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.


Monday, August 3, 2020

July 2020 Currency Exchange Rates


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In July the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.4%), euro (-2.0%) and yen (-0.8%). On the broad trade-weighted index basis (goods and services), the USD weakened by 0.8% against a basket of 26 currencies.

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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.

June 2020 Construction Spending


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Construction spending during June 2020 was estimated at a seasonally adjusted annual rate (SAAR) of $1,355.2 billion, 0.7% (±1.2%)* below the revised May estimate of $1,364.7 billion (originally $1,356.4 billion); consensus expectations were for +1.3%. The June figure is 0.1% (±1.5%)* above the June 2019 SAAR of $1,354.1 billion; the not-seasonally adjusted YoY change (shown in the table below) was +0.9%.

During the first six months of this year, construction spending amounted to $667.9 billion, 5.0% (±1.2%) above the $636.0 billion for the same period in 2019.

* 90% confidence interval includes zero. The U.S. Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

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Private Construction

Spending on private construction was at a SAAR of $1,001.9 billion, 0.7% (±0.7%)* below the revised May estimate of $1,009.0 billion (originally $1,001.2 billion):
* Residential: $534.2 billion, -1.5% (±1.3%), of which
* Home improvement spending: $201.5 billion, -0.4% (+10.1% YoY);
* Nonresidential: $467.7 billion, +0.2% (±0.7%)*.

Public Construction

Public construction spending was $353.3 billion, 0.7% (±2.0%)* below the revised May estimate of $355.8 billion (originally $355.2 billion):
* Educational: $85.8 billion, -2.7% (±1.5%);
* Highway: $102.6 billion, 1.7% (±6.3%)*.

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Click here for a discussion of June’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories and prices.

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, July 30, 2020

2Q2020 Gross Domestic Product: First (“Advance”) Estimate


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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 2Q2020 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of -32.91% (-35.0% expected), down 27.95 percentage points (PP) from 1Q2020’s -4.96%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 2Q2020 was 9.54% lower than in 2Q2019; that growth rate was dramatically slower (-9.86PP) than 1Q2020’s +0.32% relative to 1Q2019.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) were the drivers behind the contraction, whereas net exports (NetX) and government consumption expenditures (GCE) made minor positive contributions.

As for details --

PCI (Contributed -25.05PP to the headline, down 20.3PP from 1Q):

  • Goods. Consumer spending for goods contracted at a rate of 2.12PP (down 2.15PP from 1Q), as the downturn in nondurable goods purchases swamped an uptick in durable goods.
  • Services. Spending on services slumped at a rate of 22.93PP (down 18.15PP from 1Q).

PDI (Contributed -9.36PP, down 780PP from 1Q):

  • Fixed investment. Nonresidential fixed investment fell at a rate of 5.38PP (-5.15PP from 1Q), while residential investment declined at a rate of 1.76PP (-2.44PP from 1Q).
  • Inventories. Inventories declined at a rate of 3.98%, down 2.64PP from 1Q.

NetX (Contributed 0.68PP, down 0.45PP from 1Q):

  • Exports. Exports fell at a rate of 9.38PP, down 8.26PP from 1Q.
  • Imports. A collapse in imports (recall that imports are inversely correlated with GDP) added 10.06PP to the headline, up 7.81PP from 1Q.

GCE (Contributed 0.82PP, up 0.60PP from 1Q).

Annualized growth in the BLS’s real final sales of domestic product, which excludes the value of inventories) was -28.93% (-25.31PP from 1Q).

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The key points of this report can be summarized as follows, Consumer Metric Institute’s Rick Davis indicated:

-- The numbers are far beyond merely historically bad.

-- But the year-over-year data is not nearly as disastrous as the annualized headline suggests.

