1st Quarter GDP Revision; May’s Personal Income and Outlays, Durable Goods, and New and 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 47% of 2nd quarter GDP….the week’s 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, the May report on existing home sales from the National Association of Realtors (NAR), and the S&P CoreLogic Case-Shiller home price indexes for April from S&P Global, price indices which are based on a 3-month average of February, March and April closing prices, and which reported that their national home price index was 2.7% higher than over the same three months of a year ago, when the Case Shiller Index indicated a 6.3% year over year price increase from April 2023….

in addition, this week the Bureau of Labor Statistics released the Regional and State Employment and Unemployment Summary for May, which breaks down the two employment surveys from the monthly national jobs report by state and region….while the text of that report provides a useful summary of this data, the serious statistical aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands…

the 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 –0.36 in April to -0.28 in May, in an index where any negative reading indicates economic activity has been below the historical trend…that May increase still left the 3 month average of the index at -0.16 in May, down from -+0.06 in April, and thus indicates that national economic activity has slipped to below the historical trend over those recent Spring months…

In addition, this week also saw the results from 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 increased to −7 in June from −9 in May, indicating that slightly smaller plurality of that region’s manufacturers were experiencing worse business conditions in June than in May; and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index inched up to -2 in June, up slightly from -3 in May and from -4 in April, also indicating that a slightly smaller plurality of that region’s manufacturers were experiencing worse business conditions in June than did in May or April…

3rd Estimate of 1st Quarter GDP Shows Economy Shrank at a 0.5% Rate

The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services sh​rank at a 0.5% rate in the 1st quarter, revised from the 0.2% contraction rate reported in the second estimate last month, as a sharp downward revision to growth of real personal consumption expenditures for services and a downward revision to exports more than offset a big downward revision to imports, which are subtracted from GDP….in current dollars, our first quarter GDP grew at a 3.243% annual rate, increasing from what would work out to be a $29,723.9 billion a year output rate in the 4th quarter of last year to a $29,962.0 billion annual rate in the 1st quarter of this year, with the headline 0.5% annualized rate of decrease in real output arrived at after weighted annualized inflation adjustments averaging 3.8%, known in aggregate as the GDP deflator, were computed from the price changes of each of the GDP components and applied to their current dollar change…an upward revision of that GDP deflator from the 3.7% reported last month thus lowered GDP by 0.1%, after upwardly biased revisions to the components…

As we review this month’s revisions, remember that the GDP press 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 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 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 2021; 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 they grew at a 0.5% annual rate in the 1st quarter, down from the 1.2% growth rate reported last month…that real PCE growth figure comes by way of deflating the 4.13% growth rate in the dollar amount of consumer spending with the PCE price indices, which in aggregate indicated consumer goods and services inflation grew at a 3.7% annual rate in the 1st quarter, which was revised from the 3.6% PCE inflation rate published a month ago….real consumption of durable goods shrunk at a 3.7% annual rate, which was revised from the 3.8% contraction rate shown in the second estimate, and subtracted 0.28 percentage points from GDP, as a decrease in real consumption of motor vehicles and parts at a 11.2% rate accounted for about 90% of the decrease in durables, and more than offset growth in the output of furnishings, durable household equipment, and recreational goods and vehicles….at the same time, real consumption of nondurable goods by individuals grew at a 2.1% annual rate, revised from the 2.2% nondurables growth figure shown in the 1st estimate, and added 0.29 percentage points to the 1st quarter’s economic growth, as increases in real consumption of food and beverages, clothing and footwear, gasoline and other energy goods, and “other” nondurable goods all contributed to non-durable​ goods growth….meanwhile, personal consumption of services grew at a 0.6% annual rate, revised from the 1.7% growth rate reported last month, and added 0.30 percentage points to the final GDP tally, as real growth of health care, housing and utility services accounted for all of the quarter’s growth in services after growth in recreation services, food services and accommodations turned negative and growth of transportation services and other services was negligible...

