Written by rjs, MarketWatch 666
3rd quarter GDP, September’s income and outlays, durable goods, and new home sales
The key economic reports that were released this week were the 1st estimate of 3rd quarter GDP and the September report on Personal Income and Spending, both from the Bureau of Economic Analysis ….the week also saw the release of the advance report on durable goods for September and the September report on new home sales, both from the Census bureau, and the widely watched Case-Shiller Home Price Index for August.
Please share this article – Go to very top of page, right hand side, for social media buttons.
This week also saw the release of the Chicago Fed National Activity Index (CFNAI) for September, a weighted composite index of 85 different economic metrics, which fell to +0.27 in September from +1.11 in August, which was revised up from the +0.79 reported for August last month…that left the 3 month average of the CFNAI at +1.33 in September, down from +3.22 in August, which still indicates that national economic activity has been well above the historical trend over the summer months..
In addition, the week also saw the last two regional Fed manufacturing surveys for October: 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 to +8 in October from -9 in September, suggesting a return to modest growth in that region’s manufacturing, and the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas and adjacent counties in Louisiana and New Mexico, reported its general business activity index fell from +1.5 in September to -5.1 in October, indicative of a return to contraction of the Texas economy, after two months of feeble growth .
See also:
3rd Quarter GDP Grew at 33.1% Rate on a Rebound in Consumer & Investment Spending
Our economy grew at a 33.1% rate in the 3rd quarter, partly reversing the second quarter downturn, as rebounding consumer spending, inventories, fixed private investment and exports were only partly offset by decreased government spending and higher imports, which subtracts from other GDP components….the Advance Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 33.1% annual rate over the output of the 2nd quarter, when our real output shrunk at a 31.4% real rate…in current dollars, our third quarter GDP grew at a 38.02% annual rate, increasing from what would work out to be a $19,520.1 billion a year output rate in the 2nd quarter to a $21,157.6 billion annual rate in the 3rd quarter, with the headline 33.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 3.6%, aka the GDP deflator, was applied to the current dollar change… as is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now…also note that September construction and factory inventory data were not yet reported at the time of this release, and that the BEA assumed a $7.8 billion increase in residential construction, a $1.3 billion decrease in nonresidential construction, and a $0.8 billion Census basis increase in nondurable manufacturing inventories for September before they estimated the 3rd quarter’s output (see the Key source data and assumptions (xls) for this report)
While we review the details for the 3rd quarter below, remember that the news release for GDP 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 indexes chained from 2012 prices, 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 3rd quarter GDP, which we find linked on the BEA GDP landing page, which also offer 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 and quarterly since the 4th quarter of 2016, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters 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….
Personal consumption expenditures (PCE), which accounts for roughly 69.5% of GDP, grew at a 45.9% rate in current dollars in the 3rd quarter, which worked out to a 40.7% real growth rate of consumed goods and services after the 3rd quarter’s annualized 3.7% PCE price index increase was computed and used to adjust that personal spending for inflation….consumer outlays for durable goods rose at a 97.7% rate, while average prices of those durable goods rose at an 8.5% rate, and hence the BEA figured that the real growth of the output of consumer durables rose at a 82.0% rate, as real consumption of durable goods other than autos, furniture and recreational goods and vehicles grew at a 259% annual rate and accounted for over a quarter of the durable goods increase…the BEA also found that real output of consumer non-durable goods increased at a 28.8% rate, after growth in consumer spending for non-durables at a 33.9% rate was adjusted for prices that rose at an average 4.0% rate, as an 180.1% real growth in consumption of clothing and footwear accounted for 40% of the growth in non-durables…. meanwhile, the quarter’s 42.24% nominal growth in consumer outlays for services was deflated by a 2.8% increase in prices for personal services to show real output of consumer services grew at a 38.4% annual rate, as real health care services grew at a 93.7% rate and accounted for more than half of the quarter’s growth in services…as a result of these changes in growth from the 2nd to the 3rd quarter, the increase in outlays for durable goods added 5.18 percentage points to the GDP growth rate, increased consumption of non-durable goods added 4.06 percentage points, and increased consumption of services added 16.04 percentage points to the growth rate of GDP in the 3rd quarter…
The change in other components of the change in GDP are computed by the BEA in the same manner as we have just illustrated for computing PCE; ie, the annualized increase in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the change in real units of goods or services produced during the quarter, also at an annual rate….thus, real gross private domestic investment, which had shrunk at a 46.6% annual rate in the 2nd quarter, grew at a 83.0% annual rate from those depressed levels in the 3rd quarter, as real growth in fixed investments grew at a 28.5% annual rate in the 3rd quarter, after shrinking at a 29.2% rate in the 2nd quarter, while the 2nd quarter’s inventory shrinkage was reversed…among fixed investment categories, real non-residential fixed investment grew at a 20.3% rate, even though real investment in non-residential structures shrunk at a 14.6% rate and subtracted 0.43 percentage points from 3rd quarter GDP, because real investment in equipment grew at a 71.0% rate and added 3.34 percentage points to GDP, while real investment in intellectual property shrunk at 1.0% rate and subtracted 0.03 percentage points from GDP….in addition, real residential investment grew at a 59.3% rate in the 3rd quarter, after shrinking at a 35.6% rate in the 2nd quarter, and added 2.09 percentage points to 3rd quarter GDP…for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…
