Written by rjs, MarketWatch 666
Second estimate of 2nd quarter GDP; July’s income and outlays, durable goods
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
Please share this article – Go to very top of page, right hand side, for social media buttons.
The week also saw the release of the July advance report on durable goods from the Census Bureau, the S&P CoreLogic Case-Shiller Home Price Index for June from S&P, which is an index derived from the relative average of April, May and June home prices, and which reported that home prices nationally for those 3 months averaged 3.1% 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 -0.36 in July, down from a revised +0.03 in June…however, the 3 month average of the CFNAI rose to – 0.14, up from – 0.30 in June, but was still a negative, which would indicate national economic activity has been below the historical trend over those recent months…
In addition, this week saw the release of the last two 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 −12 in July to +1 in August, suggesting that the region’s manufacturing has stopped shrinking, and the Dallas Fed Texas Manufacturing Outlook Survey for August, which also includes southeast New Mexico and northeast Louisiana as well as Texas, and which indicated its general business activity index rose from -6.3 in July to +2.7 in August, indicating a return to a slow expansion in manufacturing within the region’s energy focused economy, after 3 months of contraction.
See also:
- S and P CoreLogic Case-Shiller 20 City Home Price Index June 2019 Year-over-Year Growth Slows To 2.1%
- July 2019 Pending Home Sales Slows?
- July 2019 CFNAI Super Index Moving Average Again Improved But Continues To Show Weak Growth
- August 2019 Richmond Fed Manufacturing Survey Growth Now Barely In Expansion
- August 2019 Texas Manufacturing Survey Again Improves
- August 2019 Chicago Purchasing Managers Barometer Rises Out Of Contraction
- September 2019 Economic Forecast Index Again Modestly Improves But Shows Weak Growth
2nd Quarter GDP Revised to Indicate Growth at a 2.0% Rate
The Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.0% rate in the quarter, revised from the 2.1% growth rate reported in the advance estimate last month, as fixed investment, growth of inventories, and exports all shrunk more than previously estimated, the impact of which more than offset an upward revisions to personal consumption expenditures…..In current dollars, our second quarter GDP grew at a 4.63% annual rate, increasing from what would work out to be a $21,098.8 billion a year rate in the 1st quarter to a $21,339.1 billion annual rate in the 2nd quarter, with the headline 2.0% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.4% were applied to the current dollar change of the GDP components…
As we review this month’s revisions, remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit more than 4 times of the change that actually occurred from one 3 month period to the next, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the Full Release & Tables for the second estimate of 2nd 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 2015; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the GDP components…the full pdf for the 1st quarter advance estimate, which this estimate revises, is here…
Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 4.3% growth rate reported last month to a 4.7% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 7.05% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 2.3% annual rate in the 2nd quarter…real consumption of durable goods grew at a 13.0% annual rate, which was revised from the 12.9% growth rate shown in the advance report, and added 0.87 percentage points to GDP, as real consumption of both motor vehicles and recreational goods and vehicles grew at rates in excess of 16% to boost durables consumption….real consumption of nondurable goods by individuals rose at a 6.8% annual rate, revised from the 6.0% increase rate reported in the 1st estimate, and added 0.91 percentage points to 2nd quarter economic growth, as real growth in clothing & footwear consumption at a 14.4% annual rate accounted for more than a third of the non-durables growth….at the same time, consumption of services grew at a 2.8% annual rate, revised from the 2.5% growth rate reported last month, and added 1.32 percentage points to the final GDP tally, with a 3.2% real growth rate in health care services providing the largest services contribution…
Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 6.1% annual rate in the 2nd quarter, revised from the 5.5% investment contraction reported last month, as real private fixed investment shrunk at a 1.1% rate, rather than at the 0.8% contraction rate reported in the advance estimate, while the previously reported contraction in inventory growth was greater than previously estimated….real investment in non-residential structures was revised from a contraction at a 10.6% rate to shrinking at a 9.4% rate, while real investment in equipment grew at a 0.7% rate, statistically unrevised from the previous estimate….at the same time, the quarter’s investment in intellectual property products was revised from growth at a 4.7% rate to growth at a 3.7% rate, while the contraction rate of residential investment was revised from -1.5% to -2.9% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.30 percentage points from the 2nd quarter’s growth rate, the increase in investment in equipment added 0.04 percentage points to the quarter’s growth, greater investment in intellectual property added 0.17 percentage points, while the decrease in investment in residential structures subtracted 0.11 percentage points from the 2nd quarter’s GDP growth…
