What is Macro Pulse?

Macro Pulse highlights recent activity and events expected to affect the U.S. economy over the next 24 months. While the review is of the entire U.S. economy its particular focus is on developments affecting the Forest Products industry. Everyone with a stake in any level of the sector can benefit from
Macro Pulse's timely yet in-depth coverage.


Tuesday, September 17, 2019

August 2019 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.6% in August (+0.1% expected) after declining 0.1% in July. Manufacturing production increased 0.5%, more than reversing its decrease in July. Factory output has increased 0.2% per month over the past four months after having decreased 0.5% per month during the first four months of the year. In August, the indexes for utilities and mining moved up 0.6% and 1.4%, respectively. At 109.9% of its 2012 average, total IP was 0.4% higher in August than it was a year earlier. 
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Industry Groups
Manufacturing output rose 0.5% in August (NAICS manufacturing: +0.5% MoM; -0.4% YoY), as the indexes for durables and for nondurables increased while the index for other manufacturing (publishing and logging) edged down. Production rose for most major categories within durable manufacturing. The largest gains were recorded by machinery, primary metals, and nonmetallic mineral products (wood products: +0.7%); the only sizable decline was recorded by motor vehicles and parts. The gain of 0.5% for nondurables reflected strength in plastics and rubber products and in chemicals; the other major nondurable goods industries registered either declines or very small increases (Paper products: -0.7%).
Mining output increased 1.4% in August after having fallen a similar amount in July; output in July had been suppressed by a cutback in oil extraction in the Gulf of Mexico due to Hurricane Barry. The output of utilities increased 0.6%, with gains in both electric and natural gas utilities. 
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Capacity utilization (CU) for the industrial sector increased 0.4 percentage point (PP) in August to 77.9%, a rate that is 1.9PP below its long-run (1972–2018) average.
Manufacturing CU increased 0.3PP to 75.7% in August, a rate that is 2.6PP below its long-run average (NAICS manufacturing: +0.4%, to 76.2%). The operating rates for both durable and nondurable manufacturing increased 0.3PP (wood products: +0.4%; paper products: -0.7%). The utilization rate for mining moved up to 90.5%, a bit lower than its average in the three months before Hurricane Barry but 3.4PP higher than its long-run average. The rate for utilities increased 0.3PP but remained well below its long-run average. 
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Capacity at the all-industries level nudged up 0.2% (+2.2 % YoY) to 141.1% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.4% YoY) to 139.5%. Wood products: +0.3% (+4.1% YoY) to 167.0%; paper products: 0.0% (-0.5 % YoY) to 109.8%.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

Monday, September 16, 2019

July 2019 International Trade (Softwood Lumber)

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Softwood lumber exports increased (5 MMBF or +4.7%) in July; imports fell (144 MMBF or -11.3%). Exports were 15 MMBF (-11.4%) below year-earlier levels; imports were 237 MMBF (-17.3%) lower. As a result, the year-over-year (YoY) net export deficit was 221 MMBF (-18.0%) smaller. Also, the average net export deficit for the 12 months ending July 2019 was 1.8% smaller than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above). 
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North America (44.1%; of which Canada: 23.1%; Mexico: 20.9%) and Asia (27.8%; especially China: 9.1%; and Japan: 6.7%) were the primary destinations for U.S. softwood lumber exports; the Caribbean ranked third with a 23.0% share. Year-to-date (YTD) exports to China were -64.1% relative to the same months in 2018. Meanwhile, Canada was the source of most (90.4%) of softwood lumber imports into the United States. Imports from Canada were 4.0% lower YTD than the same months in 2018. Overall, YTD exports were down 23.6% compared to 2018; imports: -3.9%. 
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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (35.5% of the U.S. total), followed by the Gulf (20.2%) and Eastern (26.6%) regions. Seattle (21.4% of the U.S. total) maintained the lead over Mobile (20.6%) as the single most-active district. At the same time, Great Lakes customs region handled 63.4% of softwood lumber imports -- most notably the Duluth, MN district (23.5%) -- coming into the United States. 
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Southern yellow pine comprised 27.6% of all softwood lumber exports, Douglas-fir (14.5%) and treated lumber (12.8%) were also significant. Southern pine exports were down 40.5% YTD relative to 2018, while treated: -23.8%; Doug-fir: -6.3%.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

