1Q2024 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2024 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +1.59% (+2.3% expected), down 1.80 percentage points (PP) from 4Q2023’s +3.39%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2024 was 2.97% higher than in 4Q2023; that growth rate was slower (-0.17PP) than 4Q2023’s +3.13% relative to 4Q2022.

Three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 1Q percent-change headline; net exports (NetX) detracted from it.

“The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a decrease in private inventory investment,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (all values are billions of chained 2017 dollars; all comparisons to 4Q2023) --

PCE (+96.8):

• Goods (-5.8). Spending on durable goods fell (-6.3) led by motor vehicles and parts (-13.9). Growth in spending on nondurable goods was absent (0.0), as a drop in gasoline and other energy goods (-9.2) was offset by other line items.
• Services (+99.5). Gains were led by health care (+35.9) and financial services and insurance (+20.2).

PDI (+32.3):

• Fixed investment (+52.3). This increase was led by residential investment (+24.6), with nonresidential investment close behind (+23.7) -- particularly software (+20.2) and information processing equipment (+14.2). Transportation equipment showed the largest loss (-18.5).
• Inventories (-19.5). Nonfarm inventories contracted (-18.8); farm: -0.7.

NetX (-54.7):

• Exports (+5.8). Goods exports rose by 3.7; services: +2.0.
• Imports (+60.4). Goods imports increased by 47.1; services: +13.0. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+11.5): State and local consumption expenditures (+10.2) led this category. Federal expenditures declined (-0.9) but this ignores outlays via transfer payments.

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +1.94% (down 1.92PP from 4Q).

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Despite the slowdown, “the economy was on solid ground,” wrote MarketWatch’s Jeffry Bartash. “Consumer spending, the main engine of the growth, rose at a healthy 2.5% clip to lead the way. Business spending was also stronger than expected.

“What’s more, there’s little evidence the economy is headed for tougher times. While early data for April have been somewhat soft, very few economists think a recession is likely.” If his forecast proves true, it will be primarily attributable to 2024 being an election year.

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.

March 2024 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units March at a seasonally adjusted annual rate (SAAR) of 1,321,000 units (1.480 million expected). This is 14.7% (±9.9%) below the revised February estimate of 1,549,000 (originally 1.521 million units) and 4.3% (±9.4%)* below the March 2023 SAAR of 1,380,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -2.7%.

Single-family housing starts in March were at a SAAR of 1,022,000; this is 12.4% (±12.5%)* below the revised February figure of 1,167,000 units (+22.0% YoY). Multi-family: 299,000 units (-21.7% MoM; -44.1% 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 1,469,000. This is 13.5% (±11.0%) below the revised February estimate of 1,698,000 (originally 1.729 million units) and 3.9% (±13.5%)* below the March 2023 SAAR of 1,528,000 units; the NSA comparison: -4.0% YoY.

Single-family completions were at a SAAR of 947,000; this is 10.5% (±10.1%) below the revised February rate of 1,058,000 units (-8.6% YoY). Multi-family: 522,000 units (-18.4% MoM; +6.4% YoY).

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Total permits were at a SAAR of 1,458,000 units (1.510 million expected). This is 4.3% below the revised February rate of 1,523,000 (originally 1.518 million units) but 1.5% above the March 2023 SAAR of 1,437,000 units; the NSA comparison: -5.9% YoY.

Single-family permits were at a SAAR of 973,000; this is 5.7% below the revised February figure of 1,032,000 units (+6.2% YoY). Multi-family: 485,000 units (-1.2% MoM; -24.5% YoY).

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Press release from NAHB’s Robert Dietz:

“Builder sentiment was flat in April as mortgage rates remained close to 7% over the past month and the latest inflation data failed to show improvement during the first quarter of 2024.

“Builder confidence in the market for newly built single-family homes was 51 in April, unchanged from March, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This breaks a four-month period of gains for the index, which nonetheless remains above the key breakeven point of 50.

“April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed. With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024.

