2nd quarter GDP; June’s reports on income and outlays, and durable goods

The key economic releases from last week were the 1st, or advance estimate of 2nd quarter GDP and the June report on Personal Income and Spending, and a June report that included metrics which were later included in the week’s release of 2nd quarter GDP: the June advance report on durable goods….this week also saw the release of the S&P CoreLogic Case-Shiller home price indexes for May from S&P Global, which is based on a 3-month average of March, April and May home repeat sales closing prices, and which reported that their national home price index was 1.1% higher than their home price index over the same three months of a year ago, up from the 0.9% annual increase they reported for April, but down from the 2.3% annual increase they reported a year ago….

This week also saw the release of the last two regional Fed manufacturing survey for July: the Dallas Fed’s Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, indicated its general business activity index rose to +1.3 in July from +0.0 in June, indicating a small plurality of Texas businesses are now experiencing improvement, after two months wherein those reporting improvement virtually matched those reporting a slowdown, and 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 +5 in July, up from a reading of +4 in June and from +3 in May, indicating that a slightly larger plurality of that region’s manufacturers reported improving business metrics in July than did in those prior months..

2nd Quarter GDP Grew at 1.5% Rate on Higher Personal Consumption and Fixed Investment

Our economy grew at a 1.5% rate in the 2nd quarter, a bit slower than the 2.1% growth recorded in the first quarter, as growth in personal consumption of goods and services, fixed investment, and exports were partly offset by a contraction of inventories, lower government consumption expenditures, and a large increase in imports, which subtracts from other GDP components… the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 1.5% annual rate over the output of the 1st quarter of this year, when our real output grew at a 2.3% rate… In current dollars, our second quarter GDP grew at a 7.87% annual rate, increasing from what would work out to be a $31,865.7 billion a year rate in the 1st quarter to a $32,475.2 billion annual rate in the 2nd quarter, with the headline 1.5% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 5.7% were computed from the price changes of the GDP components and applied to their current dollar change..

As is usual with an advance estimate, the source data used to compute GDP is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now….note that June construction, June trade in services, and non-durables inventory data have yet to be reported or estimated by the agencies responsible for that data, and that the BEA assumed a $2.2 billion increase in exports of services, a $7.7 billion increase in imports of services, a $0.9 billion increase in residential construction, a $3.1 billion decrease in non-residential construction, a $1.0 billion decrease in public construction, and a $1.2 billion decrease in nondurable factory inventories for June before they estimated our 2nd quarter output (see the Key source data and assumptions excel file that accompanies this report for more specific details)..

While we cover the details on the 2nd quarter below, 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 roughly four times of that which 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 quantity indexes than as any reality based dollar amounts, because the change in real GDP is not the change in a monetary metric…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…

Personal consumption expenditures (PCE), which accounts for roughly 68% of GDP, grew at a 8.45% rate in current dollars in the 2nd quarter, up from the first quarter’s personal consumer spending nominal increase at a revised 5.18% rate, but after inflation adjustments were made with PCE price indices increases of 4.6% for the first quarter and 5.1% for the 2nd quarter, real PCE rose at a 3.2% rate in the 2nd quarter after rising at a 0.5% rate in the first…nominal consumer spending for durable goods rose at a 12.2% rate, but since the weighted prices for those durable goods rose at a 5.0% rate, the real output of durable goods represented by that spending increased at a 6.8% rate, as a real increase in the implied output of motor vehicles and parts at a 10.5% rate accounted for almost half of the increase in durable goods .…at the same time, current dollar consumer spending for non-durable goods was 15.0% higher, while the PCE price index for non-durable goods rose by 10.1%, which meant that real growth in consumption of non durable goods was at a 4.4% rate, as greater consumption implied output of groceries, clothing and prescription drugs was offset by a real drop in consumption of gasoline…. similarly, the 6.04% current dollar growth rate in personal spending for services was deflated by a rounded 3.7% PCE services price index increase to show the 2nd quarter’s real growth in services was at a 2.2% rate, as growth in food services and accommodations accounted for about 30% of the quarter’s growth of services….thus, with decent real growth in all the components of personal consumption expenditures, our increased output of consumer durable goods added 0.49 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.60 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.04 percentage points to the growth rate of 2nd quarter GDP…

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in Table 1.6.7 of our National Income and Product Accounts to yield the real change in the output of goods or services…..hence, real gross private domestic investment, which had grown at a 7.9% annual rate in the 1st quarter as both fixed investment and inventories grew, grew at a 3.0% annual rate in the 2nd quarter, as fixed investment grew but inventory growth shrunk….real fixed investment grew at a 7.0% rate in the second quarter after growing at a 6.5% rate in the first quarter, as real nonresidential fixed investment grew at a 8.4% annual rate, down from the 10.6% growth rate reported for the first quarter, as real investment in non-residential structures shrunk at a 5.0% rate, down slightly from the first quarter’s real contraction rate of 4.7%, while real investment in equipment grew at a 15.2% rate, also down slightly from the first quarter’s 15.8% real growth, and as investment in intellectual property grew at 8.8% rate, down from the first quarter’s 13.9% growth rate….after those changes, our lower real investment in non-residential structures subtracted 0.14 percentage points from GDP, while greater real investment in equipment added 0.80 percentage points to the growth of GDP, and investment in intellectual property added 0.48 percentage points to GDP….at the same time, real residential investment grew at a 1.5% rate, after shrinking at a 7.8% rate in the first quarter, and added 0.05 percentage points to the 2nd quarter’s GDP, bringing the total fixed investment contribution to GDP to a rounded 1.20 percentage points…for an easy to read table as to what’s included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3…

