2nd quarter GDP; June’s income and outlays, durable goods, new and existing home sales

The key economic releases of the past week were the 1st, or advance estimate of 2nd quarter GDP and the June report on Personal Income and Spending, both from the Bureau of Economic Analysis…other widely watched releases included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, and the June report on existing home sales from the National Association of Realtors (NAR)…. in addition, the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which came in at +0.05 in June, down from a upwardly revised +0.23 in May, in an index where any positive reading indicates economic activity has been above the historical trend…that left the widely watched 3 month average of the index at –0.01 in June, up from -0.08 in May, indicating that national economic activity has continued to average near, but just slightly below the historical trend over those recent three months…

This week also saw the release of two more regional Fed manufacturing surveys for July: 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 fell to -17 in July, down from readings of -10 in June and from -2 in May, indicating that a majority of the region’s manufacturers reported worse business metrics in July than in those prior months, and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to -13 in July, down from -8 in June and from -2 in May, also indicating that a larger plurality of the region’s that region’s manufacturers reported deteriorating conditions in July than in those prior months…

2nd Quarter GDP Grew at 2.8% Rate on Greater Personal Consumption, Inventories, Fixed investment, and Government

Our economy grew at a 2.8% rate in the 2nd quarter, twice the pace as it grew at in the first quarter, as greater personal consumption of goods and services, fixed investment, private inventory investment, and government spending were partly offset by greater imports, which are subtracted from other GDP components … the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 2.8% annual rate over the output of the 1st quarter of this year, when our real output grew at a 1.4% rate… In current dollars, our second quarter GDP grew at a 5.19% annual rate, increasing from what would work out to be a $28,269.2 billion a year rate in the 1st quarter to a $28,629.2 billion annual rate in the 2nd quarter, with the headline 2.8% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.3% were computed from the price changes of the GDP components and applied to their 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….note that June construction, June trade in services, and non-durables inventory data have yet to be reported or estimated by the agencies responsible, and that the BEA assumed a $1.0 billion decrease in exports of services, a $7.7 billion increase in imports of services, a $6.7 billion decrease in residential construction, a $2.2 billion decrease in non-residential construction, an $0.5 billion decrease in public construction, and a $2.6 billion decrease in nondurable factory inventories for June before they estimated 2nd quarter output (see the Key source data and assumptions excel file that accompanies this report for more specific details)..

While we cover the details on the 2nd quarter below, remember that the GDP news release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over four 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 2017 prices, and then that all percentage changes in this report are calculated from those ‘2017 dollar’ figures, which would be better thought of as quantity indexes than as any reality based dollar amounts, because the change in real GDP is not a monetary metric…

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 2nd quarter GDP,which we find linked to on the BEA’s GDP page, which also 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 since 2020 and quarterly since the third quarter of 2020, 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 GDP components…

Personal consumption expenditures (PCE), which accounts for roughly 70% of GDP, grew at a 5.01% rate in current dollars in the 2nd quarter, up just a bit from the first quarter’s personal consumer spending nominal increase at a revised 4.91% rate, but after inflation adjustments were made with annualized PCE price indices increases of 3.4% for the first quarter and 2.6% for the 2nd quarter, real PCE rose at a 2.3% rate in the 2nd quarter after rising at a 1.5% rate in the first…consumer spending for durable goods rose at a nominal 2.0% rate, as an increase in spending for recreational goods accounted for most of the gain, but since the weighted prices for those durable goods fell at a 2.6% rate, the real output of durable goods represented by that spending actually increased at a 4.7% rate.…at the same time, current dollar consumer spending for non-durable goods rose at 3.9% rate, led by increased spending for gasoline, while the PCE price index for non-durable goods rose by 2.5%, which meant that real growth in consumption of non durable goods was at a 1.4% rate….similarly, the 5.6% current dollar growth rate in personal spending for services, half of which was for health care, was deflated by the 3.6% PCE services price index increase to show the 2nd quarter’s real growth in services was at a 2.2% rate….thus, with modest real growth in all the components of personal consumption expenditures, our increased output of consumer durable goods added 0.35 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.20 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.02 percentage points to the growth rate of 2nd quarter GDP…

