January 2011 International Trade

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume increased by 1.3 percent in January from the previous month, after a downwardly revised rise of 1.4 percent in December. The upsurge in trade growth that occurred in the final months of last year continued; global trade volume exceeded its pre-recession peak in December, and has pressed higher with the new year. In January, import growth went up sharply in the United States, Japan, and Central and Eastern Europe. On the export side, emerging economies continued to lead the world, but export growth in the United States continued to rise as well. By contrast, Japan’s remarkably strong December export performance was largely undone by a big decline in January.

Unit prices rose even more noticeably than trade volumes in January, jumping 2.2 percent from the previous month. Prices are still 7.7 percent below their peak, but could easily surpass that level within a few months if present trends continue.
 

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The U.S. goods and services deficit widened to $46.3 billion in January, from December’s $40.3 billion. Total January exports were $167.7 billion and imports were $214.1 billion. Import growth had been essentially flat since last June, but ramped up significantly in the past two months. Exports have risen at a more consistent -- although perhaps slower -- pace since mid-year 2010. Export growth has been about $1.9 billion per month since January 2010 -- far slower than the rate needed to meet the White House goal of doubling January 2010’s exports by 2015. Doubling will not be achieved until mid-2016 at the current rate of growth.
 

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U.S. paper exports fell by 172,000 metric tons (5.4 percent) between December and January, nearly four times the drop in imports (-45,000 tons or 10.8 percent). Nonetheless, both exports and imports remained above year-earlier levels: 234,000 tons (8.4 percent) for exports and 35,000 tons (10.3 percent) for imports.
 

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Softwood lumber exports essentially unchanged in January, while imports fell by 37 MMBF (5.0 percent). Exports were nearly 34 percent higher compared to year-earlier levels; imports were just 7.0 percent higher.

4Q2010 Gross Domestic Product: Third Estimate

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The Bureau of Economic Analysis (BEA) raised its final estimate of the 4Q2010 rate of growth in real U.S. gross domestic product (GDP). The U.S. economy expanded at a 3.1 percent seasonally adjusted and annualized rate -- down slightly from the original estimate of 3.2 percent but up from the 2.8 percent estimated last month. This revision leaves 4Q GDP growth higher than the 2.6 percent growth rate in 3Q. Personal consumption expenditures (PCE) and net exports (NetX) contributed to growth while private domestic investment (PDI) subtracted from it. Government consumption expenditures were more of a “drag” on growth than originally thought.
 

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Looking at 2010 as a whole, real GDP increased 2.9 percent (that is, from the 2009 annual level to the 2010 annual level), in contrast to a decrease of 2.6 percent in 2009. The increase in real GDP in 2010 primarily reflected positive contributions from private inventory investment, exports, PCE, nonresidential fixed investment, and federal government spending. Increased imports kept the rate of growth in check.

Current-dollar GDP increased 3.8 percent ($541.4 billion) in 2010 after decreasing 1.7 percent ($250.1 billion) in 2009. Real GDP increased 2.8 percent between 4Q2009 and 4Q2010, a much more robust showing than the 0.2 percent increase during 2009.

February 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $333.2 billion and receipts of $110.7 billion added another $222.5 billion to the federal budget deficit in February. The U.S. federal debt held by the public stood at $14.195 trillion at the end of February.
 

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Foreigners held $4.453 trillion, or a little less than one-third of the U.S. public debt at the end of January 2011. China remained the largest foreign creditor in January ($1.155 trillion) despite selling $5.4 billion of Treasury securities. Brazil was the biggest buyer in both absolute ($11.5 billion) and percentage change (6.2 percent) terms. Interestingly, the “other” (aggregated) category has been a net seller for the past several months, dropping $20 billion since October.
 

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Central banks control 71 percent of the foreign-held U.S. Treasuries, down from 79 percent a year earlier.
 

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The Federal Reserve overtook Japan during November in terms of U.S. Treasury holdings, and is set to jump above China as well. Furthermore, were the Fed to maintain its January rate of Treasury purchases for a year, it would more than double its current holdings. As mentioned above, China was a net seller in January, while Japan’s pace of purchases was comparatively slow.

More recent data shows the Fed has ramped up purchases of U.S. Treasury debt since January, and held nearly $1.3 trillion as of mid-March.
 

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Flows into the United States for all types of investments were greater than outflows in January, as evidenced by the positive three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system. Although the rate of inflows fell to $32.511 billion in January (from $49.705 billion in December) the three-month average rose slightly.
 

