3rd quarter GDP revision, October’s income and outlays, durable goods, and new home sales

The key economic reports that were 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 major agency releases were the Advance Report on Durable Goods for October and the October report on new home sales, both from the Census bureau….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 fell to -0.40 in October from -0.27 in September, which was revised up from the –0.28 reading reported for September last month…as a result, the more often cited 3 month average of the CFNAI fell to -0.24 in October, down from a revised –0.21 in September, which, as a negative index number, indicates that national economic activity has been below the historical trend over the most recent months….

This week also saw the release of the last three regional Fed manufacturing surveys for November; the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico,  reported their broadest composite index was at -2 in November, up from –4 in October and from -8 in September, which means that just a small plurality of Tenth District manufacturers are still reporting deteriorating business metrics this month; the Dallas Fed Texas Manufacturing Outlook Survey, which covers Texas and adjacent western Louisiana and southeastern New Mexico, reported its general business activity index rose to –2.7 in November from –3.0 in October, also indicating that a small plurality of Texas area manufacturers continued to see deteriorating business conditions in November…meanwhile, 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 was unchanged from October at −14 in November, but down from –21 in September. indicating that a majority of that region’s manufacturers reported deteriorating conditions this month..

The week’s major privately issued report was the widely watched Case-Shiller Home Price Index for September, an index generated by averaging relative home sales prices from July, August and September against prices for the same homes that sold during prior three month periods and against a January 2000 baseline, and which reported that their national home price index for those 3 months averaged 3.9% higher than their price index generated by repeat home sales prices during the same 3 month period a year earlier….

3rd Quarter GDP Grew at a 2.8% Rate, Unchanged from Advance Estimate

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 2.8% annual rate over the quarter, the same growth rate that was reported in the advance estimate a month ago, as upward revisions to private fixed investment and to inventories were offset by downward revisions to exports and to personal consumption expenditures for goods….in current dollars, our third quarter GDP grew at a 4.736% annual rate, increasing from what would work out to be a $29,016.7 billion a year output rate in the 2nd quarter to a $29,354.3 billion annual rate in the 3rd quarter, with the headline 2.8% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 1.9%, revised from 1.8% in the advance estimate, were computed from the price changes of the components and applied to their current dollar change….

As we review this month’s revisions, 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 compounded change of 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 chained from 2017, and then that all percentage changes in this report are calculated from those 2017 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 linked on the BEA GDP landing page, a page which also offers links to just the GDP 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 2020; table 2, which shows the contribution of each of the components to the GDP change 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 3.7% growth rate that was shown in the advance estimate to a 3.5% rate in this 2nd estimate…that growth rate figure comes from deflating the 5.08% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated personal consumption inflation grew at a 1.5% 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 7.6% annual rate, which was revised from the 8.1% growth rate shown in the advance report, and added 0.54 percentage points to the GDP growth rate, as an increase in real consumption of motor vehicles and parts at a 9.7% rate accounted for more than a third of the growth in durable goods output…..real consumption of nondurable goods by individuals grew at a 4.6% annual rate, which was revised from the 4.9% growth rate reported in the 1st estimate, and added 0.63 percentage points to the 3rd quarter’s economic growth rate, as increased real consumption of nondurable goods other than groceries, clothing, and gasoline accounted for more than two-thirds of the growth in nondurable goods output…..at the same time, real personal consumption of services grew at a 2.6% annual rate, unchanged from the 2.6% growth rate reported last month, and added 1.20 percentage points to the final GDP growth tally, as health care services grew at a 6.4% rate and accounted for almost 60% of the quarter’s growth in services…

Meanwhile, seasonally adjusted real gross private domestic investment grew at an 1.1% annual rate in the 3rd quarter, revised from the original 0.3% growth estimate reported last month, as real private fixed investment grew at a 1.7% rate, revised from the 1.3% growth rate reported in the advance estimate, while the negative change in inventory investment was smaller than previously estimated…investment in non-residential structures contracted at a 4.7% annual rate, down from the 4.0% shrinkage rate previously reported, while real investment in equipment was revised to show growth at a 10.6% rate, revised from the 11.1% growth rate shown in last month’s estimate…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 0.6% rate to growth at a 2.5% rate, while real residential investment was shown to be contracting at a 5.0% annual rate, revised from the 5.1% contraction rate shown in the previous report……after those revisions, the decrease in investment in non-residential structures subtracted 0.15 percentage points from the 3rd quarter’s growth rate, while the increase in investment in equipment added 0.53 percentage points to the quarter’s growth rate, while growth in investment in intellectual property added 0.14 percentage points to the growth rate of 3rd quarter GDP, and the contraction in residential investment subtracted 0.21 percentage points from the growth rate of GDP…

At the same time, investment in real private inventories grew by an inflation adjusted $64.1 billion in the 3rd quarter, revised from the originally reported inventory growth at an inflation adjusted $60.6 billion rate…that came after inventories had grown at an inflation adjusted $71.7 billion rate in the 2nd quarter, and hence the $7.5 billion negative change in real inventory growth from that of the 2nd quarter decreased the growth of private investment and subtracted 0.11 percentage points from the 2nd quarter’s growth rate, revised from the 0.17 percentage point subtraction to GDP growth due to lower inventory growth shown in the advance estimate…..however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $7.5 billion decrease in their growth conversely means real final sales of GDP were greater by that amount, and therefore the BEA found that real final sales of GDP grew at a rounded 3.0% rate in the 3rd quarter, statistically matching the rounded 3.0% rate of increase in real final sales shown in the advance estimate, but up from the 1.9% real final sales growth rate of the second quarter, when greater inventory growth meant that much of what was produced during the quarter wasn’t sold….

