3rd quarter GDP; September’s income and outlays, durable goods, & new home sales

Major economic reports that were released last week included the 1st estimate of 3rd quarter GDP and the September report on Personal Income and Spending, both from the Bureau of Economic Analysis; other widely watched reports released during the week included the Advance report on durable goods for September and the September report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for August from S&P Case-Shiller, an index generated by averaging repeat home sales prices from June, July and August against sales prices of a January 2000 baseline, and which reported that their unadjusted national home price index for those 3 months averaged 0.2% lower than their index generated from May, June and July home sales prices, but still 2.1% higher than their price index generated by repeat home sales prices during the June, July and August period of a year earlier…

The week also saw the release of the Chicago Fed National Activity Index (CFNAI) for September, a weighted composite index of 85 different economic metrics, which increased to +0.07 in September from –0.08 in August, after the August index was revised but netted out to the same –0.08 figure reported for August last month…that left the most often cited 3 month average of the CFNAI at +0.03 in September, up from from a revised +0.01 n August, which, as a positive figure, would indicate that national economic activity has been slightly above the historical trend over the summer months…

In addition, the week also saw the last three regional Fed manufacturing surveys for October: the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to +11 October, down from +14 in September, but up from +10 in August, indicating that a modest plurality of that region’s manufacturers continued to report improving business metrics this month; 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 remained at –2 in October, unchanged from September, indicating that a small plurality of that region’s manufacturers again reported slower manufacturing activity this month, while the Dallas Fed Texas Manufacturing Outlook Survey, which covers Texas and adjacent western Louisiana and southeastern New Mexico, reported its general business activity index rose from +9.8 in September to +13.4 in October, indicating that a larger plurality of Texas area manufacturers continued to see improving business metrics in October, even as they also reported that the production index fell 14 points to +15.8, but still remained above its long term series average…

3rd Quarter GDP Grew at a 3.4% Rate on Greater Consumer Spending, Fixed Investment, and Inventories

Our economy grew at a 3.4% rate in the 3rd quarter, somewhat faster than the 2.2% growth rate of the second quarter, as increased consumer outlays for goods and services, growth in private inventories, increased fixed investment, and growth of Federal government consumption and investment were partly offset by decreased exports and increased imports, which subtracts from what was inappropriately added by other GDP components….the Advance 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 3.4% annual rate over the output of the 2nd quarter, when our real output grew at a 2.2% rate….in current dollars, our third quarter GDP grew at a 5.605% annual rate, increasing from what would work out to be a $32,563.0 billion a year output rate in the 2nd quarter to a $33,010.0 billion annual rate in the 3rd quarter, with the headline 3.4% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.3% 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 BEA cautions that the source data 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 roughly two months from now…also note that September’s construction, September’s trade in services, and non-durables factory inventory data had not yet been reported or formally estimated at the time of the reort, and that the BEA assumed an $11.5 billion annualized increase in exports of services, a $5.3 billion annualized increase in imports of services, an $0.6 billion monthly increase in residential construction, a $7.8 billion monthly increase in non-residential construction, a $3.7 billion decrease in public construction, and a $1.5 billion increase in nondurable manufacturing inventories for September before they estimated the 3rd quarter’s output (see Key source data and assumptions (xls) for more details)

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 here comes directly from National Income and Product Accounts Data Tables.…specifically, we’ll be referencing Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product, which shows the real (ie, inflation adjusted) annualized change in each of the major GDP components by quarter since the first quarter of 2024, Table 1.1.5. Gross Domestic Product, which shows the quarterly current dollar values for each of the major GDP components since the first quarter of 2024, Table 1.1.7. Percent Change From Preceding Period in Prices for Gross Domestic Product, which shows the change in the price indexes for each of the major GDP components over the same period;  Table 1.4.1. Percent Change From Preceding Period in Real Gross Domestic Product, Real Gross Domestic Purchases, and Real Final Sales to Domestic Purchasers, which shows the change in the named and related metrics over the same quarters, Table 1.5.2. Contributions to Percent Change in Real Gross Domestic Product, Expanded Detail, which shows the contribution of each of the components to the GDP change for those quarters; and Table 1.5.6. Real Gross Domestic Product, Expanded Detail, Chained Dollars, which shows the inflation adjusted value of each of the GDP components……