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services…..hence, real gross private domestic investment, which had grown at a 4.4% annual rate in the 1st quarter as investment in inventories was lower, grew at a 8.4% annual rate in the 2nd quarter, even as growth in fixed investment slowed to a 3.8% rate from the first quarter’s 7.0%, because inventory growth rebounded…real nonresidential fixed investment grew at a 5.2% annual rate, up from the 4.4% growth rate reported for the first quarter, as real investment in non-residential structures shrunk at a 3.3% rate, reversing the first quarter’s real growth of 3.4%, while real investment in equipment grew at a 11.6% rate, up sharply the first quarter’s 1.6% real growth, ​a​nd investment in intellectual property grew at 4.5% rate, down from the first quarter’s 7.7% growth rate….after those results, investment in real non residential fixed investment added 0.69 percentage points to the growth in 2nd quarter GDP, even as real investment in non-residential structures subtracted 0.10 percentage points, as real investment in equipment added 0.55 percentage points to the growth of GDP and investment in intellectual property added 0.24 percentage points to GDP….on the other hand, real residential investment fell at a 1.4% rate, after growing at a 16.0% rate in the first quarter, and subtracted 0.05 percentage points from the 2nd quarter’s GDP, leaving the total fixed investment contribution to GDP at 0.64 percentage points…for an easy to read table as to what’s included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3…

Meanwhile, greater growth of private inventories in the 2nd quarter increased gross investment and hence GDP, as real private inventories grew by an inflation adjusted $71.3 billion in the 2nd quarter, after growing at an inflation adjusted $28.6 billion in the first quarter, and as a result the $42.7 billion increase in real inventory growth added 0.82 percentage points to the 2nd quarter’s growth rate, after an inflation adjusted $26.3 billion decrease in inventory growth in the 1st quarter had subtracted 0.42 percentage points from that quarter’s GDP growth rate….however, greater inventories indicate that more of the goods produced during the quarter were left sitting on a shelf or in storage, so their quarter over quarter increase by $42.7 billion meant that real final sales of GDP were relatively smaller by that amount, and hence real final sales of GDP grew at a 2.0% rate in the 2nd quarter, after real final sales had increased at a 1.8% rate in the 1st quarter, when the $26.3 billion decrease in inventory growth meant that real final sales of GDP were that much higher…

Real exports and real imports both increased in the 2nd quarter, but our imports grew by more than four times as much, thus sharply reducing 2nd quarter GDP. Our real exports of goods and services grew at a 2.0% rate in the second quarter, after growing at a 1.6% rate in the 1st quarter, while our real imports grew at a 6.9% rate in the 2nd quarter, after growing at a 6.0% rate in the 1st quarter. As you might 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 in the GDP computation elsewhere), 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 domestically. Thus the 2nd quarter increase in real exports added 0.21 percentage points to 2nd quarter GDP, after the first quarter increase had added 0.17 percentage points to first quarter GDP. On the other hand, since imports subtract from GDP, their increase at a 6.9% rate subtracted 0.93 percentage points from 2nd quarter GDP, after the first quarter import increase had subtracted 0.82 percentage points from that quarter’s growth. As a result, our worsening trade imbalance subtracted a net 0.72 percentage points from 2nd quarter GDP, after our deteriorating trade deficit had subtracted 0.65 percentage points from our GDP in the first quarter…

Finally, real consumption and investment by all branches of government increased at a 3.1% annual rate in the 2nd quarter, after increasing at a 1.8% annual rate in the 1st quarter, as federal government consumption and investment grew at a 3.9% rate, while state and local consumption and investment grew at a 2.6% rate. Inflation adjusted federal spending for defense grew at a 5.2% rate and added 0.19 percentage points to 1st quarter GDP growth, while real non-defense federal consumption and investment grew at a 2.2% rate and added 0.08 percentage points to 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 goods or services….Meanwhile, state and local government investment and consumption expenditures grew at a 2.6% annual rate and added 028 percentage points to the growth rate of ​2nd quarter GDP, as a real increase in state and local investment at an 5.1% annual rate accounted for 0.10 percentage points of that addition to GDP…

June Personal Income Up 0.2%, Personal Spending Up 0.3%; PCE Price Index Up 0.1%, Savings Rate at 3.4%

