Written by rjs, MarketWatch 666
First Quarter GDP Revision, May’s Reports on Personal Income and Outlays, Durable Goods, and New & Existing Home Sales
The key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis and the May report on Personal Income and Spending, also from the BEA, which includes two months of 2nd quarter data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP.
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Other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the May report on existing home sales from the National Association of Realtors (NAR)….this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised – 0.09 in April to +0.29 in May, which left the 3 month average of the index at +0.81 in May, up from +0.17 in April, indicating national economic activity has averaged above the historical trend over those recent months.
In addition, this week also saw the results of two more regional Fed manufacturing surveys for June; 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 +18 from +17 in April, indicating ongoing expansion among the majority of that region’s manufacturers, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index ticked up to +27 in June from +26 in May, but was down from +31 in April, still indicating a broad based expansion among that region’s manufacturers.
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1st Quarter GDP Growth Rate Remains at 6.4% in 3rd Estimate
The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services increased at a 6.4% annual rate in the quarter, revised but statistically unchanged from the 6.4% growth rate reported in the second estimate last month, as domestic fixed investment and exports shrunk less than was previously reported, but imports, which subtract from GDP, grew by quite a bit more…in current dollars, our first quarter GDP grew at a 10.97% annual rate, increasing from what would work out to be a $21,494.7 billion a year output rate in the 4th quarter of last year to a $22,061.5 billion annual rate in the 1st quarter of this year, with the headline 6.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 4.3%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change….
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 usually a bit over 4 times of that what 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 third estimate of 1st 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 2nd quarter of 2017; 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’s 2nd estimate, which this estimate revises, is here…
Real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 11.4% annual rate in the 1st quarter, up from the 11.3% growth rate reported last month…that PCE growth figure was arrived at by deflating the 15.5% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 3.7% annual rate in the 1st quarter, same as was published a month ago….real consumption of durable goods grew at a 49.2% annual rate, which was revised from the 48.6% growth rate shown in the second estimate, and added 3.43 percentage points to GDP, as growth in real consumption of vehicles and parts at a 65.1% rate accounted for more than 40% of the quarter’s growth in durable goods….real consumption of nondurable goods by individuals rose at a 15.2% annual rate, revised from the 14.0% increase reported in the 2nd estimate, and added 2.10 percentage points to 1st quarter economic growth, as increased real consumption of food and clothing accounted for more than two-thirds of the growth in nondurable goods … ..at the same time, personal consumption of services rose at a 4.2% annual rate, revised from the 4.6% growth rate reported last month, and added 1.89 percentage points to the final GDP tally, as a 26.4% real growth rate of food services and accommodations accounted for nearly half of the quarter’s growth in services..
Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 3.4% annual rate in the 1st quarter, revised from the 4.7% contraction estimate reported last month, as real private fixed investment grew at a 12.1% rate, rather than at the 11.3% rate reported in the second estimate, while inventory shrinkage was somewhat smaller than had been previously estimated….real investment in non-residential structures was revised from shrinking at a 5.8% rate to shrinking at a 2.0% rate, while real investment in equipment was revised to show it grew at a 15.0% rate, revised from the 13.4% growth rate reported in the 2nd estimate…at the same time, the 1st quarter’s investment in intellectual property products was revised from real growth at a 16.9% rate to real growth at a 15.3% rate, and growth in real residential investment was revised from a 12.7% annual rate to growth at a 13.1% rate … after those revisions, the contraction in investment in non-residential structures reduced the increase in 1st quarter GDP by 0.05 percentage points, while the increase in investment in equipment added 0.84 percentage points to the quarter’s growth…at the same time, the increase in investment in intellectual property added 0.71 percentage points and the increase in residential investment added 0.58 percentage points to the 1st quarter’s growth rate…
In addition, the decrease in real private inventories was revised from the previously reported $92.9 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $87.0 billion rate…this came after inventories had grown at an inflation adjusted $62.1 billion rate in the 4th quarter, and hence the $149.1 billion negative change in real inventories from those of the 4th quarter subtracted 2.67 percentage points from the 1st quarter’s growth rate, revised from the 2.78 percentage point subtraction due to reduced inventory growth shown in the second estimate…..however, since shrinking inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, that decrease by $149.1 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 9.2% rate in the 1st quarter, revised down from the 9.4% growth rate shown in the second estimate, but up from the real final sales growth rate of 2.9% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was smaller than that of the quarter’s GDP…..