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Short-term U.S. securities (e.g., T-bills) continue to lose their international appeal, perhaps in part because of the paltry yields associated with those investments. Foreign investors were net sellers of short-term U.S. debt during every month since September -- with the exception of October -- hence why the three-month average went negative in November.
 

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Net inflows into long-term public debt retreated by $6.263 billion in January, but remained safely in positive territory ($57.745 billion); the three-month average jumped higher because of losing the influence of October’s paltry showing of just $37.605 billion. Purchases of private securities have been relatively stable since September -- averaging $15.9 billion per month over that period.

February 2011 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February. Over the last 12 months, the all-items index increased 2.1 percent before seasonal adjustment.

Although the seasonally adjusted increase in the all-items index was broad-based, the energy index was once again the largest contributor. The gasoline index continued to rise, and the index for household energy turned up in February with all of its components posting increases. Food indexes also continued to rise in February, with sharp increases in the indexes for fresh vegetables and meats contributing to a 0.8 percent increase in the food at home index, the largest since July 2008.

The index for all items less food and energy rose in February as well. Most of its major components posted increases, including the indexes for shelter, new vehicles, medical care, and airline fares. The apparel index was one of the few to decline.

The 12-month changes in major indexes continue to trend upward. The all-items index increased 2.1 percent for the 12 months ending February; the figure was 1.1 percent as recently as November. The 12- month increase in the index for all items less food and energy reached 1.1 percent in February after being as low as 0.6 percent in October. The 11.0 percent increase in the energy index is the largest since May 2010, while the 2.3 percent rise in the food index is the largest since May 2009.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) increased 1.6 percent in February. This rise followed advances of 0.8 percent in January and 0.9 percent in December, and marks the largest increase in finished goods prices since a 1.9-percent advance in June 2009. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 2.0 percent, and the crude goods index climbed 3.4 percent. On an unadjusted basis, prices for finished goods advanced 5.6 percent for the 12 months ended February 2011, the largest 12-month increase since a 5.9-percent rise in March 2010.
 

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Details at different stages of processing include:

Finished goods -- Leading the broad-based increase in the index for finished goods, prices for finished energy goods and finished consumer foods moved up 3.3 percent and 3.9 percent, respectively. The index for finished goods less foods and energy also contributed to this advance, rising 0.2 percent.

Intermediate goods -- This index advanced 2.0 percent in February, the largest increase since a 2.7-percent rise in July 2008. About half of the broad-based February advance can be attributed to prices for intermediate energy goods, which climbed 4.3 percent. The indexes for intermediate goods other than foods and energy and for intermediate foods and feeds also contributed to this increase, moving up 1.1 percent and 2.6 percent, respectively. For the 12 months ended February 2011, prices for intermediate goods climbed 7.8 percent, the largest advance since rising 8.3 percent in May 2010.

Crude goods -- The crude-goods index rose 3.4 percent in February. For the 3 months ended in February, prices for crude materials climbed 13.8 percent, subsequent to a 6.7-percent increase for the 3 months ended November 2010. Over three-fourths of the February over-the-month advance is attributable to the index for crude foodstuffs and feedstuffs, which jumped 6.7 percent. Also contributing to the rise in prices for crude goods, the indexes for crude nonfood materials less energy and crude energy materials moved up 2.3 percent and 0.9 percent, respectively.
 

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In the forest products sector, most indices we track moved higher in February. Except for pulpwood, prices are all higher than year-earlier levels although the rate of growth has slowed in several cases.
 

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February 2011 Industrial Production, Capacity Utilization and Capacity

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Industrial production declined 0.1 percent in February after having risen 0.3 percent in January; output in January was previously estimated to have edged down 0.1 percent. Manufacturing output increased 0.5 percent in February, and the gain in January was revised up to 0.9 percent. At 95.5 percent of its 2007 average, total industrial production was 5.6 percent above its year-earlier level. Both Wood Products and Paper moved in the same direction as the whole manufacturing sector, rising by 2.3 and 0.7 percent, respectively.
 

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The capacity utilization rate for total industry edged down 0.2 percentage point to 76.3 percent, a rate 4.2 percentage points below its average from 1972 to 2010. Manufacturing bucked the all-industry trend, rising 0.4 percent. Wood Products jumped a rather sprightly 2.7 percent, while Paper increased by a more sedate 0.8 percent.
 

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent), but Wood Products slumped by 0.4 percent while Paper fell 0.1 percent.

March 2011 Macro Pulse -- Mixed Signals

Before the era of electronic communication, trumpets were often used to rally troops, and signal warnings or other events. An indication of this is the famous saying, “If the trumpet produces an uncertain sound, who will prepare himself for battle?” The U.S. economy gave off mixed signals during the past month, leaving many scratching their heads about how to plan for the future.


