1st Quarter GDP Revision, May’s Personal Income and Outlays, Durable Goods, and New Home Sales

The key economic releases last 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….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 fell from an upwardly revised +0.19 in April to –0.10 in May, in an index where any negative reading indicates economic activity has been below the historical trend…that May decrease left the 3 month average of the index at  –0.03 in May, down from +0.07 in April, which thus indicates that national economic activity has slipped to slightly below the historical trend over those recent Spring months…

In addition, the 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 +13 in June from +3 in May, indicating that a larger plurality of that region’s manufacturers were experiencing increasing manufacturing activity 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 11 in June, up from 8 in May and 10 in April, indicating that a slightly larger plurality of that region’s manufacturers were experiencing improving business metrics in June than did in May or April…

1st Quarter GDP Growth Rate Revised to 2.1% in 3rd Estimate

The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services grew at a 2.1% rate in the 1st quarter, revised from the 1.6% growth rate reported in the second estimate last month, as growth of imports, a subtraction from GDP, was much less than previously estimated, and inventories shrunk less, more than offsetting a sizable downward revision to the growth of real personal consumption expenditures of services….in current dollars, our first quarter GDP grew at a 5.76% annual rate, increasing from what would work out to be a $31,422.5 billion a year output rate in the 4th quarter of last year to a $31,865.7 billion annual rate in the 1st quarter of this year, with the headline 2.1% annualized rate of increase in real output arrived at after weighted annualized inflation adjustments averaging 3.6%, 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 3.5% reported last month thus lowered GDP by 0.1%, after the upward 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 a bit over 4 times of that which 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 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 National Income and Product Accounts Data Tables…the 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 1.4% growth rate reported last month…that real PCE growth figure comes by way of deflating the 5.18% 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 4.6% annual rate in the 1st quarter, which was revised from the 4.5% PCE inflation rate published a month ago….real consumption of durable goods grew at an 0.5% annual rate, which was revised from the 0.4% growth rate shown in the second estimate, and added 0.03 percentage points to GDP, as a decrease in real consumption of recreational goods and vehicles was more than offset by increased consumption of motor vehicles and parts, furniture, durable household equipment, and other durable goods…at the same time, real consumption of nondurable goods by individuals grew at a 0.6% annual rate, revised from the 0.5% nondurables growth rate reported in the 2nd estimate, and added 0.08 percentage points top the 1st quarter’s economic growth, as increases in real consumption of gasoline and other energy goods, and “other” nondurable goods offset a small drop in real consumption of food and beverages….meanwhile, personal consumption of services grew at a 0.5% annual rate, revised from the 1.8% growth rate reported last month, and added 0.26 percentage points to the final GDP tally, as growth in health care services was revised to a 0.1% rate and real growth of housing and utilities and financial services and insurance were partly offset by contractions in recreational services, food services and accommodations, and other services…

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 7.9% annual rate in the 1st quarter, revised from the 7.0% growth rate estimate reported last month, as real private fixed investment grew at a 6.5% rate, rather than at the 6.4% rate reported in the second estimate, while the positive change in private inventories was somewhat greater than had been previously estimated….real investment in non-residential structures was revised from contraction at a 5.4% rate to contraction at a 4.7% rate, while real investment in equipment was revised to show it grew at a 15.8% rate, revised from the 17.2% growth rate previously reported…at the same time, the 1st quarter’s investment in intellectual property products was revised from real growth at a 11.6% rate to real growth at a 13.8% rate, while the decrease in real residential investment was revised from a 6.2% rate to contraction at a 7.8% rate…after those revisions, the contraction in investment in non-residential structures subtracted 0.13 percentage points from 1st quarter GDP, the increase in investment in equipment added 0.81 percentage points to the quarter’s growth rate, and growth in investment in intellectual property added 0.77 percentage points to the growth rate of 1st quarter GDP, while the contraction in residential investment subtracted 0.30 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 change in real private inventories was revised from the previously reported $40.2 billion inflation adjusted contraction to show that inventories contracted at an inflation adjusted $16.7 billion rate…since that came after inventories had contracted at an inflation adjusted $46.2 billion rate in the 4th quarter, the change in real inventory growth from the 4th quarter to the first quarter was revised from a rounded $6.0 billion positive change to a $29.5 billion positive change, which thus added 0.23 percentage points to the 4th quarter’s growth rate, revised from the 0.08 percentage point addition to GDP from positive inventory growth reported in the second estimate..….however, since a positive change in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $29.5 billion increase in their GDP contribution conversely meant that real final sales of GDP were actually smaller by that amount, and therefore the BEA found that real final sales of GDP grew at a 1.9% rate in the 1st quarter, revised from the 1.5% real final sales growth rate shown in the second estimate, while they still were greater the real final sales growth rate of 0.3% in the 4th quarter, when the increase in inventory growth meant that the quarter’s growth in real final sales was less than that of the quarter’s GDP…