At the same time, the growth in real private inventories was revised from the originally reported $71.7 billion in inflation adjusted dollars to show inventory grew at an inflation adjusted $69.0 billion rate…this came after inventories had grown at an inflation adjusted $116.0 billion rate in the 1st quarter, and hence the revised $47.0 billion decrease in real inventory growth from that of the 1st quarter subtracted 0.91 percentage points from the 2nd quarter’s growth rate, revised from the 0.86 percentage point subtraction from inventory growth shown in the advance estimate….however, since growth in inventories would indicate that more of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, their decrease by $47.0 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 grew at a 3.0% rate in the 2nd quarter, same as the real final sales rate shown in the advance estimate due to rounding..
The previously reported decrease in real exports was revised to a larger decrease with this estimate, while at the same time the previously reported small increase in real imports was statistically unrevised, and as a result our foreign trade was an even greater subtraction from GDP than was reported in the advance estimate…our real exports shrunk at a 5.8% rate rather than the 5.2% rate reported 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 shrinkage conversely subtracted 0.71 percentage points from the 2nd quarter’s growth rate, somewhat more than the 0.63 percentage point subtraction shown in the previous report….meanwhile, the previously reported 0.1% increase in our real imports was unchanged, and since 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 domestically, their increase subtracted 0.01 percentage point more from 2nd quarter GDP…thus, our deteriorating trade balance subtracted a net 0.72 percentage points from 2nd quarter GDP, revised from the rounded 0.65 percentage point subtraction that had been indicated in the advance estimate…
Finally, there was also net downward revision to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 4.5% rate, revised from the 5.0% growth rate previously reported…real federal government consumption and investment was seen to have grown at a 8.1% rate from the 1st quarter in this estimate, which was revised from the 7.9% growth rate in the 1st estimate…real federal outlays for defense were revised to show growth at a 3.1% rate, rather than the 2.8% growth rate previously reported, and added 0.12 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 16.0% rate, up from the 15.9% rate previously reported, and added 0.40 percentage points to 2nd quarter GDP….meanwhile, real state and local consumption and investment grew at a 2.3% rate in the quarter, which was revised from the 3.2% growth rate reported in the 1st estimate, and added 0.25 percentage points to 2nd 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, thus indicating there was an increase in the output of those goods or services.
See also:
July Personal Income Up 0.1%, Personal Spending Up 0.6%, PCE Price Index Up 0.2%
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 $23.9 billion (0.1 percent) in July“, they mean that the annualized figure for seasonally adjusted personal income in July, $18,703.4 billion, was $23.9 billion, or more than 0.1% greater than the annualized personal income figure of $18,679.5 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 less than 0.3%, from an annual rate of $16,454.0 billion in June to an annual rate of $16,498.4 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 largest contributors to the $23.9 billion annual rate of increase in personal income were an annualized $19.3 billion increase in wages and salaries and an annualized $13.2 billion increase in personal current transfer receipts from government programs such as social security, which were partially offset by an annualized $24 billion drop in interest and dividend income…
For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at $93.1 billion rate, or by somewhat more than 0.6% from June, as the annual rate of PCE rose from $14,568.0 billion in June to $14,661.1 billion in July….June PCE was revised from $14,549.6 billion annually to $14,568.0 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 $96.4 billion to $15,229.2 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $1,269.2 billion annual rate in July, down from the revised $1,321.2 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 7.7% in July from the June savings rate of 8.0%…
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 now based on 2012 prices = 100, which is included in Table 9 in the pdf for this report…that index rose from 109.618 in June to 109.848 in July, a month over month inflation rate that’s statistically 0.2098%, which BEA reports as an increase of 0.2 percent, following a rounded increase of 0.1 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 13,347.3 billion annually, 0.4281% more than June’s 13,290.4 billion, a difference in real PCE that the BEA reports as +0.4%…
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 13,253.4 billion in chained 2012 dollars..(note, that’s the same as is shown in table 3 of the pdf for the 2nd quarter GDP report)….when we compare July’s inflation adjusted PCE of 13,347.3 billion to the 2nd quarter’s real PCE of 13,253.4 billion, we find that July’s real PCE has grown at a 2.86% 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 1.89 percentage points to the growth rate of 3rd quarter GDP.