Personal consumption expenditures (PCE), which are used to compute the goods and services produced for consumers and which accounts for almost 70% of GDP, grew at a 5.94% rate in current dollars in the 3rd quarter, which worked out to a rounded 3.8% real growth rate of consumed goods and services after the 3rd quarter’s annualized 2.1% 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 4.49% rate, while average prices of those durable goods rose at a 2.1% rate, and from those figures, the BEA figured that the real growth of the output of consumer durables grew at a 2.3% rate, as increases in real consumption of motor vehicles and parts, furnishings and durable household equipment and other durables offset a decrease in consumption of recreational goods and vehicles at a 5.8% rate…at the same time, consumer spending for non-durable goods grew at a 3.05% rate, which was adjusted for prices that fell at an average 0.4% rate, and hence the real output of consumer non-durable goods increased at a 3.4% rate, as greater real consumption of nondurable goods other than groceries, apparel, and gasoline accounted for nearly two-thirds of the growth in nondurable goods output…. meanwhile, the third quarter’s 7.04% nominal growth rate in consumer outlays for services was deflated by a 2.8% increase in prices for personal services to show that the real output of consumer services grew at a rounded 4.1% annual rate, as the food services and accommodations component grew at a 8.9% rate and accounted for more than a quarter 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 increase in real consumption of durable goods added 0.17 percentage points to the GDP growth rate, the real increase in non-durable goods produced for consumers added 0.47 percentage points, and increased consumption of personal services added 1.76 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 grown at a 4.6% annual rate in the 2nd quarter, grew at a 19.4% annual rate from those levels in the 3rd quarter, as real growth in fixed investments grew at a 9.4% annual rate in the 3rd quarter, after growing at a 7.7% rate in the 2nd quarter, while the change in growth of private inventories was positive in the 3rd quarter in contrast to the 2nd quarter decrease, and hence increased GDP….among the fixed investment categories, real nonresidential fixed investment grew at a 12.7% rate, as real investment in non-residential structures grew at 5.4% rate and added 0.15 percentage points to 3rd quarter GDP, real investment in equipment grew at 20.9% rate and added 1.16 percentage points to GDP, and real investment in intellectual property grew at a 8.4% rate and added 0.47 percentage points to GDP…however, real residential investment shrunk at a 3.3% rate in the 3rd quarter, after growing at a 2.8% rate in the 2nd quarter, and subtracted 0.12 percentage points from 3rd quarter GDP, and thus lowered the overall fixed investment component growth rate to 9.4%….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, real private inventories grew at an inflation adjusted $20.3 billion rate over the 3rd quarter, after shrinking at an inflation adjusted $63.4 billion rate in the 2nd quarter, and as a result the $83.7 billion positive change in real inventory growth added 1.61 percentage points to the 3rd quarter’s growth rate, after a $32.7 billion negative change in real inventory growth in the 2nd quarter had subtracted 0.53 percentage points from that quarter’s GDP.   However, since greater growth of inventories indicates that more of the goods produced during the quarter were left in storage or sitting on a shelf, the $83.7 billion increase in their growth in turn means real final sales of GDP were smaller by that amount, and hence real final sales of GDP only grew at a 1.7% rate in the 3rd quarter, down from the real final sales growth rate of 2.8% in the 2nd quarter, when negative inventory growth meant that some of what was sold during the quarter hadn’t been produced during that period…

Our real exports decreased during the third quarter, while our real imports increased, and hence both components of our international trade were subtractions from GDP….Our real exports of goods and services shrunk at a 5.7% rate in the third quarter, after growing at a 5.0% rate in the 2nd quarter, while our real imports grew at a 19.7% rate in the third quarter, after growing at a 12.6% rate in the 2nd quarter.  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 was not produced here. Thus the 5.7% 3rd quarter decrease in real exports subtracted 0.68 percentage points from 3rd quarter GDP, after the 2nd quarter increase in exports had added 0.56 percentage points to second quarter GDP. On the other hand, since imports are subtracted from GDP, their increase at a 19.7% rate subtracted 2.64 percentage points from 3rd quarter GDP, after the second quarter import increase had subtracted 1.66 percentage points from that quarter’s growth….As a result, our worsening trade balance subtracted a rounded net of 3.32 percentage points from the 3rd quarter’s GDP growth rate, after our second quarter trade imbalance had subtracted 1.10 percentage points from GDP growth in that quarter..