The previously reported increase in real exports was revised lower with this estimate, but the increase in real imports was revised much lower, and as a result our net trade was a much smaller subtraction from GDP than was previously reported…our real exports of goods and services grew at a 10.9% rate in the 1st quarter, revised from the 13.1% 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 1.12 percentage points to the 1st quarter’s growth rate, down from the 1.34 percentage point addition shown last month….meanwhile, the previously reported 25.5% increase in our real imports was revised to a 16.6% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their increase subtracted 1.49 percentage points from 1st quarter GDP, revised from the 2.59 percentage point subtraction due to imports shown a month ago….thus, the reduced trade imbalance indicated by this estimate subtracted a net 0.37 percentage points from 1st quarter GDP, revised from the 1.25 percentage point subtraction that had been indicated by the second GDP estimate..

Finally, there were also minor revisions to real government consumption and investment in this 3rd estimate, even as the entire government sector is now shown to have grown at a 4.4% rate, revised but unchanged from the 4.4% growth rate for government indicated by the 2nd estimate….real federal government consumption and investment grew at a 9.4% rate from that of the 4th quarter in this estimate, which was revised from the 9.5% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 2.1% rate, revised from the 2.3% growth rate shown previously, and added 0.08 percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 20.7% rate, unchanged from the growth rate shown in the 2nd estimate, and added 0.49 percentage points to GDP……meanwhile, real state and local consumption and investment grew at a 1.6% rate in the quarter, revised from the 1.5% growth shown in the 2nd estimate, and added 0.17 percentage points to 1st quarter GDP, which was revised from the 0.16 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 Rose 0.7%, Spending Rose 0.7%, PCE Prices Up 0.4%; 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 nearly 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 gives us 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 increased $181.6 billion (0.7 percent at a monthly rate) in May“, by which they mean that the annualized figure for seasonally adjusted personal income in May, $26,916.4 billion, was $181.6 billion, or almost 0.7% more than the annualized personal income figure of $26,734.8 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, rose by almost 0.7%, from an annual rate of $23,486.9 billion in April to an annual rate of $23,651.7 billion in May…..the details behind the annualized $186.1 billion increase in personal income can be viewed in NIPA Table 2.6 for this release, also as annualized amounts, and primarily reflected a $59.6 billion increase in farm proprietors' income, a $57.1 billion increase in wages and salaries, and a $29.3 billion increase in government social benefits to persons…again, those are all annualized figures…

For the personal consumption expenditures (PCE) that are the major component of GDP, the BEA reports that they increased at a $156.1 billion annual rate, or by almost 0.7 percent, as the annual rate of PCE rose from $21,903.7 billion in April to $22,059.8 in May; that came after the April PCE figure was revised down from the originally reported $21,979.4 billion annually, and March PCE was revised from an annual rate of $21,868.3 billion to an annual rate of $21,814.7 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier….the current dollar increase in May spending reflected a $94.3 billion increase in annualized spending rate for services, and a $61.8 billion increase to an annualized $6,237.4 billion in spending for goods…total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $159.9 billion to a $22,947.5 billion annual rate, which left national personal savings, which is disposable personal income less total personal outlays, at a $704.2 billion annual rate in May, up slightly from the revised $699.3 billion annualized personal savings in April…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 3.0% in May, after April’s savings rate was revised up from the originally reported 45 month low of 2.6% to 3.0%….