-- We have pointed out before that the BEA’s quarterly regimen and methodologies render their data useless for policy making purposes. It is perhaps an academic treasure trove for PhD candidates, but the policy informing purpose that FDR envisioned for the agency in 1939 is simply no longer being met. In the 21st century -- with millisecond transacting -- there is no excuse for not replacing this exercise with a monthly series, published in the middle of the following month. The “consistency” mantra for maintaining the current series helps the PhD candidates, but it utterly fails the American people. Let the PhD candidates figure out how to reconcile a new monthly series to the historical quarterly data.

-- This sets the stage for an equally outrageous up-side quarterly report, to be published just days before the US 2020 election -- although most voters by that time will be in a “who cares” mode.

“There is not much more we can say,” Davis concluded. “Things are bad, but reports like this don’t help any ongoing policy or response debates. And the next release will merely be more of the same. Luckily, the pandemic will probably keep most people from taking note of this mess of a report.”

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.

Tuesday, July 28, 2020

June 2020 Residential Sales, Inventory and Prices


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Sales of new single-family houses in June 2020 were at a seasonally adjusted annual rate (SAAR) of 776,000 units (700,000 expected). This is 13.8% (±17.8%)* above the revised May rate of 682,000 (originally 676,000 units) and 6.9% (±13.7%)* above the June 2019 SAAR of 726,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +12.1%. For longer-term perspectives, NSA sales were 44.1% below the “housing bubble” peak but 41.5% above the long-term, pre-2000 average.

The median sales price of new houses sold in June rose ($19,000 or +6.1% MoM) to $329,200; meanwhile, the average sales price increased to $384,700 ($22,400 or +6.2%). Starter homes (defined here as those priced below $200,000) comprised 8.1% of the total sold, down from the year-earlier 10.6%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.4% of those sold in June, almost unchanged from 1.5% a year earlier.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

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As mentioned in our post about housing permits, starts and completions in June, single-unit completions increased by 80,000 units (+9.6%). Since sales jumped by a larger margin (94,000 units; +13.8%), inventory for sale contracted in both absolute (-4,000 units) and months-of-inventory (-0.8 month) terms.

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Existing home sales soared by a record amount in June (810,000 units or +20.7%), to a SAAR of 4.72 million units (4.795 million expected). Inventory of existing homes for sale expanded in absolute terms (+20,000 units) but contracted in months-of-inventory terms (-0.8 month). Because resales rose by a wider margin than new-home sales, the share of total sales comprised of new homes slipped to 14.1%. The median price of previously owned homes sold in June rose to $295,300 ($11,700 or +4.1% MoM).

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Housing affordability deteriorated (-2.3 percentage points) even as the median price of existing homes for sale in May inched down by $1,000 (-0.3% MoM; +2.4 YoY), to $287,700. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.7% (+4.5% YoY).

“May's housing price data were stable,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index rose by 4.5% in May 2020, with comparable growth in the 10- and 20-City Composites (up 3.1% and 3.7%, respectively). In contrast with the past eight months, May's gains were less than April’s. Although prices increased in May, in other words, they did so at a decelerating rate. We observed an analogous development at the city level: prices increased in all 19 cities for which we have data, but accelerated in only 3 of them (in contrast with 12 cities last month and 18 the month before that).

“More data will obviously be required in order to know whether May’s report represents a reversal of the previous path of accelerating prices or merely a slight deviation from an otherwise intact trend. Even if prices continue to decelerate, that is quite different from an environment in which prices actually decline.

“Among the cities, Phoenix retains the top spot for the 12th consecutive month, with a gain of 9.0% for May. Home prices in Seattle rose by 6.8%, followed by Tampa at 6.0%. As has been the case for the last several months, prices were particularly strong in the West and Southeast, and comparatively weak in the Northeast.”

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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.

Monday, July 20, 2020

June 2020 Residential Permits, Starts and Completions


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Builders started construction of privately-owned housing units in June at a seasonally adjusted annual rate (SAAR) of 1,186,000 units (1.190 million expected). This is 17.3% (±11.0%) above the revised May estimate of 1,011,000 (originally 974,000 units), but 4.0% (±9.1%)* below the June 2019 SAAR of 1,235,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -2.5%.

