 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 June new home sales rose or fell from those of May, 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 May were revised from the 769,000 annual rate reported last month to a 724,000 a year rate, and April's annualized home sale rate, initially reported at a 863,000 rate, were revised from last months downward revision of 817,000 down to 785,000, while March's new home sales, initially reported at an annual rate of 1,021,000 and revised from a revised annual rate of 917,000 to an annual rate of to a 886,000 last month, were revised down to an annual rate of 873,000 with this report...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 60,000 new single family homes sold in June, down from the 65,000 new homes that sold in May, the 73,000 new homes that sold in April, and the 83,000 new homes that sold in March....the raw numbers from Census field agents further led to an estimate that the median sales price of new houses sold in June was $361,800, down from the median sale price of $380,700 in May, but up from the median price of $341,100 in June of last year, while the average June new home sales price was at $428,700, down from the revised $434,000 average in May, but up from the average sales price of $382,200 in June a year ago....a seasonally adjusted estimate of 353,000 new single family houses remained for sale at the end of June, which represents a 6.3 month supply at the June sales rate, up from the 5.5 month supply in May, which was originally reported as a 5.1 month supply....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales Decrease to 676,000 Annual Rate in June 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 of which are picked from the aforementioned GGO posts, contact me…)  

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