​The data in Friday’s release of the June Income and Outlays report from the Bureau of Economic Analysis was concurrent with the​ir GDP release on Thursday, and all the PCE data in the first quarter GDP report we just reviewed actually originated ​f​rom th​e​ data report​ed here…and like that GDP report, all the dollar values ​in this report are seasonally adjusted and at an annual rate, ie, they tell us what personal income, spending and saving would be for a year if June’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 May to June….thus, when the opening phrase of the press release for this report tell us “Personal income increased $50.4 billion (0.2 percent at a monthly rate) in June“, it means that the annualized figure for all types of personal income in June, $23,948.3 billion, was $50.4 billion, or a rounded 0.2% more than the annualized personal income figure $23,898.0 billion for May; the actual increase in personal income from May to June is not given….similarly, disposable personal income, which is income after taxes, rose by almost 0.2%, from an annual rate of $20,894.3 billion in May to an annual rate of $20,932.0 billion in June…the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF)for this release, are also annualized….the main contributor to the $50.4 billion annualized increase in personal income in June was a $44.5 billion annual rate of increase in income from wages and salaries, as a $7.1 billion annualized decrease in rental income and a $4.8 billion annualized decrease in farm proprietors’ income mostly offset a $13.7 billion increase in government social benefits to persons…

At the same time, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in the 2nd quarter GDP report, rose at a $57.6 billion annual rate to an annual rate of $19,444.0 billion in consumer spending, an increase of almost 0.3% from May’s PCE, which itself was revised from the previously reported annual rate of $19,337.8 billion to $19,386.4 billion….total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $59.​3 billion to $20,229.0 billion, which left personal savings, which is disposable personal income less total outlays, at a $703.0 billion annual rate in June, down from the revised $724.7 billion in annualized personal savings in May…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.4% in June, down from a revised 3.5% in May, and the lowest personal savings rate in 19 months…

While our personal consumption expenditures accounted for 68.6% of our nominal second quarter GDP, before those expenditures could be included in the national measurement of the change in our output, they were first adjusted for inflation, to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption…..the BEA does that by generating a price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2017 prices = 100….from Table 5 in the pdf for the June release, we find that the PCE index rose from 123.146 in May to 123.243 n June, giving us a month over month inflation rate of 0.078768%, which BEA reports as an increase of +0.1% even as the full decimal fraction is used in all their computations….at the same time, Table 7 gives us a year over year PCE price index rounded to an increase of 2.5%, and a core price increase, excluding food and energy, of 2.6% for over the past year, both still​ above the Fed’s inflation target….applying the June inflation adjustment to the change in June PCE shows that real PCE was up 0.218175% in June, which the BEA reports as a 0.2% increase in their rounded tables…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 2017 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’s….those results are shown in table 4 of this report’s PDF, where you’ll see the monthly figures ​s​hown average out to the quarterly figures shown in table 3 of the 2nd quarter GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP..

June’s Durable Goods: New Orders Fell 6.6%, Shipments Rose 1.2%, Inventories were Flat

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods decreased by $18.6 billion or 6.6 percent to $264.5 billion, following a revised increase of 0.1% to $283.1 billion in May’s new orders, statistically unchanged from last month’s report.…despite being up the four prior months in a row after falling in January, year to date new orders are now 2.0% lower than those of 2023, ​a​s the year to date increase reported last month was only 0.1%..

As is usually the case, the volatile monthly change in new orders for transportation equipment drove this month’s headline change, as those transportation equipment orders fell $19.6 billion or 20.5 percent to $75.8 billion, on a 127.2% decrease to -$4,233 million in new orders for commercial aircraft, reflecting ​a greater cancellation of aircraft ordered previously ​than new orders….excluding new orders for transportation equipment, other new orders were still up 0.5% in June, and excluding new orders for defense equipment, other orders were up 7.0%, while new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 1.0% to $73,994 million…

The seasonally adjusted value of June’s shipments of durable goods, which were inputs into various components of 2nd quarter GDP after their nominal value was adjusted for price changes, increased by $3.5 billion or 1.2 percent to $288.1 billion, after the value of May shipments decreased 0.4% to $284.5 billion, revised from the 0.3% decrease to $284.7 billion that was reported last month….shipments of transportation equipment accounted for the June increase, as they rose $3.5 billion or 3.8 percent to $95.3 billion on a 33.5% increase in shipments of commercial aircraft, while shipments other than those of transportation equipment were statistically unchanged…meanwhile, the value of shipments of nondefense capital goods excluding aircraft rose $109 million or 0.1% to $73,973 million, after falling a revised 0.7% in May, changes which were already reflected in the 2nd quarter GDP equipment investment figures…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in three months, but only by $0.1 billion​, or ​virtually unchanged​, to $529.4 billion, after the value of May’s inventories was revised from $530.1 billion to $529.4 billion, now just a 0.2% increase from April….a $0.2 billion or 0.1% decrease to $172.0 billion in inventories of transportation equipment was responsible for the June inventory increase, due to a 0.​5% ​decrease in the value of inventories of commercial aircraft, while the value of inventories of durable goods other than transportation equipment was up $0.1 billion to $357.4 billion, or was ​also statistically unchanged…