The previously reported decrease in real exports was a bit smaller with this estimate, while the increase in real imports was considerably greater than previously reported, and as a result our net trade was a somewhat larger subtraction from GDP rather than was previously reported…our real exports of goods and services shrunk at a 2.1% rate in the 1st quarter, revised from the 2.9% contraction shown in 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 decrease conversely subtracted 0.21 percentage points from the 1st quarter’s growth rate, down from the 0.29 percentage point subtraction shown last month….meanwhile, the previously reported 6.7% increase in our real imports was revised to a 9.5% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their increase subtracted 1.29 percentage points from 1st quarter GDP, revised from the 0.91 percentage point subtraction due to imports shown a month ago….thus, the deteriorating trade balance that has accompanied the increase in consumer spending subtracted a rounded 1.50 percentage points from 1st quarter GDP, up from the 1.20 percentage point subtraction resulting from a worsening foreign trade balance that was indicated by the secondf estimate..
Finally, there were also small revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown to have grown at a 5.7% rate, revised from the 5.8% growth rate for government indicated by the 2nd estimate….real federal government consumption and investment was seen to have grown at a 13.8% from the 4th quarter in this estimate, which was revised from the 13.9% growth rate shown in the 2nd estimate, as as real federal outlays for defense shrunk at a 3.6% rate, revised from the previously reported 3.4% contraction rate, and subtracted 0.15 percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 45.0% rate, revised from the 44.8% rate shown in the 2nd estimate, and added 1.07 percentage points to GDP……meanwhile, real state and local consumption and investment grew at a 0.8% rate in the quarter, unrevised from the 2nd estimate, and added 0.09 percentage points to 1st quarter GDP, which was revised from the 0.08 addition shown in the second estimate…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, thereby indicating an increase in the output of those goods or services.
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May’s Personal Income Down 2.0%, Spending Unchanged; 2 Months PCE Would Add 7.36 Percentage Points to Q2 GDP
The May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and 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….this report also gives us monthly 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 national income and spending would change over a year if May’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 April to May….
Thus, when the opening line of the news release for this report tell us “Personal income decreased $414.3 billion (2.0 percent) in May“, they mean that the annualized figure for seasonally adjusted personal income in May, $20,804.2 billion, was $414.3 billion, or 2.0% less than the annualized personal income figure of $21,218.5 billion for April; the actual, unadjusted change in personal income from April to May is not given…similarly, annualized disposable personal income, which is income after taxes, fell by more than 2.3%, from an annual rate of an annual rate of $18,855.4 billion in April to an annual rate of $18,419.1 billion in May…..the reasons for the annualized $414.3 billion decrease in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and primarily reflected a $562.3 billion decrease in government social benefits, continuing the reversal of March’s $3,994.2 billion increase when the government stimulus checks went out, and which more than offset a $77.8 billion increase in wages and salaries, a $51.5 billion increase in farm and small business proprietor’s income, and a $11.3 billion increase in interest and dividend income…again, those are all annualized figures…
For the personal consumption expenditures (PCE) that we’re interested in, BEA reports that they increased at a statistically insignificant $2.9 billion annual rate, as the annual rate of PCE rose from $15,656.4 billion in April to $15,659.3 billion in May…that was after the April PCE figure was revised up from the originally reported $15,560.3 billion annually and March PCE was revised from an annual rate of $15,480.1 billion to an annual rate of $15,515.3 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier….the current dollar increase in May spending reflected a $74.3 billion or 0.7% increase to $10,190.2 billion in annualized spending for services, which was mostly offset by a $71.4 billion or 1.3% decrease to an annualized $5,469.1 billion in spending for goods ….total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $5.5 billion to a $16,127.7 billion annual rate, which left national personal savings, which is disposable personal income less total personal outlays, at a $2,291.4 billion annual rate in May, down from the revised $2,733.2 billion annualized personal savings in April…as a result of that decrease, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 12.4% in May, after April’s savings rate was revised from 14.9% to 14.5%…
