Q2 GDP revision; July’s income and outlays, durable goods, & new home sales
The key economic reports that were released last week were the 2nd estimate of 2nd quarter GDP and the July report on Personal Income and Spending, both from the Bureau of Economic Analysis…the week also saw the release of the July advance report on durable goods and the July report on new home sales both from the Census Bureau, the Case-Shiller house price indexes for June from S&P Case-Shiller, who reported that their national home price index, based on relative April, May and June home sales prices, was 1.9% higher than their home price index based on prices of the same homes that sold during the same three months of a year ago, and the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, which decreased to –0.19 in July from a revised –0.18 in June, which had previously been reported at –0.10…as a result, the 3 month average of the CFNAI increased to –0.18 in July from –0.26 in June, which, as a negative number, would still indicate that national economic activity has been below the historical trend over those recent months…
In addition, this week saw the release of the last three regional Fed manufacturing surveys for August: 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 −7 in August, up from −20 in July, but unchanged from -7 in June, indicating that a smaller plurality of that region’s manufacturers reported worse business metrics in August than did in July, the Kansas City Fed manufacturing survey for August, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico; who reported their broadest composite index was at +1 in August, unchanged from +1 in July, but up slightly from -2 in June, which means the smallest plurality of Tenth District manufacturers have been reporting increased manufacturing activity over the past two months, and the Dallas Fed’s Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, and which indicated their general business activity index slipped to –1.8 in August, down from +0.9 in July, but up from -12.7 in June, indicating that a small plurality of Texas businesses experienced a slowdown in August, with the negative figures indicating the percentage of negative reports over those that were positive for each month…
2nd Quarter GDP Revised to Show Our Economy Grew at a 3.3% Rate
The Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services grew at a 3.3% rate during the quarter, revised from the 3.0% growth rate reported in the advance estimate last month, as personal consumption expenditures for goods and services and fixed investment grew more and exports shrunk less than was previously reported, more than offsetting downward revisions to inventories and to government….In current dollars, our second quarter GDP grew at a 5.34% annual rate, increasing from what would work out to be a $29,962.0 billion a year rate in the 1st quarter to a $30,353.9 billion annual rate in the 2nd quarter, with the headline 3.3% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.0% were computed from the price changes of the GDP 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 change about 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, 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 from the pdf for the 2nd estimate of 2nd quarter GDP, which we find linked to on the BEA’s GDP page, which also links to the GDP tables and source data on Excel and other technical notes. Specifically, we’ll reference table 1, which shows the real percentage change in each of the GDP components annually since 2022 and quarterly since the third quarter of 2021, 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…the full pdf for the 2nd quarter advance estimate, which this estimate revises, is here…
Growth of real personal consumption expenditures (PCE), the largest component of GDP by far, was revised from the 1.4% growth rate reported last month to a 1.6% growth rate in this 2nd estimate…that net growth rate figure was arrived at by deflating the 3.61% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumption weighted consumer inflation grew at a 2.0% annual rate in the 2nd quarter, revised from the 2.1% PCE inflation rate reported a month ago….real consumption of durable goods grew at a 2.6% annual rate, which was revised from the 3.7% growth rate shown in the advance report, and added 0.19 percentage points to GDP, as real consumption of motor vehicles and parts grew at an 11.7% rate and offset modest decreases in real consumption of recreational goods and vehicles and furniture and appliances….on the other hand, real consumption of nondurable goods by individuals grew at a 2.3% annual rate, revised from the 1.3% increase rate reported in the 1st estimate, and added 0.31 percentage points to the 2nd quarter's economic growth, as growth in consumption of food, clothing and footwear, and ‘other’ non-durables offset a modest decrease in real consumption of gasoline….at the same time, consumption of services grew at a 1.2% annual rate, revised from the 1.1% growth rate reported last month, and added 0.57 percentage points to the final GDP tally, as a 4.2% growth rate in real consumption of health care accounted for about 80% of the quarter’s growth in services, and helped to offset decreases in real consumption of housing and utilities and transportation services..…
Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 13.8% annual rate in the 2nd quarter, revised up from the 15.6% contraction estimate reported last month, as real private fixed investment grew at a 3.3% rate, revised up from the 0.4% growth rate reported in the advance estimate, while the shrinkage of real inventories was a bit greater than previously estimated…real investment in non-residential structures now shows contraction at a 8.9% rate, revised up from the 10.3% contraction rate previously reported, while real investment in equipment grew at 7.4% rate, revised up from the 4.8% growth rate shown a month ago….at the same time, the quarter’s investment in intellectual property products was revised to indicate growth at a 12.8% rate, up from the 6.4% growth rate previously reported, while real residential investment was shown to be shrinking at a 4.7% annual rate, revised from the 4.6% contraction rate shown in the previous report….after those revisions, the contraction in investment in non-residential structures subtracted 0.28 percentage points from the change in 2nd quarter GDP, while the increase in investment in equipment added 0.37 percentage points to the quarter’s growth, and the increase in investment in intellectual property added 0.69 percentage points to GDP, while the decrease in residential investment subtracted 0.19 percentage points from the 2nd quarter’s growth rate…