See also:
- July 2019 Headline Consumption Expenditures Growth Rolling Averages Little Changed
- July 2019 Median Household Income Upward Trend Continues
- Final August 2019 Michigan Consumer Sentiment Significantly Declines
- August 2019 Conference Board Consumer Confidence Declined Marginally
- 2Q2019 Report on Household Debt and Credit: Total Household Debt Continues Steady Rise
July Durable Goods: New Orders Up 2.1%, Shipments Down 1.1%, Inventories Up 0.4%
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 $5.0 billion or 2.1 percent to $250.4 billion in July, following a revised increase of 1.8% to $245.3 billion in June’s new orders, which had been originally reported as a 2.0% increase to $246.0 billion of new orders…despite the back to back increases, however, year to date new orders are only running 0.3% above those of 2018, a slight increase from the unchanged year to date new orders we saw in this report last month…as is usually the case, the volatile monthly change in new orders for transportation equipment was the reason for the July headline change, as those transportation equipment orders rose $5.7 billion or 7.0 percent to $86.3 billion, on a 47.8% increase to $10,613 million in new orders for commercial aircraft and a 34.4% increase to $3,527 million in new orders for defense aircraft….excluding new orders for such ‘transportation’ equipment, other new orders were down 0.4% in July, but new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 0.4% to $69,658 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, fell by $2.9 billion or 1.1 percent to $254.0 billion, after June shipments had increased by 1.0% to $256.97 billion, revised from the 1.4% increase to $258.2 billion reported last month….a 2.1% drop in shipments of transportation equipment drove the July decrease, as they fell $1.8 billion to $86.4 billion, on a 16.2% decrease in shipments of commercial aircraft…excluding shipments of transportation equipment, shipments of other durable goods still fell 0.4%, as shipments of nondefense capital goods excluding aircraft fell 0.7%…
Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the twelfth time in the last thirteen months, increasing by $1.5 billion or 0.4 percent to $427.3 billion, after end of June durables goods inventories were revised but statistically unchanged at $425.8 billion, a 0.3% increase from May…an increase in inventories of transportation equipment accounted for most of the July inventory increase, as they rose $1.4 billion or 1.0 percent to $141.1 billion, on a 1.4% increase to $ 73,131 million in inventories of commercial aircraft…excluding the increase in inventories of transportation equipment, the value of all other durable goods inventories were up fractionally at $286,212 million…
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, rose for the first time in four months, but by just $0.7 billion or less than 0.1 percent to $1,161.6 billion…that followed a June decrease of 0.6% to $1,160.95 billion that was was revised from the previously reported 0.7% decrease $1,160.4 billion…..a fractional decrease of $65 million to $793,219 million in unfilled orders for transportation equipment limited the overall increase, as unfilled orders excluding transportation equipment were up 0.2% to $368,420 million….compared to a year earlier, the unfilled order book for durable goods is still 0.4% below the level of last July, as unfilled orders for transportation equipment are now 1.1% below their year ago level, largely due to a 3.3% decrease in the backlog of orders for defense aircraft.
See also:
.
