3rd quarter GDP, November’s industrial production, & October’s durable goods..

Major shutdown delayed reports that were released this week included the 1st estimate of 3rd quarter GDP from the Bureau of Economic Analysis, the November report on Industrial Production and Capacity Utilization from the Fed, and the Advance Report on Durable Goods for October from the Census Bureau…

This week also saw the Chicago Fed National Activity Index (CFNAI) for September, a weighted composite index of 85 different economic metrics, which increased to –0.21 in September from –0.31 in August, which was revised down from the –0.12 reading reported for August three months ago.…that left the 3 month average of the CFNAI at -0.21 in September, down from -0.18 in August, which, as a negative number, would indicate that national economic activity had averaged below the historical trend over those three Summer months… in addition, this week also saw the results from another regional Fed manufacturing survey for December: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported their broadest composite manufacturing index rose to −7 in December from −15 in November, indicating that a smaller plurality of that region’s manufactures reported deteriorating conditions in December than a month earlier…

3rd Quarter GDP Grew at a 4.3% Rate on Greater Consumer Services and Net Exports

The Initial Estimate of 3rd Quarter GDP, released on December 23rd by the Bureau of Economic Analysis, is meant to replace the Advance Estimate of 3rd quarter GDP, originally scheduled for release on October 30th, and the Second Estimate, originally scheduled for November 26th…the 3rd estimate of 3rd quarter GDP, originally scheduled for December 23rd, has been postponed until January 22nd, and will revise and update what’s in this Initial Estimate…despite being two months late, some of the source data for this report is still missing, and some of the data needed to compute 4th quarter GDP will probably never be recovered…

That said, this Initial Estimate of 3rd Quarter GDP indicates that the real output of goods and services produced in the US grew at a 4.3% rate in the 3rd quarter, a bit faster than the 3.8% growth rate of the second quarter, as increased consumer outlays for goods and services, a slower contraction of inventories, increased exports, and an expansion of government were partly offset by weaker fixed investment, and less negative imports, which subtracts from what was added by other GDP components….the Initial Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 4.3% annual rate over the output of the 2nd quarter, when our real output grew at a 3.8% rate….in current dollars, our third quarter GDP grew at a 8.24% annual rate, increasing from what would work out to be a $30,485.7 billion a year output rate in the 2nd quarter to a $31,095.1 billion annual rate in the 3rd quarter, with the headline 4.3% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 3.8% were computed from the price changes of the GDP components and applied to their current dollar change….

As is usual with any first estimate, the source data is incomplete and is also subject to revisions, which have normally averaged +/-0.6% in either direction between the first estimate and third estimate for the quarter is released…note that the BEA assumed a $4.7 billion annualized decrease in exports of services, a $3.1 billion annualized increase in imports of services, a $1.4 billion monthly decrease in residential construction, a $3.2 billion monthly decrease in non-residential construction, and a $0.1 billion decrease in public construction for September before they estimated the 3rd quarter’s output (see Key source data and assumptions (xls) for more details; figures that are estimated without source data are marked by an octothorp (#) ).

While we review the details for the 3rd quarter below, remember that the news release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change that’s a bit more than 4 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 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 'initial' estimate of 3rd quarter GDP, which we find linked on the BEA GDP landing page, which also provides links to just the tables on Excel and other technical notes on this report…specifically, we source from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 4th 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…

Personal consumption expenditures (PCE), which represents the goods and services produced for consumers and accounted for around 69% of GDP, grew at a 6.40% annual rate in current dollars in the 3rd quarter, which worked out to a rounded 3.5% real growth rate of consumed goods and services after the 3rd quarter’s annualized 2.8% PCE price index increase was computed from price changes of the PCE components and used to adjust that nominal personal spending for inflation….consumer outlays for durable goods grew at a 2.12% rate, but average prices of those durable goods grew at a 0.5% rate, and from that, the BEA figured that the real growth of the output of consumer durables grew at a 1.6% rate, as an increase in real consumption of recreational goods and vehicles at a 15.7% rate offset lower output of motor vehicles, furniture, and durable household equipment…at the same time, consumer spending for non-durable goods grew at a 6.20% rate, which was adjusted for prices that grew at an average 2.2% rate, and hence the real output of consumer non-durable goods increased at a 3.9% rate, as greater real consumption of nondurable goods other than groceries, clothing, and gasoline accounted for more than half of the growth in nondurable goods output…. meanwhile, the 3rd quarter’s 7.15% nominal growth rate in consumer outlays for services was deflated by a 3.3% increase in prices for personal services to show that the real output of consumer services grew at a rounded 3.7% annual rate, as the health care component grew at a 6.8% rate and accounted for more than half of the quarter’s broad based growth in services…as a result of those changes in growth from the 2nd to the 3rd quarter, the modest increase in real consumption of durable goods added 0.12 percentage points to the GDP growth rate, the real increase in non-durable goods produced for consumers added 0.54 percentage points, and increased consumption of personal services added 1.74 percentage points to the growth rate of GDP in the 3rd quarter…