Thursday, September 12, 2019

August 2019 Consumer and Producer Price Indices (incl. Forest Products)

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The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1% in August (+0.1% expected). Increases in the indexes for shelter and medical care were the major factors in the seasonally adjusted all items monthly increase, outweighing a decline in the energy index. The energy index fell 1.9% in August as the gasoline index declined 3.5%. The food index was unchanged for the third month in a row.
The index for all items less food and energy rose 0.3% in August, the same increase as in June and July. Along with the indexes for medical care and shelter, the indexes for recreation, used cars and trucks, and airline fares were among the indexes that increased in August. The indexes for new vehicles and household furnishings and operations declined over the month.
The all items index increased 1.7% for the 12 months ending August; the 12-month increase has remained in the range of 1.5 to 2.0% since the period ending December 2018. The index for all items less food and energy rose 2.4% over the last 12 months, its largest 12-month increase since July 2018. The food index rose 1.7% over the last year while the energy index declined 4.4%. 
The Producer Price Index for final demand (PPI-FD) rose 0.1% in August (+0.1% expected). Final demand prices moved up 0.2% in July and 0.1% in June. In August, the advance in final demand prices is attributable to a 0.3% increase in the index for final demand services. In contrast, prices for final demand goods fell 0.5%.
On an unadjusted basis, the final demand index rose 1.8% for the 12 months ended in August. The index for final demand less foods, energy, and trade services rose 0.4% in August following a 0.1% decline in July. For the 12 months ended in August, prices for final demand less foods, energy, and trade services moved up 1.9%.
Final Demand
Final demand services: The index for final demand services advanced 0.3% in August after edging down 0.1% in July. Almost 80% of the broad-based increase can be traced to prices for final demand services less trade, transportation, and warehousing, which climbed 0.5%. Margins for final demand trade services rose 0.2%, and prices for final demand transportation and warehousing services advanced 0.3%. (Trade indexes measure changes in margins received by wholesalers and retailers.)
Product detail: A major factor in the increase in prices for final demand services was the index for guestroom rental, which moved up 6.4%. The indexes for fuels and lubricants retailing; apparel, footwear, and accessories retailing; chemicals and allied products wholesaling; gaming receipts (partial); and insurance also advanced. Conversely, margins for machinery and vehicle wholesaling declined 4.2%. The indexes for health, beauty, and optical goods retailing and for support activities for oil and gas operations also decreased.
Final demand goods: The index for final demand goods moved down 0.5% in August, the largest decrease since falling 0.6% in January. Over 80% of the August decline can be attributed to prices for final demand energy, which dropped 2.5%. The index for final demand foods moved down 0.6%, while prices for final demand goods less foods and energy were unchanged.
Product detail: Almost two-thirds of the August decline in the index for final demand goods can be traced to prices for gasoline, which dropped 6.6%. The indexes for fresh and dry vegetables, diesel fuel, corn, home heating oil, and ethanol also moved lower. In contrast, prices for meats advanced 3.0%. The indexes for iron and steel scrap and for residential electric power also increased. 
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The not-seasonally adjusted price indexes we track were almost all on a MoM basis; all were lower YoY. 
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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