Finally, real consumption and investment by the government sector increased at a 5.3% 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 15.8% rate, while real state and local consumption and investment shrunk at a 0.1% rate. Inflation adjusted federal spending for defense grew at a 11.7% rate, and that added 0.41 percentage points to 3rd quarter GDP growth, while real non-defense federal consumption and investment grew at a 22.2% rate and added 0.49 more percentage points to 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 shrunk at a 0.1% annual rate, subtracted 0.01 percentage point from the quarter’s growth rate, as an decrease in real state and local investment at a 1.7% rate offset the similar increase in state and local consumption expenditures…

September Personal Income Rose 0.2%, Spending Rose 0.5%, PCE Price Index Rose 0.5%; Savings Rate Fell to 3.8%, a 4 Year Low

The PCE data in the 3rd quarter GDP report we just reviewed originated in the concurrent release of the September Income and Outlays report, and like the GDP report, all the dollar values reported here are seasonally adjusted and at an annual rate, ie, they tell us what our national personal income, spending and saving would be for a year if September’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 August to September….

Thus, as they now partly explain in the opening line of the news release for this report “Personal income increased $54.5 billion (0.2 percent at a monthly rate) in September…“, which means that the annualized figure for all types of personal income in September, $27,707.8 billion, was $54.5 billion, or almost 0.2% more than the annualized personal income figure of $27,653.4 billion for August; the actual increase in personal income from August to September, which is about one-twelfth that amount, is not given….similarly, disposable personal income, which is income after taxes, rose by more than 0.2%, from an annual rate of $24,236.3 billion in August to an annual rate of $24,289.0 billion in September…the monthly contributors to the change in personal income, which can be seen in NIPA Table 2.6., are thus also annualized…in September, the main contributors to the $54.5 billion annual rate of increase in personal income were a annualized $30.7 billion increase in wages and salaries, an annualized $14.1 billion increase in government social benefits to persons, and an $11.4 billion annualized increase in supplements to wages and salaries, such as employer contributions to pension funds, while dividend income saw a $14.3 billion annualized decrease…

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for September, which were included in the change in real PCE in the 3rd quarter GDP report, rose at a $113.1 billion annual rate to a $22,452.8 billion pace of consumer spending annually, more than 0.5% above that of August, after August‘s PCE was revised up from the previously reported annual rate of $22,308.5 billion to $22,339.7 billion….the current dollar increase in September personal spending included a $78.1 billion annualized increase to an annualized $15,474.1 billion in spending for services, and a $35.1 billion increase to $6,978.7 billion in annualized spending for goods….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $113.0 billion to $23,377.9 billion in September, which left personal savings, which is disposable personal income less total outlays, at a $911.1 billion annual rate in September, down from the revised $971.4 billion in annualized personal savings in August…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.8% in September, down from 4.0% in August, and the lowest personal savings rate since October 2022…

While our personal consumption expenditures accounted for 68.9% of our third quarter GDP, before they could be used in that measurement of the change in our national output, they first needed to be adjusted for inflation, to give us the real change in consumption, and hence the real change in the goods and services that were produced for that consumption…..the BEA makes that adjustment with the price index for personal consumption expenditures, also included in this report, which is a chained price index based on 2017 prices = 100….from NIPA Table 2.3.4., we find that the PCE price index rose from 131.006 in August to 131.685 in September, giving us a month over month PCE inflation rate of +0.518297%, which the BEA reports as a 0.5% increase….also updated with this report, NIPA Table 2.8.11. gives us a year over year PCE price index increase of 2.5%, and a core price increase, excluding food and energy, of 2.8% for the past year, both still above the Fed’s 2% inflation target….applying the September inflation adjustment to the change in September PCE shows that real PCE was down 0.01196%, which BEA reports as unchanged in their summary table...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….those monthly figures are shown in NIPA Table 2.8.6., and are ultimately used to compute the contribution of real personal consumption of goods and services to GDP…

September Durable Goods: New Orders Rose 1.8%, Shipments Rose 0.9%, Inventories Rose 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for September (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $6.3 billion or 1.8 percent to $345.4 billion in September, the sixth increase in seven months, after August’s new orders were revised from the $338.6 billion reported last month to $339.1 billion, now a 0.1% increase from July’s orders, rather than the statistically insignificant decrease that was previously reported …year to date new orders are now running 8.0% above those of 2025, up from the 7.7% year to date increase we saw in this report last month…