The previously reported increase in real exports was revised lower with this estimate, while the previously reported increase in real imports was revised lower by a bit less, and as a result the change in our net trade was a slightly greater subtraction from GDP than was previously reported……our real exports grew at a 7.5% annual rate, revised from the 8.9% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.79 percentage points to the 3rd quarter’s growth rate, less than the 0.94 percentage point addition from exports shown in the advance report….meanwhile, the previously reported 11.2% annualized increase in our real imports was revised to a 10.2% increase, and since imports are subtracted from GDP because they represent either consumption or investment added to an other GDP component that shouldn’t have been because it was not produced here, their increase subtracted 1.37 percentage points from 3rd quarter GDP growth, revised from the 1.49 percentage point subtraction shown last month…..thus, our deteriorating trade balance subtracted a rounded net of 0.57 percentage points from 3rd quarter GDP, rather than the rounded 0.56 percentage point subtraction that had been indicated by the advance estimate…

Finally, the entire government sector grew at a 5.0% rate, unchanged from the 5.0% growth rate previously reported, as federal government consumption and investment grew slower than had been previously indicated, while real state & local government consumption and investment grew faster….real federal government consumption and investment was seen to have grown at a 8.9% rate from the 2nd quarter in this estimate, revised from the 9.7% growth rate reported in the advance estimate, as real federal outlays for defense rose at a 13.9% rate, revised from the 14.9% growth rate shown previously, and added 0.48 percentage points to 3rd quarter GDP, while all other federal consumption and investment grew at a 2.5% rate, revised from the 3.2% growth rate shown previously, and added 0.07 more percentage points to 3rd quarter GDP growth….meanwhile, real state and local consumption and investment grew at a 2.7% rate in the quarter, which was revised from the 2.3% growth rate reported in the 1st estimate, and added 0.28 percentage points to the 3rd quarter’s growth rate, as an increase in real state and local investment at a 3.2% rate accounted for 0.07 percentage points of the state and local contribution…..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.

Personal Income Rose 0.6% in October, Personal Spending Rose 0.4%, PCE Price Index Rose 0.2%

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 for nearly 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 changes 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, as they now briefly explain in the opening line of the news release for this report “Personal income increased $147.4 billion (0.6 percent at a monthly rate) in October“, which means that the annualized figure for seasonally adjusted personal income in October, $24,962.0 billion, was a rounded $147.4 billion, or almost 0.6% higher than the annualized personal income figure of $24,814.6 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, rose by $144.1 billion, or by almost 0.7%, from an annual rate of $21,743.9 billion in September to an annual rate of $21,888.0 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, the main reasons for the $147.4 billion annual rate of increase in personal income were an annualized $62.8 billion increase in wages and salaries, an annualized $38.2 billion increase in interest and dividend income, and a $29.7 billion annualized increase in government social benefits to individuals…

For the personal consumption expenditures (PCE) that we’re most interested in, the BEA reports that they increased at a $72.3 billion rate, or by less than 0.4%, as the annual rate of PCE rose from $20,027.2 billion in September to $20,099.5 billion in October…. September’s PCE was revised from a $20,024.3 billion annual rate to one of $20,027.2 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 $69.8 billion to $20,925.3 billion annually in October, which left total personal savings, which is disposable personal income less total outlays, at a $962.7 billion annual rate in October, up from the revised $888.4 billion annualized personal savings in September… as a result, the personal savings rate, which is personal savings as a percentage of disposable personal income, rose to 4.4% in October from the revised September savings rate of 4.1%, which had been the lowest personal savings rate since December 2022…

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 2017 prices = 100, and which is included in Table 5 in the pdf for this report…that index rose from 121.325 in September to 121.385 in October, a month over month inflation rate that’s statistically +0.2380%, which BEA reports as a 0.2% PCE price index increase, following the increase of 0.2 percent in the PCE price index they reported for September…note that when the PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in chained 2017 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 4 of the PDF, where we see that October’s 2017 chained dollar consumption total works out to 16,180.7 billion annually, 0.12314% more than September’s 16,160.8 billion, a difference that the BEA reports as +0.1%…

However, to estimate the impact of the change in October PCE on the eventual change in 4th quarter GDP, the month over month change in PCE doesn’t help us much, since GDP is reports are based on a quarterly change…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 real PCE for all of those amounts monthly, the easiest way to get the annualized chained dollar PCE for those three months on a quarterly basis is to use the figure that’s shown in table 3 of the pdf for the 3rd quarter GDP report, where we find that the annualized real PCE for the 3rd quarter was represented by 16,106.4 billion in chained 2017 dollars….when we compare October’s real PCE representation of 16,180.7 billion to the 3rd quarter real PCE figure of 16,106.4 billion on an annualized basis, we find that October’s real PCE has grown at a 1.858% 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 1.28 percentage points to the GDP growth rate of the 4th quarter…