“The April HMI survey also revealed that 22% of builders cut home prices this month, down from 24% in March and 36% in December 2023. However, the average price reduction in April held steady at 6% for the 10th straight month. Meanwhile, the use of sales incentives ticked down to 57% in April from a reading of 60% in March.”

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.

March 2024 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in March (+0.4% expected) but declined at an annual rate of 1.8% in the first quarter. Manufacturing output increased 0.5% in March, boosted in part by a gain of 3.1% in motor vehicles and parts; factory output excluding motor vehicles and parts moved up 0.3%. The index for mining fell 1.4%, and the index for utilities gained 2%. At 102.7% of its 2017 average, total industrial production in March was unchanged compared with its year-earlier level. 

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Market Groups

Most major market groups recorded growth in March. The production of consumer durables gained 1.9%, bolstered by a 3.2% increase in the output of automotive products. Elsewhere, there were significant gains in the indexes of nondurable consumer goods (1.0%), defense and space equipment (0.9%), and business supplies (0.8%). In contrast, the production of energy materials decreased 0.3%, and the index for construction supplies declined 1.0%.

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Industry Groups

Industry groups within durable manufacturing posted mixed results in March. Significant gains were recorded in motor vehicles and parts (3.1%), aerospace and miscellaneous transportation equipment (1.2%), and wood products (+0.7%). In contrast, the indexes for nonmetallic mineral products, for furniture, and for primary metals fell 1.8%, 1.0%, and 0.7%, respectively. Within nondurables, gains in the output of petroleum and coal products (4.8%) and chemicals (0.7%) were partially offset by a decline of 0.5% in the output of food, beverage, and tobacco products (paper: +0.6%).

Mining output decreased 1.4% in March and fell at an annual rate of 12.3% in the first quarter. Declines in the output of oil and gas extraction, mining (except oil and gas), and support services for mining all contributed to the first quarter drop in mining output. In March, the output of utilities increased 2%, as both electric and natural gas utilities moved up.

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Capacity utilization (CU) moved up to 78.4% in March, a rate that is 1.2 percentage points (PP) below its long-run (1972–2023) average.

Manufacturing CU moved up 0.3PP in March to 77.4%, a rate that is 0.8PP below its long-run average (wood products: +0.6%; paper: +0.7%). The operating rate for mining fell 1.3PP to 91.0%, while the operating rate for utilities increased 1.2PP to 69.1%. The rate for mining was 4.5PP above its long-run average, while the rate for utilities remained substantially below its long-run average.

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Capacity at the all-industries level edged up by 0.1% MoM (+1.4% YoY) to 130.9% of 2017 output. Manufacturing also increased by 0.1% (+1.5% YoY) to 129.9%. Wood products: +0.1% (+0.4% YoY) to 120.4%; paper products: unchanged (-1.0% YoY) at 105.3%.

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.

March 2024 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 0.4% in March (+0.3% expected), the same increase as in February. Over the last 12 months, the all-items index increased 3.5% before seasonal adjustment.

The index for shelter rose in March, as did the index for gasoline. Combined, these two indexes contributed over half of the monthly increase in the index for all items. The energy index rose 1.1% over the month. The food index rose 0.1% in March. The food at home index was unchanged, while the food away from home index rose 0.3% over the month.

The index for all items less food and energy rose 0.4% in March, as it did in each of the 2 preceding months. Indexes which increased in March include shelter, motor vehicle insurance, medical care, apparel, and personal care. The indexes for used cars and trucks, recreation, and new vehicles were among those that decreased over the month.

The all-items index rose 3.5% for the 12 months ending March, a larger increase than the 3.2% increase for the 12 months ending February. The index for all items less food and energy rose 3.8% over the last 12 months. The energy index increased 2.1% for the 12 months ending March, the first 12-month increase in that index since the period ending February 2023. The food index increased 2.2% over the last year.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) rose 0.2% in March (+0.3% expected). Final demand prices moved up 0.6% in February and 0.4% in January. On an unadjusted basis, the index for final demand increased 2.1% for the 12 months ended in March, the largest advance since rising 2.3% for the 12 months ended April 2023.

