Q3 GDP revision, November’s income & outlays, October’s construction spending
The key economic reports that were released last week were the "updated" estimate of 3rd quarter GDP and the combined October and November reports on Personal Income and Spending, both from the Bureau of Economic Analysis…since the latter includes two months of 4th quarter PCE data, it also accounts for nearly half of 4th quarter GDP…this week also saw the long delayed release of the October report on Construction Spending (pdf) from the Census Bureau….
3rd Quarter GDP Growth Rate Revised Up to 4.4% in Updated Estimate
Note: the initial estimate of 3rd quarter GDP, released on December 23rd, incorporated both what would normally be the advance and the second estimates, combined and late due to data losses during the shutdown…thus this updated estimate of 3rd quarter GDP replaces what would normally be the 3rd estimate, and hence is the last of the monthly 3rd quarter GDP updates…the 3rd estimate of 3rd quarter GDP was originally scheduled for release on December 23rd, so we’re still running a month behind..
At any rate, the Updated Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 4.4% annual rate in the quarter, revised from the 4.3% growth rate reported in the initial estimate last month, as upward revisions to private inventories and to net exports more than offset small downward revisions to growth of personal consumption and fixed investment…..in current dollars, our third quarter GDP grew at a 8.28% 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 $31,098.0 billion annual rate in the 3rd quarter, with the headline 4.4% 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…
Recall that the GDP news release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 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 updated estimate of 3rd quarter GDP, which one can access from the BEA’s GDP landing page… 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 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 components……the pdf for the 3rd quarter’s initial estimate, which this estimate revises, is here…
Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised but statistically unchanged from the 3.5% growth rate reported last month in this updated estimate…that growth rate figure was arrived at by deflating the 6.33% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated that consumer inflation increased at a rounded 2.8% annual rate in the 3rd quarter, which was statistically unrevised from the PCE inflation rate reported a month ago….real consumption of durable goods grew at a 1.6% annual rate, which was unrevised from the initial estimate, and added 0.12 percentage points to the GDP growth rate, as an increase in real consumption of recreational goods and vehicles at a 15.4% rate offset lower output of motor vehicles, furniture, and durable household equipment…meanwhile, real consumption of nondurable goods by individuals grew at a 3.9% annual rate, which was also unrevised from the initial estimate, and added 0.53 percentage points to the 3rd quarter’s economic growth rate, as increased real consumption of nondurable goods of nondurable goods other than groceries, clothing, and gasoline accounted for more than half of the growth in nondurable goods output…..at the same time, real consumption of services grew at a 3.6% annual rate, revised from the 3.7% growth rate reported last month, and added 1.70 percentage points to the final GDP growth tally, as health care services grew at a 6.7% rate and accounted for almost half of the 3rd quarter’s broad based growth in services…
Meanwhile, seasonally adjusted real gross private domestic investment was virtually unchanged in the 3rd quarter, revised from the 0.3% contraction estimate reported last month, as real private fixed investment grew at an 0.8% rate, revised from the 1.0% growth rate reported in the second estimate, while the shrinkage of inventory investment was less than was previously estimated… investment in non-residential structures contracted at a 5.0% annual rate, revised up from the 6.3% shrinkage rate previously reported, while real investment in equipment was revised to show growth at a 5.2% rate, revised down from the 5.4% 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 5.4% rate to growth at a 5.6% rate, while real residential investment was shown to be contracting at a 7.1% annual rate, revised down 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 increased in investment in equipment added 0.28 percentage points to the quarter’s growth rate, and growth in investment in intellectual property added 0.31 percentage points to the growth rate of 3rd quarter GDP, while the contraction in residential investment subtracted 0.29 percentage points from the growth rate of the 3rd quarter’s GDP…
At the same time, investment in real private inventories fell by an inflation adjusted $23.9 billion in the 3rd quarter, revised from the previously reported inventory contraction at an inflation adjusted $29.6 billion rate…that came after inventories had contracted by inflation adjusted $18.3 billion in the 2nd quarter, and hence the $5.7 billion negative change in real inventory growth from that of the 2nd quarter decreased the growth of private investment and subtracted 0.12 percentage points from the 3rd quarter’s growth rate, revised from the 0.22 percentage point subtraction from GDP growth due to the greater inventory shrinkage that was indicated by the initial estimate…. however, since a reduction in inventory growth indicates that less of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $5.7 billion decrease in their growth 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 4.5% rate in the 3rd quarter, revised from the 4.6% rate of increase in real final sales shown in the initial estimate, but still down from the 7.5% real final sales growth rate of the second quarter, when the $190.2 billion decrease in inventory growth meant that real final sales of GDP were that much greater….