At the same time, seasonally adjusted real gross private domestic investment grew at a 23.8% annual rate in the 1st quarter, revised from the 24.4% growth rate estimate reported last month, as real private fixed investment grew at a 7.6% rate, rather than at the 7.8% rate reported in the second estimate, while the positive change in private inventories was somewhat less than had been previously estimated….real investment in non-residential structures was revised from shrinking at a 1.4% rate to shrinking at a 2.4% rate, while real investment in equipment was revised to show it grew at a 23.7% rate, revised from the 24.8% growth rate previously reported…at the same time, the 1st quarter’s investment in intellectual property products was revised from real growth at a 4.6% rate to real growth at a 6.0% rate, while the decrease in real residential investment was revised from shrinking at a 0.6% annual rate to contraction at a 1.3% rate…after those revisions, the decrease in investment in non-residential structures subtracted 0.07 percentage points from the 1st quarter’s growth rate, while the increase in investment in equipment added 1.11 percentage points to the quarter’s growth rate, and growth in investment in intellectual property added 0.32 percentage points to the growth rate of 1st quarter GDP, while the decrease in residential investment subtracted 0.05 percentage points from the growth of GDP…..for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3….

In addition, the increase in real private inventories was revised from the previously reported $163.0 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $160.5 billion rate…since that growth came after inventories had grown at an inflation adjusted $8.9 billion rate in the 4th quarter of 2024, the change in real inventory growth from the 4th quarter to the first quarter was revised from a rounded $154.1 billion positive change to a $151.6 billion positive change, and hence added 2.59 percentage points to the 1st quarter’s growth rate, revised from the 2.64 percentage point addition to GDP from greater inventory growth shown in the second estimate… however, since growth in inventories indicates that more of the goods produced or imported during the quarter would have been left in storage or “sitting on the shelf”, the $151.6 billion increase in their growth means that real final sales of GDP were actually smaller by that amount, and therefore the BEA found that real final sales of GDP shrank at a 3.1% rate in the 1st quarter, revised from the 2.9% real final sales contraction rate shown in the ​s​econd estimate, and a complete reversal from the real final sales growth rate of 3.3% in the 4th quarter, when the decrease in inventory growth meant that the quarter’s growth in real final sales was greater than that of the quarter’s GDP growth…

The previously reported increase in real exports was revised lower with this estimate, while the increase in real imports was revised lower by more, and as a result our net trade was a smaller subtraction from GDP than was previously reported…our real exports of goods and services grew at a 0.4% rate in the 1st quarter, revised from the 2.4% growth rate 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 increase added 0.04 percentage points to the 1st quarter’s growth rate, down from the 0.26 percentage point addition shown last month….meanwhile, the previously reported 42.6% increase in our real imports was revised to a 37.9% increase, and since imports subtract from GDP because they should represent either consumption or investment that was not produced in the US, their increase subtracted 4.66 percentage points from 1st quarter GDP, revised from the 5.06 percentage point subtraction due to imports shown a month ago….thus, the reduced trade imbalance indicated by this estimate subtracted a net 4.61 percentage points from 1st quarter GDP, revised from the 4.90 percentage point subtraction that had been indicated by the second GDP estimate…

Finally, there were also a few small revisions to real government consumption and investment in this 3rd estimate, as the entire government sector shown to have shrunk at a 0.6% rate, revised from the 0.7% contraction rate for government indicated by the 2nd estimate….real federal government consumption and investment shrunk at a 4.6% rate from that of the 4th quarter in this estimate, which was unrevised from the contraction rate shown in the 2nd estimate, as real federal outlays for defense shrank at a 7.1% rate, unrevised from the 7.1% contraction rate shown previously, and subtracted 0.27 percentage points from 1st quarter GDP, while all other federal consumption and investment shrank at a 1.2% rate, revised from the 1.1% contraction rate shown in the 2nd estimate, and subtracted 0.03 percentage points from GDP……meanwhile, real state and local consumption and investment grew at a 2.0% rate in the quarter, revised from the 1.7% growth rate shown in the 2nd estimate, and added 0.21 percentage points to 1st quarter GDP, which was revised from the 0.18 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…

May’s Personal Income Fell 0.4%, Spending Fell 0.1%, PCE Prices Up 0.1%; 2 Months PCE Would Add 1.04 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 be included in the calculation of 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for​ a​round 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 reports monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…since this report feeds in to GDP and other national accounts data, the changes reported for each of those metrics are seasonally adjusted amounts expressed at an annual rate….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….

