Meet the Author

Ed Nosal |

Senior Research Advisor

Ed Nosal was formerly a senior research advisor in the Research Department of the Federal Reserve Bank of Cleveland.

Meet the Author

Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.

12.27.06

Economic Trends

Economic Activity: Durable Goods Orders and Personal Income and Consumption Reports

Ed Nosal and Michael Shenk

Durable goods orders rose 1.9 percent in November, reversing October’s decline of 8.2 percent. However, if transportation is excluded, total durable goods orders fell 1.1 percent. Analysts often exclude transportation to discern the underlying trend in orders. Aircraft, which are part of transportation, are very expensive. If large numbers are ordered, as sometimes happens, the industry can dominate the series. For example, the October number was big and negative, primarily because of hefty aircraft orders in September. The figure below illustrates aircraft’s effect on total durables.

Durable Goods Orders

Source: U.S. Department of Commerce, Bureau of the Census.

It shows durable goods excluding transportation orders (the dark blue line) as a smoothed version of total durable goods orders. The red line represents transportation orders alone.

Personal Income and Consumption

Personal income, which rose 0.3 percent in November, and consumption, which increased 0.5 percent, are used as inputs in constructing the GDP series.

Over the past five years, personal income as a fraction of GDP has fallen fairly steadily from a high of nearly 87 percent to slightly over 82 percent.

Personal Income as a Share of GDP

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

This decline is consistent with observed increases in corporate profits as a share of GDP. Although personal income accounts for a huge fraction of GDP, the quarterly growth rates for personal income and the GDP series behave quite differently.

Growth in GDP and Personal Income

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

The personal income series seems more volatile than the GDP series. The chart above suggests the need for caution when using monthly personal income data to estimate quarterly GDP growth.