The March increase in the index for final demand is attributable to a 0.3% rise in prices for final demand services. In contrast, the index for final demand goods edged down 0.1%.

The index for final demand less foods, energy, and trade services moved up 0.2% in March after rising 0.3% in February. For the 12 months ended in March, prices for final demand less foods, energy, and trade services increased 2.8%.

Final Demand

Final demand services: The index for final demand services moved up 0.3% in March, the third consecutive rise. Leading the broad-based March increase, prices for final demand services less trade, transportation, and warehousing advanced 0.2%. The indexes for final demand trade services and for final demand transportation and warehousing services moved up 0.3% and 0.8%, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: A major factor in the March increase in prices for final demand services was the index for securities brokerage, dealing, investment advice, and related services, which rose 3.1%. The indexes for professional and commercial equipment wholesaling; airline passenger services; investment banking; deposit services (partial); and computer hardware, software, and supplies retailing also moved higher. Conversely, prices for traveler accommodation services decreased 3.8%. The indexes for automobiles retailing (partial) and for machinery and equipment parts and supplies wholesaling also fell.

Final demand goods: Prices for final demand goods decreased 0.1% in March after rising 1.2% in February. The decline is attributable to the index for final demand energy, which moved down 1.6%. In contrast, prices for final demand foods and for final demand goods less foods and energy advanced 0.8% and 0.1%, respectively.

Product detail: Leading the March decline in the index for final demand goods, prices for gasoline decreased 3.6%. The indexes for chicken eggs, carbon steel scrap, jet fuel, and fresh fruits and melons also fell. Conversely, prices for processed poultry jumped 10.7%. The indexes for fresh and dry vegetables, residential electric power, and motor vehicles also moved higher.

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The not-seasonally adjusted price indexes we track were all higher on a MoM basis except for intermediate materials, but all 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 purposes of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2024 International Trade (Softwood Lumber)

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With February exports of goods and services at $263.0 billion (+2.3% MoM; +4.1% YoY) and imports at $331.9 billion (+2.2% MoM; +2.8% YoY), the net trade deficit was $68.9 billion (+1.9% MoM; -1.7% YoY). 

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Softwood lumber exports rose (10 MMBF or +10.2%) in February, along with imports (99 MMBF or +8.9%). Exports were 14 MMBF (+14.3%) above year-earlier levels; imports: 127 MMBF (+11.6%) higher. As a result, the year-over-year (YoY) net export deficit was 113 MMBF (+11.4%) higher. Also, the average net export deficit for the 12 months ending February 2024 was 7.5% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (56.9% of total softwood lumber exports -- of which Mexico: 36.7%; Canada: 20.2%), Asia (15.1% -- especially India: 3.5%; Japan: 2.2%; China: 4.0%), and the Caribbean (21.0% -- especially the Dominican Republic: 10.7%; Bahamas: 2.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 9.9% lower than the same month(s) of the prior year. Meanwhile, Canada was the source of most (83.4%) softwood lumber imports into the United States. Imports from Canada were 8.6% higher YTD/YTD. Overall, YTD exports were up 7.9% compared to the prior year; imports: +0.4%.

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U.S. softwood lumber export activity through the Gulf customs region represented 40.2% of the U.S. total; West Coast: 28.2%, and Eastern: 22.0%. Mobile (18.8% of the U.S. total), San Diego (14.9%) Seattle (12.0%), and Laredo (15.7%) were the most active districts. At the same time, the Great Lakes customs region handled 57.1% of softwood lumber imports -- most notably the Duluth, MN district (16.9%) -- coming into the United States. 

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Southern yellow pine comprised 30.7% of all softwood lumber exports; other pine (12.1%), Douglas-fir (12.9%), treated lumber (12.1%), and finger-jointed (9.7%) were also significant.