Meanwhile, a decrease in private inventories in the 2nd quarter lowered gross investment and hence GDP, as real private inventories shrunk by an inflation adjusted $89.5 billion in the 2nd quarter, after shrinking at an inflation adjusted $28.1 billion in the first quarter, and as a result the $61.4 billion decrease in real inventory growth subtracted 0.67 percentage points from the 2nd quarter’s growth rate, after an inflation adjusted $18.1 billion positive change in inventory growth in the 1st quarter had added 0.23 percentage points to 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 $61.4 billion rate meant that real final sales of GDP were actually greater by that amount, and hence real final sales of GDP grew at a 2.2% rate in the 2nd quarter, after real final sales had increased at a 1.9% rate in the 1st quarter, when the $18.1 billion increase in inventory growth meant that real final sales of GDP were that much lower…

Real exports and real imports both increased in the 2nd quarter, but our imports grew by three times as much, thus sharply reducing 2nd quarter GDP.   Our real exports of goods and services grew at a 4.5% rate in the second quarter, after growing at a 10.9% rate in the 1st quarter, while our real imports grew at an 11.5% rate in the 2nd quarter, after growing at a 11.8% rate in the 1st quarter. As you might recall, exports are added to GDP because they are 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 subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been, because it was not produced domestically.  Thus the 2nd quarter increase in real exports added 0.50 percentage points to 2nd quarter GDP, after the first quarter increase had added 1.12 percentage points to first quarter GDP.  On the other hand, since imports subtract from GDP, their increase at an 11.5% rate subtracted 1.51 percentage points from second quarter GDP, after the first quarter import increase had subtracted 1.49 percentage points from that quarter’s growth. As a result, our our deteriorating trade imbalance subtracted a net of 1.01 percentage points from 2nd quarter GDP, after our weakening trade deficit had subtracted 0.37 percentage points from our GDP in the first quarter…

Finally, real consumption and investment by all branches of government decreased at an 0.8% annual rate in the 2nd quarter, after increasing at a 4.4% annual rate in the 1st quarter, as federal government consumption and investment shrunk at a 4.1% rate, after growing at a 9.4% rate in the fist quarter, while state and local consumption and investment grew at a 1.1% rate, after growing at a 1.6% rate in the first quarter. Inflation adjusted federal spending for defense grew at a 2.4% rate and added 0.09 percentage points to 1st quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 12.9% rate and subtracted 0.34 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, presumably indicating an increase in the output of goods or services….Meanwhile, state and local government investment and consumption expenditures grew at a 1.1% annual rate and added 012 percentage points to the growth rate of 2nd quarter GDP, as a real decrease in state and local investment at an 5.8% annual rate reduced state and local growth and subtracted 0.04 percentage points from GDP…

June Personal Income Up 0.2%, Personal Spending Up 0.3%; PCE Price Index Down 0.1%, Savings Rate at 2.7%, a 4 Year Low

The data in this week’s release of the June Income and Outlays report from the Bureau of Economic Analysis was concurrent with their GDP release on Thursday, and all the PCE data in the second quarter GDP report we just reviewed actually originated from the data computed and reported here…and like that GDP report, all the dollar values in this report are seasonally adjusted and at an annual rate, ie, they tell us what personal income, spending and saving would be for a year if June’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one 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 May to June….

thus, when the opening phrase of the press release for this report tell us “Personal income increased $54.9 billion (0.2 percent at a monthly rate) in June“, it means that the annualized figure for all types of personal income in June, $26,994.0 billion, was $54.9 billion, or roughly 0.2% more than the annualized personal income figure of $26,939.1 billion for May; the actual increase in US personal income from May to June is not given….similarly, disposable personal income, which is income after taxes, also rose by roughly 0.2%, from an annual rate of $23,674.3 billion in May to an annual rate of $23,722.6 billion in June…the monthly contributors to the change in personal income, which can be viewed in Table 2.6. of the National Income and Product Accounts for this release, are also annualized….the major contributors to the $54.9 billion annualized increase in personal income in June were a $27.9 billion annual rate of increase in interest and dividend income, a $26.8 billion annual increase in government social benefits to persons, and a $24.8 billion annualized increase in income from wages and salaries, while farm proprietor's income fell at a $55.7 billion annual rate…