Single-family housing starts in June were at a SAAR of 831,000; this is 17.2% (±10.0%) above the revised May figure of 709,000 units (-1.6% YoY). Multi-family starts: 355,000 units (+17.5% MoM; -5.0% YoY).

* 90% confidence interval (CI) is not statistically different from zero. The Census Bureau does not publish CIs for the entire multi-unit category.

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Total completions were at a SAAR of 1,225,000 units. This is 4.3% (±12.2%)* above the revised May estimate of 1,174,000 (originally 1.115 million units) and 5.1% (±11.9%)* above the June 2019 SAAR of 1,166,000 units; the NSA comparison: +4.8% YoY.

Single-family completions were at a SAAR of 910,000; this is 9.6% (±15.2%)* above the revised May rate of 830,000 units (+4.2% YoY). Multi-family completions: 315,000 units (-8.4% MoM; +6.7% YoY).

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Total permits amounted to a SAAR of 1,241,000 units (1.300 million expected). This is 2.1% (±1.2%) above the revised May rate of 1,216,000 (originally 1.220 million units), but 2.5% (±1.7%) below the June 2019 SAAR of 1,273,000 units; the NSA comparison: +7.4% YoY.

Single-family permits were at a SAAR of 834,000; this is 11.8% (±2.0%) above the revised May figure of 746,000 units (+9.7% YoY). Multi-family: 407,000 (-13.4% MoM; +2.7% YoY).

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In a strong signal that the housing market is ready to lead a post-COVID economic recovery, builder confidence in the market for newly-built single-family homes jumped 14 points to 72 in July, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). The HMI now stands at the solid pre-pandemic reading in March before the outbreak affected much of the nation.

“Builders are seeing strong traffic and lots of interest in new construction as existing home inventory remains lean,” said NAHB Chairman Chuck Fowke.  “Moreover, builders in the Northeast and the Midwest are benefiting from demand that was sidelined during lockdowns in the spring. Low interest rates are also fueling demand, and we expect housing to lead an overall economic recovery.”

“While the housing market is clearly rebounding, challenges exist,” said NAHB Chief Economist Robert Dietz. “Lumber prices are at a two-year high and builders are reporting rising costs for other building materials while lot and skilled labor availability issues persist. Nonetheless, the important story of the changing geography of housing demand is benefiting new construction. New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”

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.

Wednesday, July 15, 2020

June 2020 Industrial Production, Capacity Utilization and Capacity


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Total industrial production (IP) rose 5.4% in June (+4.3% expected) after increasing 1.4% in May; even so, it remained 10.9% below its pre-pandemic February level. For 2Q2020 as a whole, the index fell 42.6% at an annual rate, its largest quarterly decrease since the industrial sector retrenched after World War II. Manufacturing output climbed 7.2% in June, as all major industries posted increases. The largest gain—105.0%—was registered by motor vehicles and parts, while factory production elsewhere rose 3.9%. Mining production fell 2.9%, and the output of utilities increased 4.2%. At 97.5% of its 2012 average, the level of total industrial production was 10.8% lower in June than it was a year earlier. 

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Industry Groups

Manufacturing output increased 7.2% in June, but it was still 11.1% below its pre-pandemic February level; factory output fell 47.0% at an annual rate in 2Q (NAICS manufacturing: +7.4% MoM; -11.0% YoY). The index for durable manufacturing rose 11.6% in June (wood products: +1.7%). Despite substantial gains in the past two months, the output of motor vehicles and parts remained nearly 25% below its February level. The index for nondurables rose 3.4%, with sizable gains for apparel and leather and for plastics and rubber products (paper products: +3.4%). The output of other manufacturing (publishing and logging) increased 2.2%.

The output of utilities rose 4.2% in June, as both gas and electric utilities posted gains. Mining output fell 2.9%, with declines in nearly all categories. The index for oil and gas well drilling fell 18.0% in June and was about 70% below its year-earlier level. For the second quarter, mining output declined 42.7% at an annual rate.