Meanwhile, the quarter’s change in real private inventories was revised from the originally reported $26.0 billion decrease in inflation adjusted dollars to indicate inventories shrunk at an inflation adjusted $32.9 billion rate…that came after inventories had grown at an inflation adjusted $160.5 billion in the 1st quarter, and hence the $193.3 billion negative change in real inventory growth from that of the 1st quarter subtracted 3.29 percentage points from the 2nd quarter’s growth rate, revised from the 3.17 percentage point subtraction due to a $186.5 billion negative inventory change 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” and not sold, the $193.3 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 6.8% rate in the 2nd quarter, revised from the 6.3% rate of increase in real final sales shown in the advance estimate…
The previously reported decrease in real exports was a somewhat smaller with this estimate, while the previously reported decrease in real imports was also revised a bit lower at the same time, and as a result of the difference between the two, the positive impact of our foreign trade on GDP was a bit smaller than in the advance estimate….our real exports shrunk at a 1.3% rate, revised from the 1.8% contraction 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 contraction conversely subtracted 0.14 percentage points from 2nd quarter GDP, revised from the advance report’s subtraction of 0.19 percentage points….meanwhile, the previously reported 30.3% decrease in our real imports was revised to a 29.8% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 5.09 percentage points to the 2nd quarter’s growth rate, a bit less than the 5.18 percentage point addition shown in the advance report….thus our improving trade balance added a net 4.95 percentage points to 2nd quarter GDP, revised from the rounded 4.99 percentage point addition that had been indicated in the advance estimate…
Finally, there were also negative revisions to real government consumption and investment in this 2nd estimate, as the entire government sector shrunk at an 0.2% rate, revised from the 0.4% growth rate previously reported…real federal government consumption and investment was seen to have been shrinking at a 4.7% annual rate, revised from the 3.7% contraction rate shown in the 1st estimate, as real federal outlays for defense were revised to show growth at a 1.5% rate, rather than the 2.2% grown rate previously reported, and added 0.05 percentage points to 2nd quarter GDP, while all other federal consumption and investment shrunk at a 12.5% rate, revised from the 11.2% contraction rate previously reported, and subtracted 0.36 percentage points from 2nd quarter GDP….meanwhile, real state and local consumption and investment grew at a 2.6% rate over the quarter, which was revised from the 3.0% growth rate reported in the 1st estimate, and added 0.28 percentage points to 2nd quarter GDP, with 0.13 percentage points of that coming from state and local investment, such as spending for public buildings or infrastructure….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, thus indicating there was an increase in the output of those goods or services…
July Personal Income Rose 0.4%, Personal Spending Rose 0.5%, PCE Price Index Rose 0.2%, Savings Rate at 4.4%
Other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important regular economic release we see each month, since each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter’s GDP by itself…in addition, this report also computes 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, our monthly personal income data, as well as disposable personal income, which is income after taxes, and our monthly savings rate…however, because the data in 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…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 June to July..
Thus, when the opening line of the news release for the July report tell us “Personal income increased $112.3 billion (0.4 percent at a monthly rate) in July,“, they mean that the annualized figure for seasonally adjusted personal income in July, $25,905.4 billion, was $112.3 billion, or more than 0.4% greater than the annualized personal income figure of $25,793.1 billion extrapolated for June; the actual, unadjusted change in national personal income from June to July, which is an order of magnitude smaller, is not given…at the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.4%, from an annual rate of $22,536.7 billion in June to an annual rate of $22,630.6 billion in July….the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures…in July, the reasons for the $112.3 billion annual rate of increase in personal income include an annualized $82.6 billion increase in wages and salaries, an annualized $15.0 billion increase in business and farm proprietors’ income, and an annualized $6.3 billion increase in personal dividend income…
For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at a $108.9 billion annual rate, or by more than 0.5% from June, as the annual rate of PCE rose from $20,693.1 billion in June to $20,802.0 billion in July….June’s PCE was revised from $20,685.2 billion annually to $20,693.1 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the revised 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although released a business day later than the GDP release, is concurrent with GDP data)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $110.9 billion to $21,645.0 billion annually in July, which left total personal savings, which is disposable personal income minus total outlays, at a $985.6 billion annual rate in July, down a bit from the revised $1,002.6 billion in annualized personal savings in June…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, was unchanged at 4.4% in July, but still down from the revised 5.0% savings rate in April, which had been a 12 month high…
As you know, before 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….the BEA does that by computing a 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 126.533 in June to 126.783 in July, a month over month inflation rate that’s statistically 0.197577%, which BEA reports as a PCE price index increase of 0.2 percent for July, following the increase of 0.3 percent in the PCE price index they reported for June…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 the real goods and services produced in one month or one quarter to the real goods and services produced in another….that result is shown in table 4 of the PDF, where we see that July’s chained dollar consumption total works out to an annual rate of 16,408.4 billion, 0.328346% more than June’s 16,354.7 billion, a difference in real PCE that the BEA reports as +0.3%…