The volatile monthly change in new orders for transportation equipment led the September new orders increase, as the value of new transportation equipment orders rose $5.2 billion or 4.6 percent to $119.8 billion, on a 28.4% increase to $25,337 million in the value of new orders for civilian aircraft….excluding orders for transportation equipment, other new orders rose 0.5%, and excluding the 1.8% decrease in new orders for defense equipment, new orders increased 2.2%…meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment intentions, rose $406 million or 0.5% to $88,039 million, after rising by a revised 1.6% in August…

The seasonally adjusted value of September shipments of durable goods, which were included as inputs into various components of 3rd quarter GDP after adjusting for changes in prices, rose for the ninth time in ten months, increasing by $3.0 billion or 0.9 percent to $336.8 billion, after the value of August shipments was revised from from $333.8 billion to $333.7 billion, still down 0.2% from July…an increase in the value of shipments of transportation equipment led the September increase, as they rose $1.6 billion or 1.4 percent to $111.1 billion, on a 3.4% increase in the value of shipments of civilian aircraft and a 4.4% increase in the value of shipments of defense aircraft, while the value of shipments excluding those of transportation equipment rose 0.7% to $225,670 million….at the same time, shipments of nondefense capital goods less aircraft were up 1.2% at $86,052 million, after rising 0.6% in August…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the twelfth consecutive month, increasing by $1.9 billion or 0.3 percent to $610.0 billion, after the value of August inventories was revised from $608.1 billion to $608.2 billion, still a 0.5% increase from July…an increase in the value of inventories of transportation equipment led the September inventory increase, rising $0.6 billion or 0.3 percent to $193.2 billion, on a 0.6% increase in the value of inventories of civilian aircraft, while the value of inventories of other than transportation equipment was 0.3% higher at $416,850 million…

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose in September for the twenty-sixth time in twenty-seven months, increasing $13.6 billion or 0.8 percent to $1,623.6 billion, after August’s unfilled orders were revised from $1,609.4 billion to $1,610.1 billion, which was still a 0.6% increase from July….an increase of $8.7 billion or 0.9 percent to $1,019.0 billion in unfilled orders for transportation equipment was responsible for nearly two-thirds of the increase, while unfilled orders excluding transportation equipment orders rose by $4,848 million or by 0.8% to $604,637 million at the same time….compared to a year earlier, the unfilled order book for durable goods is now 9.0% above the level of last September, as unfilled orders for transportation equipment are 9.6% above their year ago level, largely due to a 10.4% increase in the backlog of orders for civilian aircraft…

New Home Sales Little Changed on Modestly Higher Prices

The Census report on New Residential Sales for September (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 767,000 annually, which was 0.6 percent (±13.8 percent)* below the revised annual pace of 680,000 that new single family homes were selling at in August, and 5.3 percent (±12.5 percent)* below the estimated annual rate that new homes were selling at in September of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether September new home sales rose or fell from those of August, or even from the home sales 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, the estimates provided in 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 August were revised from the annual rate of 684,000 reported last month to a 680,000 a year rate, and home sales in July, initially reported at an annual rate of 678,000 and revised to a 643,000 a year rate last month, were revised to a 647,000 annual rate with this report, while June’s annualized home sale rate, initially reported at an annual rate of 628,000 and revised from a revised 678,000 rate to a 672,000 a year rate with the August report, were revised to a 680,000 a year rate with this release…

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 56,000 new single family homes sold in September, down from the estimated 57,000 new homes that sold in August, but up from the estimated 53,000 that sold in July….the raw figures from Census field agents further estimated that the median sales price of new houses sold in September was at $400,400, up from the median sale price of $385,400 in August, but down from the median sales price of $416,800 in September a year ago, while the average September new home sales price was at $472,800, up from the $470,800 average sales price in August, but down from the average sales price of $506,800 in September a year ago….a seasonally adjusted estimate of 476,000 new single family houses remained for sale at the end of September, which represents a 8.4 month supply of homes at the September sales rate, down from the revised 8.5 months supply of new homes now indicated for August, but up from the 8.2 months of new home supply on the market in September a year ago…

(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…)