Hence, as the opening line of the news release for this report tries to explain, “Personal income decreased $109.6 billion (0.4 percent at a monthly rate) in May“, by which they mean that the annualized figure for seasonally adjusted personal income in May, $25,698.0 billion, was $109.6 billion, or about 0.4% less than the annualized personal income figure of $25,807.5 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 almost 0.6%, from ​an annual rate of $22,579.6 billion in April to an annual rate of $22,454.6 billion in May…the details behind the annualized $109.6 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 $122.4 billion decrease in social security​ payments to persons, a $48.4 billion decrease in farm and business proprietors' income, and a $5.1 billion decrease in dividend income…again, those are all annualized figures…

For the personal consumption expenditures (PCE) that are the major component of GDP, the BEA reports that they decreased at a $29.3 billion annual rate, or by more than 0.1 percent, as the annual rate of PCE fell from $20,622.0 billion in April to $20,592.7 in May; that came after the April PCE figure was revised down from the originally reported $20,669.5 billion annually, and March PCE was revised from an annual rate of $20,621.8 billion to an annual rate of $20,578.5 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier….the current dollar decrease in May spending reflected a $49.2 billion or 0.8% decrease to a $6,445.7 billion annualized spending rate for goods, which was only partly offset by a $19.9 billion or 0.1% increase to an annualized $14,132.8 billion in spending for services…total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, fell by an annualized $27.6 billion to a $21,423.1 billion annual rate, which left national personal savings, which is disposable personal income less total personal outlays, at a $1,013.9 billion annual rate in May, down from the revised $1,111.2 billion annualized personal savings in April…as a result of that decrease and the decrease in disposable personal income, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 4.5% in May from an April’s savings rate of 4.9%, which had been a 12 month high….

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….in doing that, the BEA generates the price index for personal consumption expenditures, which is a chained price index based on 2017 prices = 100, which is computed by the BEA and included in Table 5 in the pdf for this report….that index rose from 125.939 in April to 126.110 in May, a month over month inflation rate that’s statistically +.13578%, which BEA reports as up 0.1%, following a smaller rounded PCE price index increase of 0.1% reported for April…applying those inflation adjustments to the nominal change of spending for those months left the reported change in real PCE 0.3% lower in May, after a revised real PCE increase of 0.1% in April….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 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 another….those results are shown in table 4 of the PDF, where we see that May’s chained dollar consumption total works out to 16,330.0 billion annually, 0.277245% less than April’s 16,375.4 billion, a difference that the BEA reports as -0.3%, 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 computed on quarterly basis…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 release reports PCE for all those amounts on a monthly basis, the easiest place to find the quarterly equivalent is in table 3 of the pdf for the 1st quarter GDP report, where we find that the annualized real PCE for the 1st quarter was represented by 16,291.8 billion in chained 2017 dollars….then, by averaging the annualized chained 2017 dollar figures for April and May, 16,375.4 billion and 16,330.0 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 16 352.7 billion to the 1st quarter real PCE 2017 dollar representation of 16,291.8 billion, we find that 2nd quarter real PCE has risen at a 1.50% 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: (((16,375.4 + 16,330.0) / 2) / 16,291.8) ^ 4 = 1.01503636….that’s a pace that would add 1.04 percentage points to the growth rate of the 2nd quarter, with that computation based on the unlikely assumption that there’d be no change in June PCE from the April-May average…

May’s Durable Goods: New Orders Up 16.4%, Shipments Up 0.2%, Inventories Up 0.2%

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 $48.3 billion or 16.4 percent to $343.6 billion in May, the fifth increase in six months, following a 6.6 decrease to $295.3 billion in April’s new orders, revised from the 6.3% decrease to $296.3 billion indicated by last month’s report…with new durable good orders up modestly over the first three months of this year, year to date new orders are now running 6.9% higher than they were a year ago….

As is usually the case, an increase in value of new orders for transportation equipment drove the May headline increase, rising $47.4 billion or 48.3 percent to $145.4 billion, led by a 230.8% increase to $59,825 million in new orders for nondefense aircraft and parts….excluding new orders for transportation equipment, other new orders rose 0.5% in May, as the value of new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 1.7% to $76,007 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 sixth consecutive month, increasing by $0.6 billion or 0.2 percent to $301.0 billion, after the value of April’s shipments was revised from a 0.4% increase to $300.6 billion to a 0.3% increase to $300.3 billion…. shipments of transportation equipment led the May increase, rising $0.3 billion or 0.3 percent to $98.0 billion, mostly on a 0.4% increase in the value of shipments of motor vehicles and parts….meanwhile the value of shipments of nondefense capital goods excluding aircraft rose 0.5% to $75,841 million in May, after a statistically insignificant decrease in April…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the eighth consecutive month, increasing by $1.1 billion or 0.2 percent to $587.8 billion, after the value of end of April inventories was revised but remained at $586.7 billion, a 0.1% increase from March….a $0.3 billion or 0.3 percent to $102.0 billion in the value of inventories of machinery led the inventory increase, while the value of inventories of transportation equipment rose $235 million or 0.1% on a 0.3% increase in the value of inventories of motor vehicles and parts…