The previously reported increase in real exports was revised higher with this estimate, while the previously reported increase in real imports was revised higher by less, and as a result the change in our net trade was a bit bigger addition to GDP than was previously reported…our real exports grew at a 9.6% rate, revised from the 8.8% growth rate reported in the 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 growth added 1.00 percentage points to the 3rd quarter’s growth rate, up from the 0.92 percentage point addition to GDP shown in the previous estimate….meanwhile, our real imports decreased at a 4.4% rate, revised from the prior estimate’s 4.7% figure, 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 that portion was not produced here, their decrease at a 4.4% rate conversely added 0.62 percentage points to 3rd quarter GDP, revised from the 0.67 percentage point addition shown last month…..thus, our improving trade balance added a rounded net of 1.62 percentage points from 3rd quarter GDP, rather than the rounded 1.59 percentage point addition that had been indicated by the initial estimate..
Finally, the entire government sector grew at a 2.2% rate in the 3rd quarter, revised but unchanged from the 2.2% growth rate previously reported, as the growth rate of federal government consumption and investment was revised lower, while growth of real state & local government consumption and investment was higher than previously reported….real federal government consumption and investment grew at a 2.7% rate from the 2nd quarter in this estimate, revised from the 2.9% growth rate reported in the initial estimate, as real federal outlays for defense rose at a 5.7% rate, revised from the 5.8% growth rate shown previously, and added 0.21 percentage points to 3rd quarter GDP, while all other federal consumption and investment shrunk at a 1.4% rate, revised from the 1.1% contraction rate shown previously, and subtracted 0.04 percentage points from 3rd quarter GDP growth…..meanwhile, real state and local consumption and investment grew at a 2.0% rate during the quarter, which was revised from the 1.8% growth rate reported in the 1st estimate, and added 0.21 percentage points to the 3rd quarter’s growth, as an increase in real state and local investment at a 1.0% rate accounted for just 0.02 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…
November Personal Income Rose 0.3%; Personal Spending Rose 0.5%; PCE Price Index Rose 0.2%*, Savings Rate at a 3 Year Low
Note: this week’s release of Personal Income and Outlays from the Bureau of Economic Analysis includes reports for both October and November, originally scheduled for releases on November 26 and on December 19 respectively, and delayed in the wake of the shutdown, as other delayed reports from the Census Bureau and the Bureau of Labor Statistics contribute source data to this report…Since this report thus gives us 2 months of data on our personal consumption expenditures (PCE), which now accounts for over 69% of GDP, and the PCE price index, the inflation gauge that 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, it gives us nearly half the data that will go into 4th quarter GDP ….this report also provides us with our national personal income data, disposable personal income, which is income after taxes, and our monthly national savings rate…however, because this report feeds in to GDP and other national accounts data, the figures reported for each of those metrics are not the current monthly change; rather, they’re seasonally adjusted amounts reported at an annual rate…however, the percentage changes are computed 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 and from October to November….
Thus, as they explain in the opening line of the news release for this report: “Personal income increased $30.6 billion (0.1 percent at a monthly rate) in October, followed by an increase of $80.0 billion (0.3 percent) in November“, which means that the annualized figure for seasonally adjusted personal income in November, $26,402.9 billion, was a rounded $80.0 billion, or about 0.3% higher than the annualized personal income figure of $26,323.0 billion extrapolated for October; which in turn was $30.6 billion, or more than 0.1 higher than the the annualized personal income figure of $25,008.4 billion extrapolated for September…at the same time, annualized disposable personal income, which is income after taxes, also rose by nearly 0.3% in November, from an annual rate of $21,934.0 billion in October to an annual rate of $21,995.1 billion in November, after rising $12.0 billion (0.1 percent) from $26,292.4 in September to October…the actual increases in personal income from September to October, and from October to November, which is about one-twelfth of the increases indicated, is not given….the monthly contributors to the change in personal income, which can be viewed in the Full Release & Tables (PDF) for this release, are also annualized…in November, the main reasons for the $80.0 billion annual rate of increase in personal income were a $47.9 billion annual rate of increase in wages and salaries and a $13.9 billion annual rate of increase in interest and dividend income…wages and salaries were up at a $42.8 billion annual rate in October, but interest and dividend income fell at a $13.5 billion annual rate….
