The key economic releases of the past week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which included an annual revision, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence will account for more than 46% of 3rd quarter GDP....other major agency reports released this week included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for July from S&P Case-Shiller, who reported that their national home price index based on relative May, June and July home sales prices was 0.33% lower than their price index based on home sales prices of April, May and June...in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which fell to 0.00 in August from +0.29 in July, after the July index was revised up from +0.27; that left the 3 month moving average of the index at +0.01 in August, up from a revised -0.08 in July, which, as a positive number, would indicate national economic activity has been slightly above the historical trend over the summer months....
The week also saw the release of the last two regional Fed manufacturing surveys for September: 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 −8 in August to 0 in September, which means the number of that region's manufacturers reporting improving business conditions matched those reporting worsening conditions, while the Dallas Fed Texas Manufacturing Outlook Survey, which covers Texas and adjacent western Louisiana and southeastern New Mexico, reported its general business activity index fell from -12.9 in August to -17.2 in September, a seventh consecutive negative reading, indicating indicating that the Texas area economy continues to contract at a steeper pace than in August..
Third Estimate of 2nd Quarter GDP & Revisions From 2017 to Present
The Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis released on Thursday included an annual revision, which in this year's case revised GDP data from first quarter of 2017 through the first quarter of 2022, resulting in revisions to GDP, GDP by industry, gross domestic income, and related components... on a business cycle basis, this report indicates that the overall economic growth rate during the expansion from the second quarter of 2009 through the fourth quarter of 2019 was statistically unchanged from the previously reported growth rate of 2.3%; that during the pandemic induced contraction from the fourth quarter of 2019 through the second quarter of 2020, real GDP decreased at an annual rate of 18.2%, an upward revision 1.0 percentage point from the previously published 19.2% contraction, and that during the period of economic expansion from the second quarter of 2020 through the fourth quarter of 2021, real GDP increased at an annual rate of 9.8 percent, an upward revision of 0.2 percentage points from the previously published estimate of growth at a 9.6% rate.
On an annual basis, this report showed that the GDP growth rate for 2017 was at a 2.2% annual rate, revised from the previously reported 2.3% rate, that the GDP growth rate for 2018 was as 2.9%, statistically the same as was previously indicated, that the growth rate of 2019 was similarly unrevised at 2.3%, that the contraction of 2020 was revised from the previously reported 3.4% shrinkage to a contraction rate of 2.8%, and that the GDP growth rate for 2021 was at a 5.9% annual rate, revised from the previously reported 5.7% annual growth rate....for 2021, that meant that 1st quarter GDP grew at an unrevised 6.3% rate, that the second quarter growth rate was revised from the previously published 6.7% to 7.0%, that the 3rd quarter's GDP growth rate was revised from 2.3% to 2.7%, and that the fourth quarter's growth rate was revised from 6.9% to 7.0%...
Over the 5 year period from the end of 2016 to the end of 2021, personal consumption grew at a 2.6% rate, revised from the 2.4% growth that was previously reported...total private investment, on the other hand, saw its five year growth rate revised lower, from 4.4% to 4.1%, while exports grew at a 0.6% rate over the period, revised from what was previously reported as a 0.1% contraction rate...meanwhile, imports grew at a 3.3% annual rate over those 5 years, revised from the 3.2% growth indicated by previous reports, while the growth of government investment and consumption was revised to a 1.5% rate from the 1.2% rate that had been indicated by reports prior to this revision...
The shrinkage rate of the first quarter of 2022, which had been reported at 1.6% when we reviewed the 3rd estimate of 1st quarter GDP three months ago, remained at a minus 1.6% rate after this revision, as a downward revision to personal consumption expenditures was offset by upward revisions to inventories, to net exports, and to federal, state and local government spending...the first quarter's PCE growth rate was revised from 1.8% to 1.3%, as a downward revision of services growth from 3.0% to 2.1% was only slightly offset by a upward revision in the goods consumption contraction rate from -0.3% to -0.1%...the growth rate of first quarter gross domestic investment was revised from 5.0% to 5.4%, even as the growth rate of fixed domestic investment was revised from 7.4% to 4.8%, as the growth of inflation adjusted inventories was revised from $188.5 billion to $214.5 billion....meanwhile, the shrinkage of first quarter exports was revised from a 4.8% rate to a 4.6% contraction rate, while the growth rate of first quarter imports was revised from a 18.9% rate to a 18.4% rate...at the same time, the shrinkage of the federal government was revised from a 6.8% rate to a 5.3% rate, while the state and local contraction was revised from 0.5% to 0.4%...furthermore, the PCE price index for the first quarter was revised from +7.1% to +7.5%, which would almost account for the downward revision to PCE by itself....