As you know, before those 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 based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report….that index rose from 114.119 in April to 114.631 in May, a month over month inflation rate that’s statistically 0.44865%, which BEA reports as an increase of 0.4 percent, following a similarly rounded PCE price index increase of 0.6% reported for April…applying that May inflation adjustment to the nominal amounts of spending left the reported change in real PCE at -0.4% in May, after a real PCE increase of 0.3% in April and a real PCE increase of 4.4% in March….note that when those PCE price indexes are applied to each month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in those familiar 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….those results are shown in table 7 of the PDF, where we see that May’s chained dollar consumption total works out to 13,662.1 billion annually, 0.42854% less than April’s 13,720.9 billion, a difference that the BEA reports as – 0.4%, even as the full decimal fractions are used in all their computations…
However, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don’t help us much, since GDP is reported quarterly…thus we have to compare April and May’s real PCE to the the real PCE of the 3 months of the first quarter….while this report shows PCE for each of those amounts on a monthly basis, the BEA also provides the 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 1st quarter was represented by 13,353.3 billion in chained 2012 dollars..(note that’s the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)….then, by averaging the annualized chained 2012 dollar figures for April and May, 13,720.9 billion and 13,662.1 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far….when we compare that average of 13,691.5 billion to the 1st quarter real PCE 2012 dollar representation of 13,353.3 billion, we find that 2nd quarter real PCE has risen at a 10.52% annual rate for the two months of the 2nd quarter that we have data for at this point…(note the math used to get that annual growth rate: (((13,662.1 + 13,720.9) /2) / 13,353.3 ) ^ 4 = 1.10522)….that’s a pace that would add 7.36 percentage points to the growth rate of the 2nd quarter by itself, with that computation based on the unlikely assumption that there’d be no change in June PCE from the April-May average.
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May’s Durable Goods: New Orders Up 2.3%, Shipments Up 0.4%, Inventories Up 0.7%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $5.7 billion or 2.3 percent to $253.3 billion in May, following a revised decrease of 0.8% to $247.6 billion in April’s new orders, which had originally been reported as a 1.3% decrease to $246.2 billion…with new durable good orders up 12 out the last thirteen months, year to date new orders are now running 25.7% higher than they were a year ago….
As is usually the case, the volatile monthly change in new orders for transportation equipment led the May headline increase, as those transportation equipment orders rose $5.2 billion or 7.6 percent to $74.2 billion, on a 27.5% increases to $11.6 billion in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders rose just 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.1% to $75,195 million…
Meanwhile, the seasonally adjusted value of May’s shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the second time in 3 months, increasing by $1.0 billion or 0.4 percent to $248.3 billion, after April shipments were revised from an increase of 0.6% to $248.7 billion to a statistically insignificant decrease to $247,369 million….shipments of machinery led the May increase, rising $0.4 billion or 1.1 percent to $35.1 billion, while shipments of transportation equipment fell $271 million or 0.4% to $71.07 billion on a 13.7% decrease in shipments of commercial aircraft…meanwhile shipments of nondefense capital goods excluding aircraft rose 0.9% to $73,262 million, after rising an upwardly revised 1.0% in April …
At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the fourth consecutive month, increasing by $2.9 billion or 0.7 percent to $445.3 billion, after the value of end of April inventories were revised from $441.6 billion to $442.4 billion, now a 0.7% increase from March…a $0.9 billion or 2.4 percent increase to $38.5 billion in inventories of primary metals was the largest percentage increase, while the value of inventories of transportation equipment rose $78 million, or less than 0.1%. to $149,526 million…
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the fourth consecutive month, increasing by $9.5 billion or 0.8 percent to $1,209.3 billion, following an April increase of 0.4% to $1,199.8 billion, revised from the 0.2% increase to $1,197.0 billion reported a month ago…a $3.1 billion or 0.4 percent increase to $806.2 billion in unfilled orders for transportation equipment contributed to the increase, but unfilled orders excluding transportation equipment orders were up 1.6% to $403,097 million, with a 3.8% increase to $39,542 million in unfilled orders for primary metals the largest percentage increase…. compared to a year ago, the unfilled order book for durable goods is still 1.4% lower than the level of last May, with unfilled orders for transportation equipment 7.0% below their year ago level, on a 9.2% decrease in the backlog of orders for commercial aircraft and a 6.7% decrease in the order book for defense aircraft.
