Written by rjs, MarketWatch 666
3rd quarter GDP revision, October’s income and outlays, durable goods, and new home sales
The key economic reports released this week were the 2nd estimate of 3rd quarter GDP and the October report on Personal Income and Spending, both from the Bureau of Economic Analysis; other widely watched releases included the Advance Report on Durable Goods for October and the October report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for September from S&P Case-Shiller, an index generated by averaging relative home sales prices from July, August and September of this year against a January 2000 home-price baseline.
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Case-Shiller reported that home prices nationally for those 3 months averaged 7.0% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 5.7% year over year index increase shown in the prior report…
The week also saw the release of the Chicago Fed National Activity Index (CFNAI) for October, a weighted composite index of 85 different economic metrics, which rose to +0.83 in October from +0.32 in September, which was revised from the +0.27 reading of last month….however, the 3 month average of the CFNAI fell to fell to +0.75 in October, down from a revised +1.37 in September, which still indicates that national economic activity has been above the historical trend over those recent months, as would any positive number….in addition; the Richmond Fed Survey of Manufacturing Activity for November, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell to +15 in November, down from +29 in October, but still suggesting an ongoing modest expansion of that region’s manufacturing.
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Second Estimate Indicates 3rd Quarter GDP Grew at a 33.1% Rate
The Second Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 33.1% rate in the quarter, revised but unchanged from the 33.1% growth rate reported in the advance estimate a month ago, as fixed investment and exports grew more than was previously estimated, while personal consumption grew by less than was previously reported, government shrunk by more that was estimated, and imports, which subtract from GDP, were revised higher…..in current dollars, our third quarter GDP grew at a 38.01% 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 $21,157.1 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 computed and applied to the current dollar change of each of the GDP components….
Remember that the GDP 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 2nd estimate of 3rd quarter GDP, which we find on the BEA GDP landing page, where we can also find the tables on Excel and other technical notes…specifically, we reference 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 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 components…the pdf for the 3rd 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 40.7% rate reported a month ago to a 40.6% rate in this 2nd estimate … that growth rate figure was arrived at by deflating the 45.89% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation of goods and services grew at a 3.7% annual rate in the 3rd quarter, which was unrevised from the PCE inflation rate reported a month ago…real consumption of durable goods grew at a 82.9% annual rate, which was revised from the 82.2% growth rate shown in the advance report, and added 5.20 percentage points to GDP, as real consumption of durable goods other than autos, furniture and recreational goods and vehicles grew at a 265% annual rate and accounted for over a quarter of the durable goods increase….real consumption of nondurable goods by individuals grew at a 30.6% annual rate, revised from the 28.8% growth rate reported in the 1st estimate, and added 4.29 percentage points to the 3rd quarter’s economic growth rate, as real growth in consumption of clothing and footwear at a 180.5% rate accounted for around 45% of the growth in non-durables….at the same time, consumption of services rose at a 37.6% annual rate, revised from the 38.8% growth rate reported last month, and added 15.73 percentage points to the final GDP tally, as real health care services grew at a 96.6% rate and accounted for more than half of the quarter’s growth in services…
Meanwhile, seasonally adjusted real gross private domestic investment grew at a 84.9% annual rate in the 3rd quarter, revised from the initial 83.0% growth estimate reported last month, as real private fixed investment grew at a 30.4% rate, revised from the 28.5% growth rate reported in the advance estimate, while inventory growth was a bit smaller than previously estimated…investment in non-residential structures was revised to show contraction at a 15.8% rate, worse than the 14.6% contraction rate previously reported, while real investment in equipment grew at a 66.6% rate, revised down from the 70.1% rate reported last month….on the other hand, the quarter’s investment in intellectual property products was revised from contraction at a 1.0% rate to growth at a 6.0% rate, while at the same time real residential investment was shown to be growing at a 62.3% annual rate, revised from the 59.3% rate shown in the previous report … after those revisions, the decrease in investment in non-residential structures subtracted 0.47 percentage points from the 3rd quarter’s growth rate, while the increase in investment in equipment added 3.19 percentage points to the quarter’s growth rate, growth in investment in intellectual property added 0.34 percentage points to the growth rate of 3rd quarter GDP and growth in residential investment added 2.17 percentage points to the growth of GDP…
In addition, investment in real private inventories shrunk by an inflation adjusted $4.3 billion in the 3rd quarter, revised from the originally reported $1.0 billion of real inventory shrinkage…this came after inventories had shrunk at an inflation adjusted $287.0 billion rate in the 2nd quarter, and hence the rounded $282.7 billion quarter over quarter improvement in real inventory growth added 6.55 percentage points to GDP, revised from the 6.62 percentage point addition to GDP due to lower inventory growth that was indicated in the advance estimate…. however, since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or “sitting on the shelf”, their quarter over quarter increase at a $282.7 billion rate meant that growth of real final sales of GDP was relatively smaller by that much, and hence real final sales of GDP rose at a 25.6% 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…
The previously reported increase in real exports was revised a bit higher with this estimate, but the previously reported increase in real imports was revised upwards by more, and as a result the change in our net trade was a greater subtraction from GDP than was previously reported…our real exports grew at a 60.5% rate rather than the 59.7% 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, that growth added 4.95 percentage points to the 3rd quarter’s growth rate, revised from the 4.90 percentage point addition shown in the previous report….meanwhile, the previously reported 91.1% increase in our real imports was revised to a 93.1% increase, and since imports are subtracted from GDP because they represent either consumption or investment added to an other GDP component that was not produced here, their increase subtracted 8.12 percentage points from 3rd quarter GDP, rather than the 7.99 percentage point subtraction shown last month….thus, our deteriorating trade balance subtracted a net of 3.18 percentage points from 3rd quarter GDP, rather than the 3.09 percentage point subtraction that had been indicated by the advance estimate..