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 tenth time in the last eleven months, increasing by $47.6 billion or 3.4 percent to $1,455.3 billion, following a statistically insignificant decrease to $1,407.7 billion in April, revised from the less than 0.1% increase to $1,408.5 billion reported a month ago…a $47.5 billion or 5.6 percent increase to $897.8 billion in the value of unfilled orders for transportation equipment was responsible for the increase, while the value of unfilled orders excluding transportation equipment orders was virtually unchanged at $557,510 million….compared to a year ago, the unfilled order book for durable goods is now 5.4% higher than the level of last May, with unfilled orders for transportation equipment 8.6% above their year ago level, largely on a 10.5% increase in the backlog of orders for commercial aircraft…

New Home Sales Reported 13​.7% Lower in May 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 annual rate of 623,000 during the month, which was 13.7 percent (±13.1 percent)* below the revised April rate of 722,000 new single family home sales a year and was 6.3 percent (±16.9 percent)* below 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 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 743,000 reported last month to a 722,000 annual rate, and March’s annualized home sale rate, initially reported at 724,000 annual rate, was revised from last months downwardly revised figure of 670,000 down to a 659,000 rate, while the annual rate of February’s sales, initially reported at an annual rate of 664,000 and revised from a revised annual rate of 674,000 to an annual rate of 653,000 last month, were revised to an annual rate of 642,000 with this report…

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 56,000 new single family homes sold in May, down from the estimated 67,000 new homes that sold in April, and down from the estimated 63,000 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 $426,600, up from the median sales price of $411,400 in April, and up from the median sales price of $414,200 in May of last year, while the average May new home sales price was at $522,200, up from the $511,200 average price in April, and up from the average new home sales price of $499,300 in May a year ago…

A seasonally adjusted estimate of 507,000 new single family houses remained for sale at the end of May, which represents a 9.8 month supply at the May sales rate, up from the revised 8.3 month supply in April….for more details and graphics on this report, see Bill McBride’s posts on this month’s report, “New Home Sales Decrease to 623,000 Annual Rate in May“. and “Newsletter: New Home Sales Decrease to 623,000 Annual Rate in May, which in turn links to his detailed and graphic newsletter report on this release….

Existing Home Sales Rose 0.8% in May Despite Higher Prices

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose 0.8% from April to May, projecting that 4.03 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was still 0.7% lower than the revised annual sales rate projected in May of a year ago….that came after homes sold at an annual sales rate of 4.00 million in April, which was revised but unchanged from last month’s report.…the NAR also reported that the median sales price for all existing-home types was at $422,800 in May, which was 1.3% higher than in May a year earlier, which they report was “a record high for the month of May, and the 23rd consecutive month of year-over-year price increases.”….the NAR press release, which is titled NAR Existing-Home Sales Report Shows 0.8% Increase in May, is in easy to read plain English, so if you’re interested in a regional breakdown, or the details on housing inventories, cash sales, distressed sales, first time home buyers, etc, you can easily find that information 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 389,000 homes sold in May, up by 11.5% from the 349,000 homes that sold in April, but down by 4.0% from the the 405,000 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 2.1%, from a revised $414,000 in April to $422,800 in May, with the regional median home sales prices ranging from a low of $326,400 in the Midwest to a median high nearly double that at $633,500 in the West…for additional details, analysis, and long term graphs on this report, see “NAR: Existing-Home Sales Increased to 4.03 million SAAR in May; Down 0.7% YoY” and “Newsletter: NAR: Existing-Home Sales Increased to 4.03 million SAAR in May; Down 0.7% YoY” from Bill McBride at Calculated Risk, which in turn links to his Real Estate Newsletter coverage of this report…

 

 

(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 chosen from the aforementioned GGO posts, contact me…)