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Capacity utilization (CU) for the industrial sector increased 3.5 percentage points (PP) to 68.6% in June, a rate that is 11.2PP below its long-run (1972–2019) average but 1.9PP above its trough during the Great Recession.

Manufacturing CU in June was 66.9%, 4.6PP higher than in May and 3.2PP above its recession trough of June 2009 (NAICS manufacturing: +7.4%, to 67.4%). The operating rate for durable manufacturing increased 6.7PP in June to 64.3%, 5.9PP above its 2009 low (wood products: +1.6%). Capacity utilization for nondurables rose 2.4PP to 70.6%, 1.8PP above its 2009 low (paper products: +3.4%). The operating rate for mining fell to 75.0%, somewhat below its low in 2016 but slightly above its historical low in 1986.

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Capacity at the all-industries level was unchanged MoM (+1.0 % YoY) at 142.0% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.7% YoY) to 140.2%. Wood products: 0.0% (+2.3% YoY) at 169.7%; paper products: -0.1% (-0.5 % YoY) to 109.3%.

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. 

Tuesday, July 14, 2020

June 2020 Consumer and Producer Price Indices (incl. Forest Products)


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Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6% in June (0.5% expected) after falling 0.1% in May. The gasoline index rose sharply in June after recent declines and accounted for over half of the monthly increase in the seasonally adjusted all-items index. The energy index increased 5.1% in June as the gasoline index rose 12.3%.  The food index also rose in June, increasing 0.6% as the index for food at home continued to rise.

The index for all items less food and energy rose 0.2% in June, its first monthly increase since February. The index for motor vehicle insurance increased sharply in June after recent declines. The indexes for apparel, shelter, and medical care also increased in June, while the indexes for used cars and trucks, recreation, and communication all declined.

The all items index increased 0.6% for the 12 months ending June; this compares to a 0.1% increase for the 12 months ending May. The index for all items less food and energy increased 1.2% over the last 12 months. The food index increased 4.5% over the last 12 months, with the index for food at home rising 5.6%. Despite increasing in June, the energy index fell 12.6% over the last 12 months.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) fell 0.2% in June (+0.4% expected). This decrease followed a 0.4% increase in May and a 1.3% decline in April. In June, the decrease in the final demand index is attributable to a 0.3% decline in prices for final demand services. In contrast, the index for final demand goods rose 0.2%.

On an unadjusted basis, the final demand index moved down 0.8% for the 12 months ended in June. Prices for final demand less foods, energy, and trade services advanced 0.3% in June, the largest increase since a 0.3% rise in January. For the 12 months ended in June, prices for final demand less foods, energy, and trade services edged down 0.1%.

Final Demand

Final demand services: The index for final demand services moved down 0.3% in June, the largest decrease since falling 0.3% in February. The June decline can be attributed to margins for final demand trade services, which dropped 1.8%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, the indexes for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services increased 0.3% and 0.9%, respectively.

Product detail: Eighty percent of the June decline in the index for final demand services can be traced to a 7.3% drop in margins for machinery and vehicle wholesaling. The indexes for apparel, jewelry, footwear, and accessories retailing; fuels and lubricants retailing; dental care; deposit services (partial); and long-distance motor carrying also fell. In contrast, prices for hospital inpatient care rose 0.8%. The indexes for transportation of passengers (partial) and automobile retailing (partial) also increased.

Final demand goods: The index for final demand goods rose 0.2% in June after increasing 1.6% in May. Leading the June advance, prices for final demand energy jumped 7.7%. The index for final demand goods less foods and energy inched up 0.1%. Conversely, prices for final demand foods dropped 5.2%.

Product detail: In June, a major factor in the increase in prices for final demand goods was the gasoline index, which rose 26.3%. Prices for diesel fuel; jet fuel; natural, processed, and imitation cheese; basic organic chemicals; and fresh and dry vegetables also advanced. In contrast, prices for meats dropped 27.7%. The indexes for residential electric power and light motor trucks also declined.

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The not-seasonally adjusted price indexes we track were mixed on both MoM and YoY bases.

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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.