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New Homes Sales Reported Lower in May on Record High Prices After Prior Months Sales Revised Lower
The Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 769,000 homes annually during the month, which was 5.9 percent (plus/minus 18.6 percent)* below the revised April rate of 817,000 new single family homes a year but 9.2 percent (plus/minus 28.7 percent)* above the estimated annual rate that new homes were selling at in May of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of May 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 of new single family homes in April were revised from the annual rate of 863,000 reported last month to a 817,000 annual rate, and March’s annualized home sale rate, initially reported at 1,021,000 annual rate, was revised from last months downwardly revised figure of 917,000 to a 886,000 rate, while the annual rate of February’s sales, initially reported at an annual rate of 775,000 and revised from a revised annual rate of 846,000 to an annual rate of 854,000 last month, were revised back down to an annual rate of 823,000 with this report…
The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 69,000 new single family homes sold in May, down from the 75,000 new homes that sold in April, and down from the estimated 83,000 new homes that sold in March….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $374,400, up from the median sales price of $365,300 in April, and up 18.1% from the median sales price of $317,100 in May of last year, while the average May new home sales price was at a record $430,600, up from a $420,900 average price in April, and up 16.8% from the average new home sales price of $368,700 in May a year ago….a seasonally adjusted estimate of 330,000 new single family houses remained for sale at the end of May, which represents a 5.1 month supply at the May sales rate, up from the revised 4.6 month supply in April….for more details and graphics on this report, see Bill McBride’s two posts on this month’s report, “New Home Sales Decrease to 769,000 Annual Rate in May“. and “A few Comments on May New Home Sales“.
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Existing Home Sales Slip 0.9% in May; Median Sale Price at a Record High
The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell 0.9% from April to May, the 4th consecutive decrease, projecting that 5.80 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was still 44.6% higher than the annual sales rate projected in May of a year ago….that came after homes sold at an annual sales rate of 5.85 million in April, which was unrevised from last month’s report, and after an annual home sales rate of 6.01 million in March, and an annual home sales rate of 6.24 million in February…the NAR also reported that the median sales price for all existing-home types in May was $350,300, which was 23.6% higher than in May a year earlier, which they report “is a record high and marks 111 straight months of year-over-year gains since March 2012“….the NAR press release, which is titled Existing-Home Sales Experience Slight Skid of 0.9% in May, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find those details in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process …
Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month…this data indicates that roughly 528,000 homes sold in May, up by 2.9% from the 513,000 homes that sold in April and 41.9% more than the 372,000 homes that sold in May of last year, so we can see the effect of the seasonal adjustment to reduce the springtime increase typical for May home sales…that same pdf indicates that the median home selling price for all housing types rose 2.8%, from a revised $340,600 in April to $350,300 in May, while the average home sales price was at $371,900, up 2.1% from the $364,100 average in April, and up 17.0% from the $317,900 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $294,900 in the Midwest to a high of $494,000 in the West…for additional details and long term graphs on this report, see “NAR: Existing-Home Sales Decreased to 5.80 million in May: and “Comments on May Existing Home Sales” from Bill McBride at Calculated Risk.
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