For the personal consumption expenditures (PCE) that will be used in computing 4th quarter GDP, BEA reports that they increased at a $108.7 billion annual rate, or at a 0.5% rate in November, after increasing at a $98.6 billion annual rate in October, as the annual rate of PCE rose from $21,202.4 in September to $21,301.0 billion in October and to $21,409.7 billion in November….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized at a $97.8 billion in October and then by $107.9 billion to $21,027.0 billion annually in November, which thus left total personal savings, which is disposable personal income less total outlays, at a $799.7 billion annual rate in November, down from the $843.9 billion in annualized personal savings in October… as a result, the national personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.5% in November, down from the October savings rate of 3.7%, and the lowest personal savings rate since November 2022…
Before personal consumption expenditures can be 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….the BEA does that by computing, mostly from CPI source data, 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 127.625 in September to 127.828 in October to 128.093 in November, month over month inflation rates that were statistically +0.15906% in October and +0.20731 in November, which the BEA reports as 0.2% increases for both months, following the increase of 0.3 percent in the PCE price index they reported for September, and yielding a 2.8% year over year PCE inflation rate in November, the same annual increase shown in September's report… applying the actual inflation adjustments for October and November to the nominal change in spending meant that real PCE was up by 0.305496 in October, and that real PCE was up by 0.302368% in November, which the BEA reports as a 0.3% increases for both months…also note that when those 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 another….that result is shown in table 4 of the PDF, where we see that November’s chained dollar consumption total works out to 16,715.4 billion annually in 2017 dollars, 0.301828% more than October’s 16,665.1, which was in turn 0.305761% more than September’s 16,614.3, figures which the BEA rounds and reports as a change of 0.3% for both months…
However, to estimate the impact of the change in PCE on the change in GDP, month over month changes expressed like that don’t help us much, since GDP is reported quarterly…thus we have to compare October’s and November’s real PCE to the the real PCE of the 3 months of the third quarter….while this report shows annualized chained dollar PCE for those three months monthly, we now need to access table 3 of the pdf for the revised 3rd quarter GDP report to find that the annualized real PCE for the 3rd quarter was represented by 16,585.9 billion in those same chained 2017 dollars….then, by averaging the annualized chained 2017 dollar PCE figures for October and November, 16,665.1 billion and 16,715.4 billion respectively, we get an equivalent annualized PCE for the two months of the 4th quarter data that we have so far….when we compare that average of 16 690.25 to the 3rd quarter’s real PCE representation of 16,585.9, we find that 4th quarter real PCE has grown at a 2.54% annual rate for the two months of the 4th quarter that are included in this report…(note the math we used to get that annual growth rate: [ (((16,715.4 + 16,665.1) / 2 ) / 16,585.9 ) ^ 4 = 1.02540445 ] )…that’s a growth rate that would add 1.75 percentage points to the growth rate of 4th quarter GDP, in the unlikely event that December PCE doesn’t vary from the October – November average…
* the asterisk we attach to this report is explained by the technical notes in the press release: Due to a lapse in federal appropriations, the Bureau of Labor Statistics (BLS) could not collect October 2025 consumer price index (CPI) data. To replace the missing CPIs, BEA derived seasonally adjusted price indexes for October using the geometric mean of the September and November CPIs. BEA derived non-seasonally adjusted price indexes by applying seasonal adjustment factors from October 2024 to the imputed seasonally adjusted values for October 2025. Since the majority of the price changes incorporated into the computation of the PCE price index are sourced from the BLS’s CPI data, the PCE price index data is similarly suspect…
Construction Spending Rose 0.5% in October after Falling 0.6% in September
Note: Like the Census Bureau’s reports on housing, the September report on Construction Spending was cancelled because the data collection for it lapsed during the shutdown, and hence this week’s October report also incorporates initial estimates for September’s construction spending..