Finally, the entire government sector shrank at a 4.9% rate, revised from the 4.5% shrinkage rate previously reported, as federal government consumption and investment was little changed from the initial estimate, while real state & local government consumption and investment shrank by more than had been previously indicated….real federal government consumption and investment was seen to have shrunk at a 6.2% rate from the 2nd quarter in this estimate, statistically unchanged from the shrinkage rate shown in the advance estimate, as real federal outlays for defense grew at a 3.1% rate, revised from the 3.0% growth reported last month, and added 0.17 percentage points to 3rd quarter GDP, while all other federal consumption and investment shrank at an 18.1% rate, unrevised from the advance estimate, and subtracted 0.55 percentage points from 3rd quarter GDP….meanwhile, real state and local consumption and investment shrank at a 4.0% rate in the quarter, which was revised from the 3.3% shrinkage rate reported in the 1st estimate, and subtracted 0.38 more percentage points from 3rd quarter GDP, as a decrease in real state and local investment contributed 0.10 percentage points to the decrease…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, indicating an increase in the output of those goods or services.
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Personal Income Decreased 0.7% in October, Personal Spending Rose 0.5%, PCE Price Index Unchanged
The October report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month’s data for our personal consumption expenditures (PCE), which accounts almost 70% of the month’s GDP, and with it 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…in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly 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, they’re seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if October’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 September to October….
Thus, when the opening line of the news release for this report tell us “Personal income decreased $130.1 billion (0.7 percent) in October“, they mean that the annualized figure for seasonally adjusted personal income in October, $19,725.9 billion, was $130.1 billion, or less than 0.7% lower than the annualized personal income figure of $19,855.9 billion extrapolated for September; the actual, unadjusted change in personal income from September to October is not given…at the same time, annualized disposable personal income, which is income after taxes, fell by nearly 0.8%, from an annual rate of $17,649.9 billion in September to an annual rate of $17,515.2 billion in October…the monthly contributors to the change in personal income, which can be viewed in detail in the Full Release & Tables (PDF) for this release, are also annualized…in October, there was $103.1 billion annual rate of decrease in personal income because the $70.4 billion annual rate of increase in income from wages and salaries was more than offset by a $252.6 billion annual rate of decrease in personal current transfer receipts from government programs …
For the personal consumption expenditures (PCE) that we’re most interested in, BEA reports that they increased at a $70.9 billion rate, or by almost 0.5%, as the annual rate of PCE rose from $14,569.6 billion in September to $14,640.5 billion in October….September PCE was revised from $14,578.4 billion annually to $14,569.6 billion, a revision that was already incorporated into the 2nd estimate of 3rd quarter GDP which we just reviewed (this report, although usually released a business day later than the GDP release, is computed concurrently)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $67.5 billion to $15,135.4 billion annually in October, which left total personal savings, which is disposable personal income less total outlays, at a $2,379.8 billion annual rate in October, down from the revised $2,582.1 billion annualized personal savings in September… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 13.6% in October from the revised September savings rate of 14.6%, the lowest personal savings rate since March, but still up from the personal savings rate of 7.2% in October a year ago….
As you know, before personal consumption expenditures are used in the computation of GDP, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report…that index was at 111.684 in October, unchanged from September, which the BEA reports as 0.0% in the press release…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 those 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 that of another….that result is shown in table 7 of the PDF, where we see that October’s chained dollar consumption total works out to 13,108.9 billion annually, 0.48599% more than September’s 13,045.5 billion, a difference that the BEA reports as +0.5%…
However, to estimate the impact of the change in October PCE on the change in GDP, the month over month change in PCE doesn’t help us much, since GDP is reported quarterly…thus we have to compare October’s real PCE to the real PCE of the 3 months of the third quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 of the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 12,915.9 billion in chained 2012 dollars…(note that’s the same as what’s shown in table 3 of the pdf for the 3rd quarter GDP report)….when we compare October’s real PCE representation of 13,108.9 billion to the 3rd quarter real PCE figure of 12,915.9 billion, we find that October’s real PCE has grown at a 6.112% annual rate from that of the 3rd quarter….that would mean that even if October real PCE does not improve during November and December, growth in PCE would still add 4.25 percentage points to the GDP growth rate of the 4th quarter.