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 NIPA Table 2.8.4 for this report….that index rose from 130.938 in April to 131.527 in May, a month over month inflation rate that’s statistically 0.44983%, which BEA reports as +0.4%, following a rounded PCE price index increase of 0.4% they 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% higher in May, after a downwardly revised statistically unchanged real PCE in April…..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 those familiar chained 2017 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another….that result is shown in NIPA Table 2.8.6, where we see that May’s chained dollar consumption total works out to 16,773.4 billion annually, 0.26181% more than April’s 16,729.6 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 NIPA Table 1.1.6 from the GDP report,, where we find that the annualized real PCE for the 1st quarter was represented by 16,687.7 billion in chained 2017 dollars….then, by averaging the annualized chained 2017 dollar figures for April and May, 16,729.6 billion and 16,773.4 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 15,689.6 billion to the 1st quarter real PCE 2017 dollar representation of 15,643.0 billion, we find that 2nd quarter real PCE has risen at a 1.54% 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: (((16,729.6 + 16,773.4) / 2) / 16,687.7 ) ^ 4 = 1.01538062436….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 Fell 4.5%, Shipments Rose 1.0%, Inventories Rose 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 fell by $15.6 billion or by 4.5 percent to $332.1 billion in May, the first decrease in three months, following an 8.5% increase to $347.6 billion in April’s new orders, revised from the 7.9% increase to $346.0 billion that was indicated by last month’s report…even with new durable good orders down three out of five months of this year, year to date new orders are still running 6.2% higher than they were a year ago….

As is usually the case, a decrease in value of new orders for transportation equipment drove the May headline decrease, as they fell $18.5 billion or 14.0 percent to $113.5 billion, led by a 51.8% decrease to $17,830 million in new orders for nondefense aircraft and parts….excluding new orders for transportation equipment, other new orders rose 1.3% in May, while excluding new orders for defense equipment, new orders were down 4.6%…however, the value of new orders for nondefense capital goods excluding aircraft, an indicator of equipment investment intentions, rose 1.6% to $84,027 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 eighth time in nine months, increasing by $3.2 billion or 1.0 percent to $327.9 billion, after the value of April’s shipments was revised from a 0.5% increase to $324.3 billion to a 0.7% increase to $327.9 billion…. shipments of transportation equipment led the May increase, rising $1.5 billion or 1.4 percent to $109.5 billion, mostly on a 3.2% increase in the value of shipments of nondefense aircraft and parts….meanwhile the value of shipments of nondefense capital goods excluding aircraft rose 0.3% to $81,445 million in May, after a revised 0.5% increase 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 $0.9 billion or 0.2 percent to $600.0 billion, after the value of end of April inventories was revised from the $598.7 billion figure reported last month to $599.0 billion, still a 0.3% increase from March….a $0.6 billion or 1.3 percent to $50.9 billion in the value of inventories of primary metals led the inventory increase, while the value of inventories of transportation equipment slipped $13 million, or was virtually unchanged, on a 0.4% decrease 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 twenty-second time in the last twenty-three months, increasing by $9.2 billion or 0.6 percent to $1,579.5 billion, following a 1.8% increase to $1,570.3 billion in April, revised from the 1.7% increase to $1,569.0 billion reported a month ago…a $4.0 billion or 0.4 percent increase to $997.8 billion in the value of unfilled orders for transportation equipment led the increase, while the value of unfilled orders excluding transportation equipment orders was 0.9% higher at $581,638 million….compared to a year ago, the unfilled order book for durable goods is now 8.7% higher than the level of last May, with unfilled orders for transportation equipment 11.4% above their year ago level, largely on a 12.5% increase in the backlog of orders for commercial aircraft…

New Home Sales Reported 7.3% Lower in May on Higher Prices

The Census Bureau report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted annual rate of 580,000 during the month, which was 7.3 percent (±13.3 percent)* below the revised April rate of 626,000 new single family home sales a year and was 6.8 percent (±12.8 percent)* below the estimated annual rate that new homes were selling at in May of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from April or even 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 622,000 reported last month to a 626,000 annual rate, and March’s annualized home sale rate, initially reported at 682,000 annual rate, was revised from last months downwardly revised figure of 663,000 to a 664,000 rate, while the annual rate of February’s sales, initially reported at an annual rate of 635,000 and revised to an annual rate of 641,000 last month, were revised to an annual rate of 630,000 with this report…

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 51,000 new single family homes sold in May, down from the estimated 59,000 new homes that sold in April, and down from the estimated 63,000 new homes that sold in March….the raw figurers extrapolated from Census field agent reports further estimated that the median sales price of new houses sold in May was at $424,900, up from the median sales price of $416,500 in April, and up from the median sales price of $424,900 in May of last year, while the average May new home sales price was at $540,600, up from the $501,400 average price in April, and up from the average new home sales price of $514,800 in May a year ago…A seasonally adjusted estimate of 496,000 new single family houses remained for sale at the end of May, which represents a 10.8 month supply at the May sales rate, up from the revised 9.3 months supply in April….

(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…)