The Census Bureau’s report on construction spending for October (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $2,175.2 billion if it were extrapolated over an entire year, which was 0.5 percent (±0.7 percent)* above the initial September estimated annual rate of $2,164.3 billion, but 1.0 percent (±1.5 percent) below the estimated annual rate of construction spending in October of last year…September’s initial estimated construction spending annual rate of $2,164.3 billion was 0.6% below the revised August annual rate of $2,177.4 billion…for the first ten months of last year, construction spending totaled $1,825.3 billion, which was 1.4 percent (±1.0 percent) less than the $1,851.4 billion spent on construction over the same period in 2024…
The annualized construction spending estimate for August was revised almost 0.4% higher with this release, from the original estimate of $2,169.5 billion to $2,177.4 billion, while the annual rate of construction spending for July was revised almost 0.2% higher, from $2,165.0 billion to $2,168.5 billion…the initial report on 3rd quarter GDP estimated September construction spending components based on their change from the originally published August figures…the Key source data and assumptions for 3rd quarter GDP assumed 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…while September’s construction spending is showing an aggregate $12.9 billion decrease from August, that was after August’s total construction figure was revised $7.9 billion higher…hence, the net of the annualized figures used for September construction spending in the GDP report was $1.7 billion lower than what this report shows… The combined upward revisions of $18.1 billion to annualized July, August and September GDP construction figures indicated by this report would be averaged over the 3 months of the quarter and increase the annualized 3rd quarter construction figures by around $6.0 billion, before any inflation adjustment, which would thus suggest an upward revision of about 0.11 percentage points to the relevant components of third quarter GDP when the third estimate is released on January 22nd…(NB: the above was written before the GDP release and is left here to show how far off these crude estimates can be)
A further breakdown of the different subsets of construction spending is provided in a Census summary, which precedes the detailed spreadsheets:
- Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,651.3 billion, 0.6 percent (±0.5 percent) above the September estimate of $1,640.8 billion. Residential construction was at a seasonally adjusted annual rate of $913.9 billion in October, 1.3 percent (±1.3 percent)* above the September estimate of $902.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $737.4 billion in October, 0.2 percent (±0.5 percent)* below the September estimate of $738.5 billion.
- Public Construction: In October, the estimated seasonally adjusted annual rate of public construction spending was $524.0 billion, 0.1 percent (±1.0 percent)* above the September estimate of $523.5 billion. Educational construction was at a seasonally adjusted annual rate of $114.8 billion, 0.7 percent (±1.3 percent)* above the September estimate of $114.0 billion. Highway construction was at a seasonally adjusted annual rate of $141.6 billion, 0.1 percent (±2.6 percent)* above the September estimate of $141.4 billion.
As you can tell from the above synopsis, the construction spending reported here would be included in 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of October spending reported in this release on 4th quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price….but accurately adjusting construction spending for price changes is not easy, because the National Income and Product Accounts Handbook, Chapter 6, lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, ie, such as using the Handy-Whitman construction cost indexes for construction of electric light and power plants and for construction of utility buildings…in lieu of trying to find and adjust for all of the obscure price indices the BEA uses separately, we’ve opted to use the producer price index for final demand construction as an inexact shortcut in an attempt to make a reasonable price adjustment on the total.. That index showed that aggregate construction costs were up 1.6% month over month in October, after being unchanged in September and decreasing by 0.1% in August…
On that basis, we could estimate that October’s construction costs were roughly 1.5% more than those of July, 1.6% more than those of August, and obviously 1.6% more than those of September. We’ll then use those percentage change differences to inflate the lower cost spending figures for those 3rd quarter months, which is arithmetically the same as deflating higher cost October construction spending, for purposes of comparison. Annualized construction spending in millions of dollars for the third quarter months is shown to be $2,164,348 in September, $2,177,240 in August, and $2,168,482 in July. Thus to adjust October’s nominal construction spending of $2,175,239 million for inflation in order to compare it to that of the third quarter, our arithmetic formula would be: 2,175,239 / (((2,164,348 * 1.016 ) + (2,177,240 * 1.016 ) + (2,168,482 * 1.015 )) / 3) = 0.986941195, meaning real construction in October averaged 1.306% lower than that of the 3rd quarter, or that it fell at a 5.12% annual rate. To figure the effect of that change on GDP, we figure the difference between the third quarter inflation adjusted average and that of October and take the annualized result of that as a fraction of the inflation adjusted 3rd quarter GDP figure, and find that real October construction spending is falling at a rate that would subtract about 0.55 percentage points from 4th quarter GDP, assuming hypothetically that there would be no change in real construction over the next two months….
----- Forwarded Message ----- From: r.j. sigmund(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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