Meanwhile, real private inventories shrunk by an inflation adjusted $1.0 billion in the quarter, following the inflation adjusted inventory shrinkage at a $287.0 billion rate we saw in the 2nd quarter, and as a result the rounded $286.1 billion quarter over quarter improvement in real inventory growth added 6.62 percentage points to GDP, after a decrease in real inventory growth at a $206.1 billion rate in the 2nd quarter had subtracted 3.50 percentage points from that quarter’s GDP growth….since a smaller contraction in inventories indicates that more of the goods produced during the quarter were left in storage or “sitting on the shelf”, their increase by an inflation adjusted $286.1 billion in turn means that real final sales of GDP were smaller by that amount, and hence real final sales of GDP grew at a 25.5% rate in the 3rd quarter, a reversal of the real final sales shrinkage rate of 28.1% in the 2nd quarter, when the decrease in inventory growth meant that the drop in real final sales was that much less than the real decrease in GDP…
Real exports and real imports both increased in the quarter, but imports increased by more, thus decreasing the amount of our investment and consumption that was domestically sourced than the increase is exports added to our output,…our real exports of goods and services grew at a 59.7% rate in the third quarter, after our exports had decreased at a 64.4% rate in the 2nd quarter, while our real imports grew at a 91.1% rate in the 3rd quarter after shrinking at a 54.1% rate in the 2nd 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 elsewhere in this GDP calculation), 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 in the US….thus the 3rd quarter increase in real exports added 4.90 percentage points to 3rd quarter GDP, while the greater increase in 3rd quarter imports subtracted 7.99 percentage points from 3rd quarter GDP, and hence our worsening trade imbalance subtracted a net of 3.09 percentage points from 3rd quarter GDP, after the collapse of both exports and imports had added 0.62 percentage points to GDP in the second quarter because the net deficit was lower…
Finally, real consumption and investment by government decreased at a 2.5% annual rate in the 3rd quarter, after growing at a 4.5% rate in the 2nd quarter when coronavirus relief programs were initiated, as real federal government consumption and investment shrunk at a 6.2% rate and real state and local consumption and investment shrunk at a 3.3% rate. Inflation adjusted federal spending for defense rose at a 3.0% rate and that added 0.17 percentage points to 3rd quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 18.1% rate and subtracted 0.55 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, real state and local government investment and consumption expenditures, which shrunk at a 3.3% annual rate, subtracted 0.3.0 percentage points from the quarter’s growth rate, as a decrease in real state and local investment at a 1.7% rate subtracted 0.02 percentage points.
See also:
September Personal Income Rose 0.9%, Personal Spending Rose 1.4%, PCE Price Index Up 0.2%
Friday’s release of the September Income and Outlays report was concurrent with the GDP release on Thursday, and all the PCE data in the 3rd quarter GDP report we just covered actually originated with this report…and like that GDP report, all the dollar values reported here are seasonally adjusted and at an annual rate, ie, they tell us what income, spending and saving would be for a year if September’s adjusted income and spending were extrapolated over an entire 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 August to September….
Thus, when the opening of the news release for this report tell us “Personal income increased $170.3 billion (0.9 percent) in September…“, they mean that the annualized figure for all types of personal income in September, $19,804.2 billion, was $170.3 billion, or less than 0.9% greater than the annualized personal income figure of $19,633.9 billion for August; the actual increase in personal income from August to September, which is about one-twelfth that size, is not given….similarly, disposable personal income, which is income after taxes, also rose by less than 0.9%, from an annual rate of $17,438.9 billion in August to an annual rate of $17,589.2 billion in September…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 September, the $170.3 billion annual rate of increase in personal income included a $93.1 billion annual rate of increase in business proprietor’s income and a $74.5 billion annual rate of increase in wages and salaries; personal current transfer receipts, which has been a major factor in the personal income swings of recent months, were little changed…
Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for September, which were included in the change in real PCE in the 3rd quarter GDP report, rose at a $201.4 billion annual rate to a $14,578.4 billion pace of consumer spending annually, 1.4% above that of August, after August‘s PCE was revised up from the previously reported annual rate of $14,369.6 billion to $14,376.9 billion…the current dollar increase in September personal spending included a $104.2 billion annualized increase to an annualized $9,657.1 billion in spending for services, and a $97.2 billion increase to $4,921.3 billion in annualized spending for goods….total personal outlays for September, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $217.5 billion to $15,076.9 billion, which left personal savings, which is disposable personal income less total outlays, at a $2,512.3 billion annual rate in September, down from the revised $2,579.5 billion in annualized personal savings in August…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 14.3%, down from 14.8% in August, and the lowest personal savings rate since March…
While our personal consumption expenditures accounted for 69.5% of our third quarter GDP, before they could be included in that measurement of the change in our output, they first needed to be adjusted for inflation, to give us the real change in consumption, and hence the real change in the goods and services that were produced for that consumption…..that adjustment was made using the price index for personal consumption expenditures, also included in this report, which is a chained price index based on 2012 prices = 100….from Table 9 in the pdf for this report, we find that that PCE price index rose from 111.499 in August to 111.679 in September, giving us a month over month inflation rate of +0.01614%, which the BEA reports as a 0.2% increase….also in this report, Table 11 gives us a year over year PCE price index increase of 1.4%, and a core price increase, excluding food and energy, of 1.5% for the past year, both below the Fed’s inflation target….applying the September inflation adjustment to the change in September PCE shows that real PCE was up 1.2381%, which BEA reports as a 1.2% increase in their summary table…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….those results are shown in tables 7 and 8 of the report PDF, where the quarterly figures given are identical to those shown in table 3 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.