The change in other components of the change in GDP are computed by the BEA in the same manner as we have just illustrated for computing the PCE components; ie, in each case, the annualized percentage increase in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the percentage change in real units of goods or services produced during the quarter, at an annual rate…..thus, after inflation adjustments, real gross private domestic investment, which had shrunk at a 13.8% annual rate in the 2nd quarter, contracted at a 0.3% annual rate from those levels in the 3rd quarter, as real growth in fixed investments grew at an 1.0% annual rate in the 3rd quarter, after growing at a 4.4% rate in the 2nd quarter, while the decrease in the change of private inventories was less in the 3rd quarter than in the 2nd quarter and hence reduced GDP by less….among the fixed investment categories, real nonresidential fixed investment grew at a 2.8% rate, even though real investment in non-residential structures shrunk at a 6.3% rate and subtracted 0.19 percentage points from 3rd quarter GDP, as real investment in equipment grew at 5.4% rate and added 0.29 percentage points to GDP, and real investment in intellectual property also grew at a 5.4% rate and added 0.30 percentage points to GDP…however, real residential investment shrunk at a 5.1% rate in the 3rd quarter, after also shrinking at a 5.1% rate in the 2nd quarter, and subtracted 0.22 percentage points from 3rd quarter GDP, and thus lowered the overall fixed investment component growth rate to 1.0%….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.

Meanwhile, a decrease in private inventories in the 3rd quarter that was greater than the decrease in the 2nd quarter decreased gross investment and hence GDP, as real private inventories were down by an inflation adjusted $29.6 billion in the 2nd quarter, after contracting by inflation adjusted $18.3 billion in the 2nd quarter, and as a result the $13.9 billion decrease in real inventory growth subtracted 0.22 percentage points from the 3rd quarter’s growth rate, after an inflation adjusted $190.2 billion decrease in inventory growth (from +$172.0 billion to -$18.3 billion) in the 2nd quarter had subtracted 3.44 percentage points from that quarter’s GDP growth rate….however, shrinking inventories indicate that less of the goods produced during the quarter were left sitting on a shelf or in storage, so their quarter over quarter decrease at a $13.9 billion rate meant that real final sales of GDP were relatively greater by that amount, and hence real final sales of GDP grew at a 4.6% rate in the 3rd quarter, after real final sales had increased at a 7.5% rate in the 2nd quarter, when the $190.2 billion decrease in inventory growth meant that real final sales of GDP were that much greater…

Our real exports increased during the third quarter, but our real imports decreased, so both boosted third quarter GDP….Our real exports of goods and services grew at a 8.8% rate in the third quarter, after shrinking at a 1.8% rate in the 2nd quarter, while our real imports shrunk at a 4.7% rate in the third quarter, after shrinking at a 29.3% rate in the 2nd quarter.  As you might recall, increases in exports are added to GDP because they represent a 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 are subtracted from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been, because that portion of the component was not produced here. Thus the 3rd quarter increase in real exports added 0.92 percentage points to 3rd quarter GDP, after the 2nd quarter decrease in exports had subtracted 0.20 percentage points from second quarter GDP. On the other hand, since imports subtract from GDP, their decrease at a 4.7% rate conversely added 0.67 percentage points to 2nd quarter GDP, after the second quarter import decrease had added 5.03 percentage points to that quarter’s growth….As a result, our improving trade balance added a rounded net of 1.59 percentage points from the 3rd quarter’s GDP growth, after our second quarter trade imbalance had added 4.83 percentage points to GDP growth in that quarter..

Finally, real consumption and investment by the government sector increased at a 2.2% annual rate in the 3rd quarter, after shrinking at a 0.1% rate in the 2nd quarter, as real federal government consumption and investment grew at a 2.9% rate, while real state and local consumption and investment grew at a 1.8% rate. Inflation adjusted federal spending for defense grew at a 5.8% rate, and that added 0.21 percentage points to 3rd quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 1.1% rate and subtracted 0.03 percentage points from 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 those goods or services. Meanwhile, real state and local government investment and consumption expenditures, which grew at a 1.8% annual rate, added 0.20 percentage points to the 3rd quarter’s growth rate, as an increase in real state and local investment at a 0.9% rate accounted for just 0.02 percentage points of the state and local contribution…

Industrial Production Rose 0.2% in November After Falling 0.1% October

The Fed’s report on Industrial production and Capacity Utilization for November included preliminary estimates for industrial production and capacity utilization for both October and November, as well as revised estimates for May through September, and that was after their report for September, released three weeks earlier, had followed a significant annual revision on November 24th, which lowered most previously published metrics considerably going back to 2018…however, with all of that out of the way, they should be back to their regular monthly schedule with minimal anomalies starting with the report on December in mid-January..

this week’s report on Industrial production and Capacity Utilization for November indicated that industrial production rose 0.2 percent in November after falling 0.1 percent in October, and rising by a revised 0.1% in September, putting it 2.5% above its year ago level….the total industrial production index, with the benchmark still set for average 2017 production to equal to 100.0, rose to 101.8 in November from 101.6 in October, after the September index was revised up from 101.4 to 101.7, the August index was revised up from 101.3 to 101.6, the July index was revised up from 101.6 to 101.8, the June index was revised from 101.4 to 101.5, and the May index was revised but remained at 101.0….