October Durable Goods: New Orders Rose 0.2%, Shipments Fell 0.6%, Inventories ​were Unchanged

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 $0.7 billion or by 0.2 percent to $286.6 billion in October, the first increase in three months, after the value of September’s new orders was revised from the $284.8 billion reported a month ago to $285.9 billion, which now indicates a 0.4% decrease from August, rather than the 0.8% decrease previously reported….year to date new orders are still running 0.8% below those of 2023, albeit up from the 1.3% year to date decrease we saw in this report last month…

As usual, the volatile monthly change in the value of new orders for transportation equipment drove October’s new orders increase, as new transportation equipment orders rose $5.1 billion or 0.6 percent to $901.9 billion, on an 8.3% increase to $17,129 million in new orders for commercial aircraft and a 16.6% increase to $5,377 million in new orders for defense aircraft and parts….excluding orders for transportation equipment, the value of other new orders was 0.1% higher, while excluding just new orders for defense equipment, new orders increased 0.4%….meanwhile, the value of new orders for non-defense capital goods less aircraft, a proxy for equipment investment, fell by $175 million or by 0.2% to $73,657 million, after rising by a downwardly revised 0.3% in September…

At the same time, the seasonally adjusted value of October’s shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for any changes in prices, fell by $1.6 billion or 0.6 percent to $285.2 billion, the third consecutive decrease, after the value of September shipments was revised from $287.3 billion to $282.8 billion, which is now down 0.8% from August….a decrease in the value of shipments of transportation equipment was responsible for the October decrease, falling $1.9 billion or 2.1 percent to $92.0 billion, on a 0.7% decrease in the value of shipments of motor vehicles and an 11.8% decrease in the value of shipments of commercial aircraft, while the value of shipments excluding transportation equipment rose 0.1% to $193,288 million…meanwhile, the value of shipments of nondefense capital goods less aircraft rose 0.2% ​to $74,351 million, after the value of September’s capital goods shipments was revised from $73,391 million to $73,519 million, now down 0.1% from August..

On the other hand, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 4th time in five months, but only by $0.2 billion to $527.7 billion, after the value of September’s inventories was revised from $528.3 billion to $527.9 billion, still 0.2% lower than the prior month…a decrease in the value of inventories of transportation equipment, also down four of the last five months, drove the October inventory decrease, falling $0.4 billion or 0.2 percent to $170.5 billion, while the value of inventories of other than transportation equipment ​was $0.2 billion higher at $357.2 billion…

Finally, the value of 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 fiftieth time in the past fifty-one months, increasing by $6.1 billion or 0.4 percent to $1,398.8 billion, after the value of September’s unfilled orders was revised from 1,391.2 billion to $1,392.7 billion, now a 0.3% increase from August….a $5.1 billion or 0.6 percent increase to $901.9 billion in unfilled orders for transportation equipment led the October increase, while the value of unfilled orders excluding transportation equipment was up by 0.2% to $496,952 million….compared to a year earlier, the unfilled order book for durable goods is 3.4% above the level of last October, with the value of unfilled orders for transportation equipment 5.3% above their year ago level, largely due to a 7.8% increase in the value of the backlog of orders for commercial aircraft……

New Home Sales Fell 17.3% to a 22 Month Low in October After Prior Months Revised Lower

The Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 610,000 homes annually, which was 17.3 percent (±12.8 percent) below the revised annual rate of 738,000 new single family home sales in September, and was 9.4 percent (±19.0 percent)* below 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 last year, 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 but unchanged from the annual rate of 738,000 reported last month, while home sales in August, initially reported at an annual rate of 716,000 and revised to a 709,000 a year rate last month, were revised to a 690,000 a year rate with this report, and while July’s home sale rate, initially reported at an annual rate of 739,000 three months ago and revised from a 751,000 a year rate to a 726,000 a year rate last month, were revised down to a 707,000 annual rate with this release…

The annual rates of sales reported here were seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 45,000 new single family homes sold in October, down from the 59,000 estimated new homes that sold in September and also down from the 50,000 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 at $437,300, up from the revised median sale price of $426,800 in September and up 4.7% from the median home sales price of $417,500 in October a year ago, while the average new home sales price in October was $545,800, up from the $509,900 average sales price in September, and up from the average sales price of $498,800 in October a year ago….a seasonally adjusted estimate of 481,000 new single family houses remained for sale at the end of October, which represents a 9.5 month supply at the October sales rate, up from the revised 7.7 months of new home supply in September, which had previously been reported as a 7.6 month supply…for graphs and commentary on this report, see the following posts by Bill McBride at Calculated Risk: New Home Sales Decrease Sharply to 610,000 Annual Rate in October and the identically titled New Home Sales Decrease Sharply to 610,000 Annual Rate in October, which in turn links to his detailed coverage of this report in his real estate newsletter…

 

 

(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…)