Durable Goods and Personal Income and Spending Add Little for Q3 GDP Ambitions

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Friday’s flow of economic data included multiple views on the broad economy, and some data may have an impact on how third-quarter gross domestic product (GDP) estimates pan out. Some data is live and some is from the middle of the quarter. Readings have been seen on durable goods and on personal income and spending.

New orders for durable goods, the big-ticket items bought by businesses and consumers, rose by 0.2% in August. Econoday’s consensus estimate was calling for durable goods to be down 1.2% in August. Backing out transportation, durables rose by 0.5%, rather than an expected gain of 0.2%. Those compared to a revised 2.0% headline gain and a 0.5% drop on the ex-transportation readings in July.

The core capital goods reading in durable goods, the non-defense ex-air orders, were down 0.2% in August. Econoday was calling for a flat reading, and the initial July reading of a 0.4% gain was revised down to flat. While the readings can be viewed as mixed to positive versus consensus estimates, the reality here is that this should offer no favorable jump from the business sector’s contribution to third-quarter GDP.

Within the business sectors, there were declines in spending on goods from electrical equipment, communications equipment and computers and electronics. Commercial aircraft orders were down in the double-digits. Those were shown to have offset gains in primary metals, fabrications and machinery. For the GDP analysis, the orders are in the backseat versus shipments, with a 0.4% gain in August still being offset by a 0.6% decline in July.

As a reminder, close to 70% of GDP in the United States is now tied to consumer spending activities. Personal income rose by 0.4% in August and spending rose by 0.1%. That met expectations on the income side but was under Econoday’s consensus estimate of 0.3% on the spending side. The PCE price index was flat in August (versus 0.2% gain expected) and the so-called core PCE price index was up just 0.1% (versus 0.2% expected).

The inflation target of 2% inflation is also still running under the Federal Reserve’s 2.0% target. Annualized inflation showed the headline PCE price index up just 1.4% in August, while the core PCE price index was up 1.8% from August of 2018.

We have yet to see any adjustments to third-quarter GDP estimates based on these readings. The New York Federal Reserve’s Nowcast is still a week old and was calling for 2.2% GDP growth for the third quarter and 2.0% growth for the fourth quarter. The Atlanta Fed’s GDPNow model has not been updated since September 18, but it is set to update today, and it was modeling a 1.9% GDP growth rate for the third quarter.

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