Those revisions to the 3rd estimate of 1st quarter GDP should leave you with the sense to take even this 3rd estimate of 2nd quarter growth, which was released on Thursday, with a grain of salt...the Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 0.6% annual rate in the 2nd quarter, the same contraction rate that was reported in the second estimate last month, as an upward revision to personal consumption expenditures was offset by downward revisions to inventories and exports....In current dollars, our second quarter GDP grew at a 8.47% annual rate, increasing from what would work out to be a $24,740.5 billion a year rate in the 1st quarter to a $25,248.5 billion annual rate in the 2nd quarter, with the headline 0.6% annualized rate of decrease in real output arrived at after annualized GDP inflation adjustments averaging 9.0% were computed from the price changes of the GDP components and applied to their current dollar change...
As we review this month's revisions to the 2nd quarter, remember that this press release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change that’s compounded by 4 times of that which 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 pdf for the 3rd estimate of 2nd quarter GDP, which you may have to access by using the BEA's main GDP page...specifically, we’ll be referencing table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 3rd quarter of 2018; table 2, which shows the contribution of each of the components to the GDP change 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 major GDP components...the pdf for the 2nd quarter’s second estimate, which this estimate revises, is here...
Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 1.5% growth rate reported last month to a growth rate of 2.0% in this estimate…that growth rate figure was arrived at by deflating the 9.5% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 7.3% annual rate in the 2nd quarter, which was revised from the 7.1% PCE inflation rate reported a month ago.....real (inflation adjusted) consumption of durable goods fell at a 2.8% annual rate, which was revised from the 0.1% decrease shown in the 2nd estimate, and subtracted 0.24 percentage points from GDP, as a 10.3% contraction rate in real consumption of automobiles and parts accounted for the decrease in durable goods growth....meanwhile, real consumption of nondurable goods by individuals shrunk at a 2.5% annual rate, revised from the 3.7% decrease reported in the 2nd estimate, and subtracted 0.37 percentage points from the 2nd quarter's economic growth, as a 9.9% real decrease rate in consumption of food and beverages purchased for off-premises consumption accounted for all of the 2nd quarter's nondurables drop….on the other hand, consumption of services grew at a 4.6% annual rate, revised from the 3.6% growth rate reported last month, and added 1.99 percentage points to the final GDP tally, with a 16.1% growth rate in real consumption of food services and accommodations accounting for about 35% of the growth in services...
Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 14.1% annual rate in the 2nd quarter, revised from the 13.2% investment contraction reported last month, as real private fixed investment fell at a 5.0% rate, rather than at the 4.5% contraction rate reported in the second estimate, while the previously reported contraction in the inventory growth rate was greater than previously estimated....real investment in non-residential structures was revised from shrinking at a 13.2% rate to shrinking at a 12.7% rate, while real investment in equipment contracted at a 2.0% rate, an upward revision from the 2.7% contraction rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 10.0% rate to growth at a 8.9% rate, while the contraction rate of residential investment was revised from 16.2% to 17.8% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.34 percentage points from the 2nd quarter's growth rate, the decrease in investment in equipment subtracted 0.11 percentage points from the quarter's growth, the increase in investment in intellectual property added 0.46 percentage points, while the decrease in investment in residential structures subtracted 0.93 percentage points from the 2nd quarter's GDP growth...
At the same time, the second quarter's growth of real private inventories was revised from the previously reported $83.9 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $110.2 billion rate...but this now came after inventories had grown at a revised inflation adjusted $214.5 billion in the 1st quarter, and hence the $104.4 billion negative change in real inventory growth from that of the 1st quarter subtracted 1.91 percentage points from the 2nd quarter's growth rate, revised from the 1.83 percentage point subtraction due to lower inventory growth shown in the second estimate.....however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or "sitting on the shelf”, the $104.4 billion reduction in their growth conversely means real final sales of GDP were actually greater by that amount, and therefore the BEA found that real final sales of GDP grew at a 1.3% rate in the 2nd quarter, unrevised from the increase in real final sales shown in the second estimate...