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October Durable Goods: New Orders Up 1.3%, Shipments Up 1.3%, Inventories Up 0.3%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for October (pdf) from the Census Bureau reported that the value of the widely followed new orders for manufactured durable goods increased by $3.0 billion or 1.3 percent to $240.8 billion in October, after September’s new orders were revised from the $237.1 billion reported last month to $237.8 billion, now shown as a 2.1% increase from August, rather than the 1.9% increase previously reported….however, year to date new orders are still 9.1% below those of 2019, albeit up from the 10.1% year over year decrease we saw in this report last month….
A $2.4 billion or a 23.1% jump to $12.7 billion in new orders for defense capital goods led the increase, while the volatile monthly change in new orders for transportation equipment rose $0.9 billion or 1.2 percent to $77.1 billion, as a 79.1% increase to $2,957 million in new orders for military aircraft and a 38.8% increase to $2,645 million in new orders for commercial aircraft more than offset a 3.2% decrease to $60,109 million in new orders for motor vehicles and parts….excluding orders for transportation equipment, other new orders rose 1.3%, while excluding just new orders for defense equipment, new orders rose 0.2%….meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose by $515 million or 0.7% to $70,025 million…
At the same time, the seasonally adjusted value of October shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for any changes in prices, increased by $3.1 billion or 1.3 percent to $248.7 billion, the fifth increase in 6 months, after September shipments were revised from $245.0 billion to $245.6 billion, now up 0.5% from August…a $0.7 billion or 2.4 percent increase to $30.9 billion in shipments of fabricated metal products, also up five of the last six months, led the increase, while shipments of transportation equipment were a drag on the October total, being down $0.1 billion or 0.2 percent to $81.7 billion, leaving shipments of all other durable goods shipments with a 2.0% increase…of those, shipments of nondefense capital goods less aircraft rose 2.3% to $69,380 million, after September capital goods shipments were revised from $67,493 million to $67,800, now a 0.7% increase..
Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 2nd month in a row, increasing by $1.3 billion or 0.3 percent to $422.8 billion, after August inventories were revised from $422.1 billion to $421.5 billion, now 0.3% higher than the prior month…an increase in inventories of transportation equipment led the October inventory increase, as they rose $0.6 billion or 0.4 percent to $148.2 billion, while the value of inventories other than those of transportation equipment rose 0.2% to $274.6 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, fell for the seventh time in eight months, decreasing by $2.8 billion or 0.3 percent to $1,073.2 billion, after September’s unfilled orders were revised from $1,075.7 billion to $1,075.9 billion, still a 0.2% decrease from August….a $4.6 billion or 0.6 percent decrease to $717.0 billion in unfilled orders for transportation equipment drove the October decrease, while unfilled orders excluding transportation equipment orders were up 0.5% to $356.2 billion…compared to a year earlier, the unfilled order book for durable goods is 6.7% below the level of last October, with unfilled orders for transportation equipment 10.3% below their year ago level, on a 15.9% decrease in the backlog of orders for commercial aircraft and a 4.9% decrease in the backlog of new orders for military aircraft.
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New Home Sales Little Changed in October After September Sales Revised to a 14 Year High
The Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 999,000 homes annually, which was 0.3 percent (plus/minus 13.6 percent)* below the revised September rate of 1,002,000 new single family home sales annually, but 41.5 percent (plus/minus 22.6 percent) above above the estimated annual rate that new homes were selling at in October of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether October new home sales rose or fell from those of September, 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….with this report; sales of new single family homes in September were revised from the annual rate of 959,000 reported last month up to what is now a post recession high 1,002,000 annual rate, while home sales in August, initially reported at an annual rate of 1,011,000 and revised down to a 994,000 a year rate last month, were revised to a 1,001,000 a year rate with this report, and while July’s home sale rate, initially reported at an annual rate of 901,000 three months ago and unrevised at a 965,000 a year rate last month, were revised up to a 979,000 annual rate with this release…
The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 80,000 new single family homes sold in October, up from the 79,000 estimated new homes that sold in September and up from the 55,000 homes that sold in October a year ago…..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in October was $330,600, down from the median sale price of $331,600 in September but up from the median home sales price of $322,400 in October a year ago, while the average new home sales price in October was $386,200, down from the $403,900 average sales price in September, but up from the average sales price of $380,300 in October a year ago….a seasonally adjusted estimate of 278,000 new single family houses remained for sale at the end of October, which represents a 3.3 month supply at the October sales rate, same as the revised 3.3 months of new home supply in September…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales at 999,000 Annual Rate in October and A few Comments on October New Home Sales.
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