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.

March 2024 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 303,000 jobs in March -- higher than the +200,000 expected and above the top end of the consensus range (+230,000). Also, January and February 2024 employment changes were revised up by a combined 22,000 (January: +27,000; February: -5,000).

Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down 0.1 percentage point, to 3.8%, as growth in the number of employed (+498,000) outpaced that of the labor force (+469,000). 

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Observations from the employment reports include:

* For a change the two surveys were in relative agreement, which supports their credibility.

* Goods-producing industries gained 42,000 jobs; service providers: +261,000. Job gains occurred in health care (+72,000), government (+71,000), construction (+39,000), and leisure and hospitality (+49,000). Total nonfarm employment (157.8 million) is now 5.8 million jobs above its pre-pandemic level in February 2020 (private sector: +5.42 million; public sector: +403,000). Nonetheless, employment is perhaps 4.5 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing jobs were unchanged as a gain in durable goods (+4,000) was offset by a loss in nondurables. That result may be consistent with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which rose closer to breakeven in March. Wood products manufacturing added 400 jobs (ISM unchanged); paper manufacturing: +400 (ISM decreased); construction: +39,000 (ISM increased).

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* The number of employment-age persons not in the labor force fell (-296,000) to 100.0 million (nearly 4.8 million above February 2020). Because the working-age civilian population expanded (+173,000) while the number of employed rose (+498,000), the employment-population ratio (EPR) ticked up fractionally to 60.3%, which is 0.8PP below its February 2020 level. 

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* Also, because the working-age civilian population rose by 173,000 while the labor force expanded by 469,000, the labor force participation rate also rose to 62.7%. Average hourly earnings of all private employees advanced by $0.12 (to $34.69), but the year-over-year increase decelerated to +4.1%. Because the average workweek for all employees on private nonfarm payrolls lengthened to 34.4 hours, average weekly earnings rose (+$7.59) to $1,193.34 (+4.1% YoY). With the consumer price index running at an annual growth rate of +3.2% in February, the average worker appears to have gained purchasing power. 

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* Full-time workers slipped (-5,000) to 132.9 million; there are now over 2.1 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has expanded by 8.3 million during that period. Workers employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- dipped by 68,000, while those working part time for non-economic reasons jumped (+593,000). Multiple-job holders: +217,000; there are now 455,000 more multi-job holders than in February 2020. 

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For a “sanity test” of the job numbers, we consult employment withholding/FICA taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in March increased by $41.0 billion, to $319.7 billion (+14.7% MoM; +2.2% YoY). 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 March was up 3.8% from the year-earlier average.

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.

March 2024 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil advanced by $4.03 (+5.2%) to $81.28/barrel in March. That increase occurred within the context of a marginally weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of January’s decline of 706,000 barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 19.6 million b/d), and accumulated oil stocks that climbed seasonally higher -- (March 2024 average: 448 million barrels). 

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Selected highlights from the 29 March 2024 issue of OilPrice.com’s Oil & Energy Insider include:

“The oil markets are increasingly putting their trust into OPEC+ production cuts to remain in place throughout this year, a feat which combined with an improving macroeconomic outlook could bring $90 per barrel sooner than assumed,” wrote editor Michael Kern. “A better-than-expected Q4 for US GDP will most probably consolidate market expectations around a June interest rate cut, leaving behind the demand woes of early 2024.”

US SPR Replenishment Cost Increasingly More. The latest round of strategic petroleum stock replenishments in the US, totaling 2.8 million barrels in September, has seen the average price hit $81.32 per barrel, above the $79 per barrel threshold that the White House mandated for refilling crude SPRs.

Mexico's Crude Output Falls to Lowest Since 1979. Crude production of Mexico's state oil company Pemex fell to its lowest monthly level in 45 years this February, pumping 1.55 million b/d of oil, with the world's most indebted firm coming well below the government-set output target of 1.9 million b/d.

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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.