Both the previously reported increase in real exports and the previously reported increase in real imports were revised lower with this estimate, but the downward revision to exports was greater, and as a result our foreign trade was a smaller addition to GDP than was reported in the second estimate....our real exports grew at a 13.8% rate, revised from the 17.6% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 1.51 percentage points to the 2nd quarter's growth rate, down from the 1.88 percentage point addition shown in the second estimate....meanwhile, the previously reported 2.8% increase in our real imports was revised to a 2.2% increase, and since imports subtract from GDP because they represent that part off our consumption or investment that was not produced here, their increase subtracted 0.35 percentage points from 2nd quarter GDP, revised from the previous report's subtraction of 0.45 percentage points.....thus, our improving trade balance added a net 1.16 percentage points to 2nd quarter GDP, revised from the rounded 1.42 percentage point addition that had been indicated in the second estimate…
Finally, there were positive revisions to real government consumption and investment in this 3rd estimate, as the entire government sector shrunk at a 1.6% rate, revised from the 1.8% contraction rate previously reported...real federal government consumption and investment was seen to have contracted at a 3.4% rate from the 1st quarter in this estimate, which was revised from the 3.9% contraction rate reported in the 2nd estimate, as real federal outlays for defense were revised to show growth at a 1.4% rate, rather than the 1.1% growth rate previously reported, and added 0.05 percentage points to 2nd quarter GDP, while all other federal consumption and investment shrunk at a 9.2% rate, less than the 10.4% contraction rate previously reported, and subtracted 0.28 percentage points from 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 0.6% rate in the quarter, which was the same contraction rate reported in the 2nd estimate, and subtracted 0.06% percentage points from 2nd quarter GDP, as state and local investment shrunk at a 8.4% rate and subtracted 0.16 percentage points from GDP, while growth in state & local consumption expenditures at a 1.1% rate added 0.10 percentage points to 2nd quarter...note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating there was an increase in the output of those goods or services...
August Personal Income up 0.3%, Spending UP 0.4%; 2 Months PCE Would Add 36 Basis Points to Q3 GDP
Like the GDP report, the Income and Outlays report for August also went through an annual revision, with its revisions also from the first quarter of 2017 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 August changes 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 how much national income, spending, and savings would change over a year if August’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August.....thus, when the opening line of the news release for this report tell us "Personal income increased $71.6 billion (0.3 percent) in August..", they mean that the annualized figure for seasonally adjusted personal income in August, $21,895.5 billion, was $71.6 billion, or more than 0.3% more than the annualized personal income figure of $21,823.9 billion for July; the actual, unadjusted change in personal income from July to August, which would be on the order of one-twelfth of that size, is not given...similarly, annualized disposable personal income, which is income after taxes, rose by nearly 0.4%, from an annual rate of $18,600.7 billion in July to an annual rate of $18,668.3 billion in August....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are thus also annualized...in August, the reasons for the $71.6 billion annual rate of increase in personal income were a annualized $39.1 billion increase in wages and salaries, a $21.4 billion increase in business and farm proprietors' income, and an $8.3 billion increase in government social benefits to individuals....
For personal consumption expenditures (PCE), BEA reports that they increased at a $67.5 billion annual rate, or by almost 0.4 percent, as the annual rate of PCE rose from $17,402.6 billion in July to $17,470.1 in August; that was after the July PCE figure was revised from the originally reported $17,184.3 billion annually, while prior months were revised as well, revisions which were already included in the concurrent 3rd estimate of 2nd quarter GDP.....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $67.8 billion to $18,015.5 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $652.8 billion annual rate in August, little changed from the revised $653.0 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 3.5% in August, same as in July..
As you know, before personal consumption expenditures can be used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, and which is included in Table 9 in the pdf for this report....that index rose from 123.369 in July to 123.721 in August, a month over month inflation rate that's statistically 0.2853%, which BEA reports as a 0.3% increase, following the rounded -0.1% change in the PCE price index they reported for July...applying that August inflation adjustment to the nominal 0.4% change in August spending left real PCE up a rounded 0.1% in August, after a real PCE decrease of 0.1% in July ...note that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 2012 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....the BEA's result for that is shown in table 7 of the PDF, where we see that August's chained dollar personal consumption total works out to 14,124.4 billion annually, 0.10206% more than July's 14,110.0 billion, a difference that the BEA reports as +0.1%...
However, to estimate the impact of the change in real PCE on the change in GDP, month over month changes such as that don't help us much, since GDP is reported quarterly...thus we have to compare July and August's real PCE to the the real PCE of the 3 months of the second quarter....while this report reports real PCE for each of those months separately, the BEA also provides the annualized chained dollar PCE for those three months quarterly in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 14,099.5 billion in chained 2012 dollars...(note that's also what's shown in table 3 of the pdf for the revised 2nd quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for July and August, 14,110.0 billion and 14,124.4 billion respectively, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far....when we compare that average of 14,117.2 billion to the 2nd quarter real PCE of 13,665.6 billion, we find that 3rd quarter real PCE has grown at a 0.5% annual rate for the two months of the 3rd quarter that we have...{note the math we've used to get that annual contraction rate:(((14,110.0 + 14,124.4) / 2) / 14,099.5) ^ 4 = 1.00503092 }...that's a pace that would add 0.36 percentage points to the growth rate of the 3rd quarter, should there be no improvement in September's real PCE from that July & August average...