See also:
September Durable Goods: New Orders Up 1.9%, Shipments Up 0.3%, Inventories Up 0.4%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for September (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $4.3 billion or 1.9 percent to $237.1 billion in September, the 5th straight increase, after August’s new orders were revised from the $232.8 billion reported last month to $232.7 billion, still 0.4% greater than July’s orders…however, year to date new orders are 10.1% below those of 2019, down from the 11.3% year to date decrease we saw in this report last month….
The volatile monthly change in new orders for transportation equipment led the September orders increase, as new transportation equipment orders rose $3.0 billion or 4.1 percent to $76.8 billion, on a reversal of last month’s $3.2 billion net cancellation of orders for commercial aircraft to an increase of $1.8 billion in new orders for commercial aircraft, without which overall new orders would have been down 0.3%….however, excluding orders for transportation equipment, other new orders still rose 0.8%, and excluding just new orders for defense equipment, new orders increased 3.4%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $699 million or 1.0% to $68,715 million, after rising 2.1% in August…
The seasonally adjusted value of September shipments of durable goods, which were included as inputs into various components of 3rd quarter GDP after adjusting for changes in prices, rose for the 4th time out of five months, increasing by $0.7 billion or 0.3 percent to $245.0 billion, after August shipments were revised from from $244.1 billion to $244.254 billion, still down 0.3% from July….a $0.4 billion or 0.5 percent to $82.0 billion in shipments of transportation equipment led the decrease, without which all other shipments rose by $258 million or less than 0.2% to $163.0 billion…meanwhile, shipments of nondefense capital goods less aircraft were up 0.3% at $67,493 million, their fifth monthly increase in a row ..
Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 1st time in 3 months, increasing by $1.6 billion or 0.4 percent to $422.1 billion, after August inventories were revised from $420.5 billion to $420,478 billion, still 0.1% lower than the prior month…an increase in inventories of transportation equipment were also responsible for much of the September inventory increase, as they rose $1.0 billion or 0.7 percent to $147.9 billion….
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, were down in September for the 6th time in seven months, decreasing $2.6 billion or 0.2 percent to $1,075.7 billion, after August’s unfilled orders were revised from $1,078.4 billion to $1,078,335 million, still a 0.6% decrease from July…a decrease of $5.2 billion or 0.7 percent to $722.0 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders rose by $1,590 million or 0.7% to $353,758 million…. compared to a year earlier, the unfilled order book for durable goods is now 6.4% below the level of last September, with unfilled orders for transportation equipment 9.6% below their year ago level, on a 15.6% decrease in the backlog of orders for commercial aircraft.
See also:
New Home Sales Slip in September; Average Sales Price at $405,400, an All Time High
The Census report on New Residential Sales for September (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 959,000 annually, which was 3.5 percent (±19.9 percent)* below the revised annual pace of 994,000 that new single family homes were selling at in August but 32.1 percent (±28.8 percent) above the estimated annual rate that new homes were selling at in September of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether September new home sales rose or fell from those of August, 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, the estimates provided in 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 August were revised from the annual rate of 1,011,000 reported last month down to a 994,000 a year rate, while home sales in July, initially reported at an annual rate of 901,000 and revised to a 965,000 a year rate last month, remained at a 965,000 a year rate with this report, while June’s annualized home sale rate, initially reported at an annual rate of 776,000 and revised from the first revision at a 791,000 a year rate to a 841,000 a year rate last month, were revised to a 840,000 a year 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 75,000 new single family homes sold in September, down from the estimated 82,000 new homes that sold in August and the estimated 84,000 that sold in July….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in September was $326,800, up from the median sale price of $322,400 in August, and up 8.8% from the median sales price of $315,700 in September a year ago, while the average September new home sales price was at a record $405,400, up from the $382,700 average sales price in August, and up from the average sales price of $372,100 in September a year ago….a seasonally adjusted estimate of 284,000 new single family houses remained for sale at the end of September, which represents a 3.6 month supply of homes at the September sales rate, up from the revised 3.4 months supply of new homes now indicated for August…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decreased to 959,000 Annual Rate in September and A few Comments on September New Home Sales.
Also the Case-Shiller Home Price Index for August, an index generated by averaging relative home sales prices from June, July and August against a January 2000 baseline, reported that their national home price index for those 3 months averaged 5.7% higher than their price index for the same 3 month period a year earlier.
See also:
.