Finally, the value of unfilled orders for manufactured durable goods, which is probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the first time in forty-seven months, decreasing by $18.8 billion or 1.3 percent to $1,384.3 billion, following a 0.2% increase to $1,403.0 billion in May, which was revised from the 0.2% increase to $1,402.8 billion reported last month… a $19.5 billion or 2.1 percent decrease to $889.8 billion in unfilled orders for transportation equipment drove the June decrease, while the value of unfilled orders excluding transportation equipment increased less than 0.1% to $493,784 million…. compared to a year earlier, the unfilled order book for durable goods is still 4.7% above the level of last June, with unfilled orders for transportation equipment 7.9% higher than their year ago level, largely reflecting an 13.5% year over year increase in the backlog of orders for commercial aircraft..

New Home Sales Little Changed in June; Year over Year Prices Lower

The Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 617,000 homes annually during the month, which was 0.6 percent (±14.6 percent)* below the revised May rate of 621,000 new single family home sales annually, and was 7.4 percent (±15.2 percent)* below the estimated annual rate that new homes were selling at in June of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May, 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….​i​e, 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 May were revised from the 619,000 annual rate reported last month to a 617,000 a year rate, and April’s annualized home sale rate, initially reported at a 634,000 rate, were revised from last months revision of 698,000 up to 730,000, while March’s new home sales, initially reported at an annual rate of 693,000 and revised from a revised annual rate of 665,000 to an annual rate of to a 684,000 rate last month, were revised down to an annual rate of 683,000 with this report…

The annual rates of sales reported here were extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 53,000 new single family homes sold in June, down from the estimated 56,000 new homes that sold in May, and down from the estimated 65,000 new homes that sold in April….the raw ​figures from Census field agents further led to an estimate that the median sales price of new houses sold in June was $417.300, up from the median sale price of $407,100 in May, but down from the median price of $417.600 in June of last year, while the average June new home sales price was at $487,200, down from the revised $504,500 average in May and down from the average sales price of $507,800 in June a year ago….a seasonally adjusted estimate of 476,000 new single family houses remained for sale at the end of June, which represents a 9.3 month supply at the June sales rate, up from the 9.1 month supply in May, which was originally reported as a 9.3 month supply….

Existing Home Sales Fell by 5.4% in June​ on Record Sales Prices

The National Association of Realtors (NAR) reported that existing home sales fell by 5.4% from May to June on a seasonally adjusted basis, projecting that 3.89 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 5.4% below the annual sales rate projected for June of a year ago, and the lowest sales rate this year…the June home sales decrease came after homes sold at an annual sales rate of 4.11 million in May, which was unrevised from last month’s report….the NAR also reported that the median sales price for all existing-home types was at a record $426,900 in June, up 4.1% from the median $410,100 sales price in June a year earlier, which they report “the second straight month it reached an all-time high and the twelfth consecutive month of year-over-year price gains“…..the NAR press release, which is titled “Existing-Home Sales Slipped 5.4% in June; Median Sales Price Jumps to Record High of $426,900“, 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 them in that press release…as existing properties ​a​re not new additions 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 brokerage, 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 of the actual number of homes that sold each month…this unadjusted data indicates that roughly 375,000 homes sold in June, actually down by 7.4% from the 405,000 homes that sold in May, and down by 13.4% from the 433,000 homes that sold in June of last year, a much steeper drop in sales than the seasonally adjusted figures indicate….that same pdf indicates that the median home selling price for all housing types rose 2.3%, from a revised $417,200 in May to $426,900 in June, as the regional median sales prices ranged from a low of $327,100 in the Midwest to a high of $629,800 in the West..

 

 

(the above is the synopsis that accompanied my regular sunday morning news links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most of which are picked from the aforementioned GGO posts, contact me…)