The manufacturing index, which accounts for about 77% of the total IP index, was statistically unchanged, even while rising from 96.9 in October to 97.0 in November, after the October manufacturing index fell 0.4%, from 97.3 to 96.9….however, the manufacturing index for September was revised up from 97.0 to 97.3, the manufacturing index for August was also revised from 97.0 to 97.3, the manufacturing index for July was revised from 97.0 to 97.2, the manufacturing index for June was revised from 96.8 to 96.9, and the manufacturing index for May was revised from 96.6 to 96.5, leaving the manufacturing index 1.9% higher than a year earlier…meanwhile, the mining index, which includes oil and gas well drilling, rose 1.7%, from 120.8 in October to 122.8 in November, after the September mining index was revised but remained at 121.7, while the August mining index was revised up from 121.7 to 122.5, which left the mining index 3.9% higher than it was a year earlier…finally, the utility index, which often fluctuates due to above or below normal temperatures, fell 0.4% in November, from 110.5 in October to 110.0 in November, after the September utility index was revised but remained at 107.7, still leaving the utility index 4.8% higher than it was a year earlier…

This report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total US industry rose to 76.0% in November from 75.9% in October, but was unchanged from 76.0% in September…capacity utilization of NAICS durable goods production facilities fell from 74.0% in September and from 73.5% in October to 73.4% in November as capacity utilization for motor vehicles and parts factories fell from 67.9% to 64.5% to 63.9%, while capacity utilization for non-durables manufacturers was unchanged at 77.4% but was down from 77.6% in September…at the same time, capacity utilization for the mining sector rose to 86.3% in November from 84.8% in October and from 85.4% in September, while utilities were operating at 70.9% of capacity during November, down from their 71.4% of capacity during October but up from 69.9% of capacity in September…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories….

October’s Durable Goods: New Orders Fell 2.2%, Shipments Rose 0.6%, Inventories Rose 0.1%

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 watched new orders for manufactured durable goods fell by $6.8 billion or 2.2 percent to $307.4 billion in October, the first decrease in three months, after September’s new orders were revised from the 0.5% increase to $313.7 billion reported last month to an 0.7% increase to $314.2 billion…year to date new orders are still 7.1% above those of the first ten months of 2024, albeit down from the 7.3% year to date increase we saw in this report last month….

A 6.5% decrease in the value of the volatile monthly new orders for transportation equipment was the cause of this month’s new orders decrease, as the value of new transportation equipment orders fell $7.2 billion to $95.5 billion, on a 20.1% decrease to $17,408 million in new orders for commercial aircraft and parts and a 32.4% decrease to $6,086 million in new orders for defense aircraft… excluding orders for such “transportation equipment”, other new orders were up 0.2%, while excluding just new orders for defense equipment, new orders fell 1.5%….at the same time, the value of new orders for nondefense capital goods less aircraft, a proxy for new equipment investment orders, rose $406 million or by 0.5% to $78,028 million, after rising by an upwardly revised 1.1% in September..

Meanwhile, 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, rose by $1.8 billion or 0.6 percent to $309.6 billion, the tenth increase in eleven months, after the value of September shipments was revised from $307.7 billion to $307.8 billion, which was still up 0.1% from August….an increase in the value of shipments of transportation equipment led the October increase, rising $1.4 billion or 1.4 percent to $102.6 billion, on a 9.2% increase in the the value of shipments of commercial aircraft and a 3.0% increase in the value of shipments of defense aircraft, while the value of shipments excluding transportation equipment rose 0.2% to $206,990 million…meanwhile, the value of shipments of nondefense capital goods less aircraft rose 0.7% to $77,740 million, after the value of September’s capital goods shipments was revised from $77,041 million to $77,212 million, now up 1.2% from August..

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, increased for the first time in three months, rising $0.8 billion or 0.1 percent to $590.5 billion, after the value of September’s inventories was revised from $589.8 billion to $589.7 billion, still 0.1% lower than the prior month…a $0.3 billion or 0.3 percent increase to $103.3 billion in the value of inventories of machinery led the inventory increase, while the value of inventories of transportation equipment was virtually unchanged at $186.3 billion and the value of inventories of other than transportation equipment was 0.2% higher at $404.2 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 fifteenth time in the past sixteen months, increasing by $2.7 billion or 0.2 percent to $1,492.8 billion, after the value of September’s unfilled orders was revised from $1,489.7 billion to $1,490.1 billion, now an 0.8% increase from August….a $1.2 billion or 0.1 percent increase to to $930.2 billion in unfilled orders for transportation equipment lagged the October increase, while the value of unfilled orders excluding transportation equipment was up by 0.3% to $562,597 million….compared to a year earlier, the unfilled order book for durable goods is 8.0% above the level of last October, with the value of unfilled orders for transportation equipment 12.7% above their year ago level, largely due to a 15.7% increase in the value of the backlog of orders for commercial aircraft…

 

 

(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…)