However, to estimate the impact of the change in PCE on the change in GDP, the month over month change doesn’t help us much, since GDP is reported quarterly….thus we have to compare July’s real PCE to the real PCE of the 3 months of the second quarter….while this report shows real PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 3 of the pdf for the 2nd quarter GDP report, where we find that the annualized real PCE for the 2nd quarter was represented by 16,355.4 billion in chained 2017 dollars)….when we compare July’s 2017 dollar adjusted PCE of 16,408.4 billion to the 2nd quarter adjusted PCE of 16,355.4 billion, we find that July real PCE has grown at a 1.303% annual rate from the 2nd quarter….that means that even if July’s real PCE growth does not improve during August and September, that growth in PCE would still add 0.90 percentage points to the growth rate of 3rd quarter GDP…
July’s Durable Goods: New Orders Fell 2.8%, Shipments Rose 1.4%, Inventories Rose 0.3%
The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $8.8 billion, or by 2.8 percent, to $302.8 billion in July, the third decrease in four months, following a decrease of 9.4% to $311.6 billion in June’s new orders, which was revised from the 9.3% decrease to $311.8 billion reported for June’s new orders a month ago….but even after those big decreases, year to date new orders are still running 7.3% above those of 2024, albeit down from the 7.9% year-to date increase we saw in this report last month…
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 $10.9 billion or 9.7 percent to $101.7 billion, on a 32.7% decrease to $19,106 million in new orders for private and commercial aircraft (NB: new aircraft orders had been down 52.7% in June, but up 231.6% in May)….excluding new orders for transportation equipment, other new orders were up 1.1% in July, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 1.1% to $76,430 million…
The seasonally adjusted value of July’s shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased $4.3 billion or 1.4 percent to $307.5 billion, the eighth consecutive increase, after the value of June shipments was revised from $302.5 billion to $303.2 billion, which is now a 0.7% increase from May….shipments of transportation equipment led the July increase, as they rose $2.3 billion or 2.3 percent to $101.5 billion, on a 15.5% increase in shipments of commercial aircraft, while shipments other than those of transportation equipment were still 1.0% higher…meanwhile, the value of shipments of nondefense capital goods excluding aircraft was up 0.7% to $76,470 million, an increase that will be reflected in 3rd quarter GDP equipment investment figures, after adjusting for any price changes…
Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the tenth consecutive month, increasing by $1.8 billion or 0.3 percent to $590.8 billion, after the value of end of June durable goods inventories was revised from $588.6 billion to $589.0 billion, still a 0.2% increase from May…a $0.5 billion or 0.3 percent increase to to $188.9 billion in inventories of transportation equipment led the July inventory increase, due to a 0.8% increase in the value of inventories of motor vehicles and parts, but the value of inventories of durable goods other than transportation equipment was also up 0.3% at $357.6 billion…
Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, rose for the twelfth time in thirteen months, increasing by $0.4 billion to $1,469.4 billion, an increase which is considered unchanged statistically….that followed an increase of $13.4 billion, or 0.9% to $1,383.9 billion in June, that was revised from the $14.4 billion, 1.0% increase to $1,470.0 billion that was previously reported.…Census cites a $0.2 billion or 0.3 percent increase to $52.1 billion in the value of unfilled orders for electrical equipment as leading the July increase, since both the value of unfilled orders for transportation equipment and unfilled orders excluding transportation equipment orders were up, but statistically unchanged for the month….compared to a year earlier, the unfilled order book for durable goods is still 7.1% above the level of last July, as unfilled orders for transportation equipment are 11.4% above their year ago level, largely reflecting an 14.6% increase in the backlog of orders for commercial aircraft…
New Home Sales Little Changed in July on Lower Prices
The Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 652,000 new homes a year, which was 0.6 percent (±15.5 percent)* below the revised June rate at 656,000 new single family home sales a year, and was 8.2 percent (±14.0 percent)* below the estimated annual rate that new homes were selling at in July of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether July’s new home sales rose or fell from those of June, or even from those of July 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….hence, these initial new home sales reports are not very reliable and often see significant revisions…with this report; sales new single family homes in June were revised from the annual rate of 627,000 reported last month to a 656,000 a year rate, and home sales in May, initially reported at an annual rate of 623,000 and unchanged from that figure last month, were revised up to a 630,000 annual rate with this report, while April’s annualized home sales rate, initially reported at 743,000 and revised from 722,000 down to a 705,000 rate last month, were revised a bit higher, to a 706,000 rate, with this release..
The annual rates of home sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 56,000 new single family homes sold in July, down from the 57,000 new homes that sold in June, and also down from the 57,000 that sold in May, and also down from the 65,000 new homes that sold in April….the raw figures from Census field agents’ reports were further used to estimate that the median sales price of new houses sold in July was at $403,800, down from the median sale price of $407,200 in June, and down from the median price of $429,000 in July a year ago, while the average July new home sales price was at $487,300, down from $505,300 average sales price in June, and down from the average sales price of $513,200 in July a year ago, and down 13.6% from the record $564,000 average sales price of July 2022….a seasonally adjusted estimate of 499,000 new single family houses remained for sale at the end of July, which represents a 9.2 month supply at the July sales rate, virtually unchanged from the revised 9.2 month supply of unsold new homes available in June, which had previously been reported as a 9.8 month supply….
(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…)
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