At the same time, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in the 2nd quarter GDP report, rose at a $65.2 billion annual rate to an annual rate of $22,184.1 billion in consumer spending, an increase of almost 0.3% from May’s PCE, which itself was revised from the previously reported annual rate of $22,059.8 billion to an annual rate of $22,118.9 billion….total personal outlays for June, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $70.0 billion to $23,076.5 billion, which left personal savings, which is disposable personal income less total outlays, at a $646.1 billion annual rate in June, down from the revised $667.8 billion in annualized personal savings in May…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell from 2.8% in May to 2.7% in June, which was the lowest in four years…

While our personal consumption expenditures accounted for 68.0% of our nominal second quarter GDP, before those expenditures could be included in the national measurement of the change in our output, they were first 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 generating a price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2017 prices = 100….from NIPA Table 2.8.4 for this report, we find that the PCE index fell from 131.535 in May to 131.392 in June, giving us a month over month inflation rate of -0.1087163%, which BEA reports as a decrease of 0.1%, even as the full decimal fraction is used in all their computations….at the same time, NIPA Table 2.8.11 gives us a rounded year over year PCE price index increase of 3.7% in June, down from 4.1% in May, and a core PCE price index increase, excluding food and energy, of 3.3% for the past year, both still above the Fed’s inflation target….applying the June inflation adjustment to the change in June PCE shows that real PCE was up 0.403926% in June, which the BEA reports as a 0.4% increase in their rounded tables…note that when those PCE price indexes are applied to a given month’s annualized current dollar PCE, it yields that month’s annualized real PCE in chained 2017 dollars, which aren’t really dollar amounts at all, but merely the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another’s….those results are shown in NIPA Table 2.8.6., where the monthly figures given are the source of the quarterly figures shown in NIPA Table 1.1.6 from the GDP report, and which were thus used to compute the contribution of the 2nd quarter’s real personal consumption of goods and services to GDP…..

June’s Durable Goods: New Orders Rose 0.3%, Shipments Rose 0.7%, Inventories Rose 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $1.1 billion or 0.3 percent to $334.8 billion in June, the third increase in four months, following a decrease of 4.0% to $333.7 billion in May’s new orders, which was revised from the 4.5% decrease to $332.1 billion shown in last month’s report.…despite that big May decrease, year to date new orders are now 6.7% higher than those of 2025, up from the 6.2% year to date increase reported last month..

A $0.9 billion or 3.1 percent increase to $31.1 billion in new orders for computers and electronic products drove June’s headline increase, while the volatile new orders for transportation equipment fell $229 million or 0.2 percent to $113.8 billion, on a 0.6% decrease to $72,967 million in new orders for motor vehicles and parts, which are still 10.4% higher than a year ago….excluding new orders for transportation equipment, other new orders were up 0.6% in June, and excluding new orders for defense equipment, other orders were up 0.3%….meanwhile, new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 0.9% to $85,089 million, after rising 1.9% in May…

The seasonally adjusted value of June’s shipments of durable goods, which were inputs into various components of 2nd quarter GDP after their nominal value was adjusted for price changes, increased by $2.4 billion or 0.7 percent to $330.7 billion, after the value of May shipments increased 1.1% to $328,239 million, revised from the 1.0% increase to $327.9 billion that was reported last month….shipments of computers and electronic products led the June increase, rising $0.8 billion or 2.4 percent to $34.7 billion, while shipments of transportation equipment were 0.2% higher, on a 4.0% increase in shipments of defense aircraft and parts…meanwhile, the value of shipments of nondefense capital goods excluding aircraft rose $1,544 million or 1.9% to $82,985 million, after rising a revised 0.2% in May, changes which were reflected in the 2nd quarter GDP equipment investment figures released later in the week…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the ninth consecutive month, increasing by $2.0 billion or 0.3 percent to $602.0 billion, after the value of May’s inventories was revised but statistically unchanged from the $600.0 billion reported a month ago….increased inventories of transportation equipment led the June increase, rising $0.6 billion or 0.3 percent to $190.6 billion, mostly on a 0.5% increase in the value of inventories of nondefense aircraft and parts, while the value of inventories other than those of transportation equipment also rose 0.3% to $411.4 billion….

Finally, the value of unfilled orders for manufactured durable goods, which is probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the twenty-third time in twenty-four months, increasing by $9.3 billion or 0.6 percent to $1,590.1 billion, following a 0.7% increase to $1,580,853 million in May, which was revised from the 0.6% increase to $1,579.5 billion reported last month… a $4.1 billion or 0.4 percent increase to $1,002.4 billion in unfilled orders for transportation equipment underpinned the June increase, while the value of unfilled orders excluding transportation equipment increased 0.9% to $558,122 million….compared to a year earlier, the unfilled order book for durable goods is now 8.2% above the level of last June, with unfilled orders for transportation equipment 10.0% higher than their year ago level, reflecting a 10.3% year over year increase in the backlog of orders for commercial aircraft and a 14.5% year over year increase in the backlog of orders for defense 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…)