Friday, September 6, 2019

August 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 130,000 jobs in August (+158,000 expected). Also, combined June and July employment gains were revised down by 20,000 (June: -15,000; July: -5,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 3.7% as expansion of the working-age labor force (+571,000) roughly matched growth in the number of employed persons (+590,000). 
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Observations from the employment reports include:
* The establishment (+130,000 jobs) and household survey results (+590,000 employed) were dramatically different. The seasonal adjustment to the establishment number was the biggest identifiable factor contributing to the disparity with the household result: Had average (since 2009) August CES (business birth/death model) and seasonal adjustments been used, job gains might have been bumped to +214,000.
* Manufacturing added 3,000 jobs in August. That result seems to run counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted in August. Wood Products employment was unchanged (ISM increased); Paper and Paper Products: -100 (ISM increased); Construction: +14,000 (ISM increased). 
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* The number of employment-age persons not in the labor force (NILF) fell (-364,000) to 95.5 million. This metric seems to have leveled off since the latter half of 2018. Meanwhile, the employment-population ratio (EPR) inched up to 60.9% -- its highest level since December 2008; roughly, then, for every five people being added to the working-age population, three are employed. 
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* With absolute growth in the labor force nearly 2.8 times that of the civilian population, the labor force participation rate rose to 63.2% -- matching the Jan/Feb 2019 peak. Average hourly earnings of all private employees increased by $0.11, to $28.11, resulting in a 3.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages also rose by $0.11, to $23.59 (+3.5% YoY). Because the average workweek for all employees on private nonfarm payrolls expanded by 0.1 hour (to 34.4 hours), average weekly earnings increased by $6.58, to $966.98 (+3.0% YoY). With the consumer price index running at an annual rate of 1.8% in July, workers are maintaining purchasing power according to official metrics. 
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* Full-time jobs jumped by 360,000, to a new record. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- also bounced by 397,000. Those working part time for non-economic reasons rose by 260,000 while multiple-job holders edged lower by 16,000. 
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For a “sanity test” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in August dropped by $17.4 billion, to $193.5 billion (-8.3% MoM, but +1.2% YoY and +3.4% YTD). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending August was 5.0% above the year-earlier average -- well off the peak of +13.8% set back in September 2013.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

Thursday, September 5, 2019

August 2019 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil retraced most of July’s gain, falling by $2.55 (-4.4%), to $54.81 per barrel in August. The decrease occurred within the context of a noticeably stronger U.S. dollar, and continued declines in accumulated oil stocks (August average: 434 million barrels). The volume of petroleum products supplied in June was not yet published when this post was being written. 
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Publication of Peak Oil Review remained on hiatus as of the time of this post. 
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Selected highlights from the 3 September 2019 issue of OilPrice.com’s Intelligence Report include:
OPEC production rose in August for first time in 2019. OPEC production rose by 200,000 bpd in August, the first collective increase since the OPEC+ cuts took effect at the start of the year. Gains came from Saudi Arabia, Nigeria and Iraq.
U.S. oil production slows. The latest EIA data shows monthly U.S. oil production falling to 12.082 mb/d in June, a slight decrease from the month before. The figures show a decline in some states, while only tepid growth in Texas. The data offers more evidence of a slowdown in production growth from the shale patch.
U.S. truck makers report lower orders. U.S. truck manufacturers report sharply lower orders, another sign of an economic slowdown. Trade tariffs and a slowdown in manufacturing is reducing demand for freight. Rates for freight have declined 20 percent since June 2018, according to The Wall Street Journal.
Hedge funds cut positions in oil. Hedge funds and other money managers have become a bit more pessimistic on crude oil, cutting their net-length in the futures market last week for the third time in the last four weeks.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

August 2019 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that in August, U.S. manufacturing contracted for the first time since August 2016. The PMI registered 49.1%, down 2.1 percentage points (PP) from the July reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Significant declines were seen in the indexes for new orders (-3.6PP), employment (-4.3PP) and exports (-4.8PP). 
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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+2.7PP, to 56.5%). The increase was driven primarily by jumps in the business activity (+8.4PP) and new orders (+6.2PP) indexes. 
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Of the industries we track, only Paper Products contracted. Respondent comments included the following:
Construction -- "Lower mortgage rates have not had a great effect on new residential construction sales. Tariffs continue to apply upward cost pressures to current supply chains."
Real Estate, Rental & Leasing -- "Construction markets remain busy. Projects that were delayed are trying to get back on track."

Relevant commodities:
Priced higher -- None.
Priced lower -- Corrugated boxes, natural gas, crude oil and pulp.
Prices mixed -- Fuel (diesel and gasoline).
In short supply -- Construction subcontractors; and labor (general, construction and temporary).