August Durable Goods: New Orders Down 0.2%, Shipments Up 0.7%, Inventories Up 0.2%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods decreased by $0.6 billion or 0.2 percent to $272.7 billion in August, after falling by a revised 0.1% in July....July's new orders were revised from the $273.5 billion reported last month to $273.3 billion, and hence the month over month percentage change for new orders was revised from statistically unchanged to a decrease of 0.1%....even after that downward revision and the August decrease, the value of year to date new orders is still running 10.9% above those of 2021, an increase from the 10.8% year-to date change we saw in this report last month....
As is usually the case, the volatile monthly change in new orders for transportation equipment drove this month's headline change, as the value of those transportation equipment orders fell $1.0 billion or 1.1 percent to $92.0 billion, on an 18.5% decrease to $13,338 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.2% in August, led by a 0.8% or $197 million increase to $24,765 million in the value of new orders for computers and electronic products, as the value of new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment intentions, rose 1.3% to $75,647 million...
Meanwhile, the seasonally adjusted value of August's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, rose for the fifteenth time in sixteen months, increasing by $2.0 billion or 0.7 percent to $272.1 billion, after the value of July's shipments was revised from $270.5 billion to $270.1 million, thus revising the previously reported increase in July shipments from 0.4% to one of 0.2% from June....an increase in the value of shipments of transportation equipment led the August increase, as such shipments rose $1.7 billion or 1.9 percent to $88.0 billion, as the value of shipments of commercial aircraft rose 14.0% to $12,006 million, while the value of shipments excluding transportation equipment rose 0.2% to $184,115 million... meanwhile, the value of shipments of nondefense capital goods excluding aircraft rose 0.3% to $74,180, after rising 0.6% in July, increases that will be reflected in 3rd quarter GDP equipment investment figures, after adjusting for changes in price....
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the nineteenth consecutive month, increasing by $1.0 billion or 0.2 percent to $487.2 billion, after the value of July's inventories was revised from $486.2 billion to $486,257 million, which is still a 0.2% increase from June...an increase in the value of inventories of machinery led the August inventory increase, rising $0.4 billion or 0.5 percent to $84.3 billion, while the value of inventories of transportation equipment was flat as a 0.5% increase to $51,761 million in inventories of motor vehicles and parts was offset by lower inventories of defense and commercial aircraft....
Finally, the value of unfilled orders for manufactured durable goods, which is probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the twenty-fourth consecutive month, increasing by 5.4 billion or 0.5 percent to $1,132.2 billion, after the value of July's unfilled orders rose 0.7% to $1,126.8 billion from June, revised slightly from the 0.7% increase to $1,126.5 billion reported last month....a $4.0 billion or 0.6 percent increase to $659.1 billion in the value of unfilled orders for transportation equipment led the August increase, while unfilled orders other than those for transportation equipment rose 0.3% to $473.2 billion.... compared to a year earlier, the unfilled order book for durable goods is now 6.9% above the level of last August, as the value of unfilled orders for transportation equipment is 8.1% above their year ago level, largely on a 11.5% increase in the value of the backlog of orders for commercial aircraft...
New Home Sales Jump in August As Prices Fall
The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 685,000 new homes a year, which was 28.8 percent (±18.3 percent) above the revised July rate of 532,000 new single family home sales a year, but was 0.1 percent (±16.5 percent)* below the estimated annual rate that new homes were selling at in August of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report, sales new single family homes in July were revised from the annual rate of 511,000 reported last month up to a 532,000 a year rate, while home sales in June, initially reported at an annual rate of 590,000 and revised to a 585,000 a year rate last month, were revised down to a 582,000 a year rate with this report, and while May's annualized home sale rate, initially reported at a 692,000 rate and revised from a 642,000 a year to a 630,000 rate last month, were revised up to a 636,000 rate with this release...
The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 55,000 new single family homes sold in August, up from the estimated 43,000 new homes that sold in July and down from the 48,000 that sold in June....the raw figures from Census field agents further allowed for estimates that the median sales price of new houses sold in August was $436,800, down the estimated median sales price of $466,300 in July, but up from the median sales price of $404,300 in August a year ago, and that the average August new home sales price was at $521,800, down from the $556,700 average sales price in July, but up from the average sales price of $470,000 average in August a year ago....a seasonally adjusted estimate of 461,000 new single family houses remained for sale at the end of August, which represents a 8.1 month supply at the August sales rate, down from the revised 10.4 month supply of unsold homes in July, which was originally reported as a 10.9 month supply....for more details and graphics on this report, see Bill McBride's posts on this report, New Home Sales Increase to 685,000 Annual Rate in August and New Home Sales Increased in August; Completed Inventory Increased...
(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…)
No comments:
Post a Comment