Findings of IHS Markit’s August manufacturing survey aligned with those of ISM, but diverged significantly in the services survey.
Manufacturing -- Manufacturing PMI lowest for almost a decade as export decline intensifies
Key findings:
* PMI at 50.3 in August (49.9 flash, 50.4 in July), lowest since September 2009
* Rates of output and new order growth remain subdued
* New export orders fall at quickest pace for 10 years

Services -- Slowest increase in new business since March 2016
Key findings:
* New business growth eases to marginal rate
* Input prices fall for the first time in the series history
* Business confidence slides to fresh series low

Commentary by Chris Williamson, Markit’s chief business economist:
Manufacturing -- "The August PMI indicates that U.S. manufacturers are enduring a torrid summer, with the main survey gauge down to its lowest since the depths of the financial crisis in 2009. Output and order book indices are both among the lowest seen for a decade, indicating that manufacturing is likely to have again acted as a significant drag on the economy in the third quarter, dampening GDP growth.
“At current levels, the survey indicates that manufacturing production is falling at an annualized rate of approximately 3%.
“Deteriorating exports are the key to the downturn, with new orders from foreign markets dropping at the fastest rate since 2009. Many companies blame slower global economic growth for weakened order books, but also point the finger at rising trade war tensions and tariffs.
“Hiring has stalled as companies worry about the outlook: optimism about the year ahead is at its lowest since comparable data were first available in 2012. Similarly, price pressures are close to a three-year low, as crumbling demand has removed firms’ pricing power.”

Services -- “U.S. businesses reported one of the toughest months since the global financial crisis in August, with growth of output, order books and hiring all slowing amid steep falls in both export and business confidence.
“Only on two occasions since the global financial crisis have the U.S. PMI surveys recorded a weaker monthly expansion, and these were months in which business was hit by the government shutdown and bad weather in 2013 and 2016 respectively. This time, trade wars and falling exports appear to be the main drivers of weakness, exacerbating fears of a broader economic slowdown both at home and globally.
“At current levels, the August PMIs are indicating annualized GDP growth of 1.0%, putting the economy on course for growth of just below 1.5% in the third quarter. Such weak readings hint at downside risks to current third quarter growth projections, which generally point to an expansion of just over 2%.
“A major factor behind the deterioration was the spreading of the manufacturing downturn to the service sector, via weakened household and business confidence. Jobs growth is also increasingly being affected by worries regarding the outlook. Overall jobs growth in August was the weakest since early-2012, commensurate with non-farm payrolls rising at a monthly rate of under 100,000.”

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said: “The August PMI points to growth at the slowest pace over the past three years. Signs of further potential weakness are also gathering, with growth of new order inflows losing impetus, job creation slowing and business confidence sliding to a fresh series-record low. With market conditions tight and global trade tensions heightened, a sustained revival in global GDP growth still looks to be some way off in the distance.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

July 2019 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments in July decreased $0.9 billion or 0.2% to $504.0 billion. Durable goods shipments decreased $2.9 billion or 1.1% to $253.9 billion led by transportation equipment. Meanwhile, nondurable goods shipments increased $2.0 billion or 0.8% to $250.1 billion, led by petroleum and coal products. Shipments of wood products dropped by 0.6% while paper was unchanged. 
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Inventories increased $1.2 billion or 0.2% to $696.5 billion. The inventories-to-shipments ratio was 1.38, unchanged from June. Inventories of durable goods increased $1.4 billion or 0.3% to $427.1 billion, led by transportation equipment. Nondurable goods inventories decreased $0.2 billion or 0.1% to $269.4 billion, led by chemical products. Inventories of wood products fell by 0.4%; paper: -0.6%. 
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New orders increased $6.9 billion or 1.4% to $500.3 billion. Excluding transportation, new orders rose by 0.3% (+0.8% YoY). Durable goods orders increased $5.0 billion or 2.0% to $250.2 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- nudged up 0.2% (+0.6% YoY). New orders for nondurable goods increased $2.0 billion or 0.8% to $250.1 billion.
As can be seen in the graph above, real (inflation-adjusted) new orders were essentially flat between early 2012 and mid-2014, recouping on average less than 70% of the losses incurred since the beginning of the Great Recession. The recovery in real new orders is back to just 53% of the ground given up in the Great Recession. 
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Unfilled durable-goods orders increased $0.6 billion or virtually unchanged to $1,161.5 billion, led by fabricated metal products. The unfilled orders-to-shipments ratio was 6.67, up from 6.55 in June. Real unfilled orders, which had been a good litmus test for sector growth, show a less positive picture; in real terms, unfilled orders in June 2014 were back to 97% of their December 2008 peak. Real unfilled orders then jumped to 102% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Since then, however, real unfilled orders have been going sideways-to-down.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.