Click here to read the entire March 2011 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments that affect the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

January 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis data showed that personal income increased $133.2 billion (1.0 percent), and disposable personal income (DPI) increased $78.3 billion (0.7 percent) in January. Personal consumption expenditures (PCE) increased $23.7 billion (0.2 percent). Real (inflation adjusted) disposable income increased 0.4 percent in January while real PCE decreased 0.1 percent. On average, then, Americans did not spend all of their marginal increase in income.

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Retail sales rose by 0.3 percent during January, the seventh straight month of increases. Motor vehicles and “other” sales tied for the largest percentage gain (0.5 percent), while food service sales fell (-0.7 percent) for a second month.

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Total consumer debt outstanding increased for a fourth month in January, at an annual rate of 2.5 percent. All of the credit expansion occurred in the “non-revolving” category, however, since revolving credit (i.e., credit cards) shrank at an annualized rate of 6.4 percent, while non-revolving credit increased at an annual rate of 6.9 percent. As we have seen before, the federal government -- not consumers – was the source of the increase in non-revolving debt (+$24.9 billion, not seasonally adjusted).

January 2011 Manufacturers’ Shipments, Inventories and New Orders

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Shipments, inventories and new orders all posted gains at the total manufacturing level during January, according to the U.S. Census Bureau.
 

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Shipments, up five consecutive months, increased $8.1 billion (1.8 percent) to $447.4 billion, following a 2.7 percent December increase. Primary metals, and petroleum and coal products had the biggest gains among the durable and nondurable goods, respectively. Solid wood shipments fell by 0.5 percent while Paper advanced 0.4 percent.
 

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a substantial drop in not-seasonally adjusted rail shipments during January, relative to December; on a seasonally adjusted basis, total shipments were up 1.8 percent. The PCI (which measures diesel consumption of highway trucking) also fell by 0.3 percent. Adverse winter weather was blamed for the poor PCI showing.
 

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Inventories, up 12 of the last 13 months, increased $7.1 billion (1.3 percent) to $559.3 billion, following a 1.4 percent December increase. Transportation equipment had the largest increase in the durable goods component, while petroleum and coal products led the rise in nondurables. Wood and Paper inventories both ticked up in January, by 0.9 and 0.2 percent, respectively.
 

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New orders, up six of the last seven months, increased $13.6 billion (3.1 percent) to $445.6 billion; that followed a 1.4 percent December increase. Excluding transportation, new orders increased 0.7 percent. Durable goods orders broke a three-month trend and increased $6.2 billion (3.2 percent) to $201.0 billion. nondurable goods orders rose $7.4 billion (3.1 percent) to $244.6 billion.

February 2011 Employment Report

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The U.S. economy added 192,000 nonfarm jobs in February, and the unemployment rate ticked down by 0.1 percentage point to 8.9 percent (the lowest rate since April 2009). February’s job-creation rate was much more robust than January’s upwardly revised figure of 63,000 (originally 36,000). We are also encouraged to see that 304,000 persons found full-time work, thereby reducing the rolls of part-timers by 67,000.
 

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Despite the upturn in employment, the chart above shows how much ground remains to be regained. That chart tells just part of the story, however, because returning to “zero” means only that the number of persons employed is equal to the peak of December 2007; it does not include the 150,000 persons of employable age added by population growth each month.
 

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As has happened for the past several months, the unemployment rate dropped primarily because of the number of people who gave up looking for work and thus were no longer considered officially unemployed. I.e., the improvement occurred not because of a wholesale jump in hiring, but rather because so many people dropped out of the system. A near-record 6.4 million people were not counted as being in the labor force, but would like a job now. Also, the total number of persons not considered part of the labor force jumped to a record high of 86.2 million.

Another discouraging aspect of the report included a civilian labor force participation rate that remained unchanged at 64.2 percent (a 27-year low).

January 2011 U.S. Construction

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Overall construction spending in the United States decreased by a seasonally adjusted and annualized rate (SAAR) of 0.7 percent during January, to $791.8 billion. Private non-residential construction took the biggest hit, falling 6.9 percent, while residential construction rose by 5.3 percent.
 

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As was somewhat expected because of the December rise in residential permits, total housing starts rose by 14.6 percent in January. Although that percentage change seems quite sizeable, it nonetheless pulled starts up only to 596,000 units SAAR. Still, that is nearly 100,000 units higher than what we have defined as the “natural” or “background” rate of 500,000 total units.
 

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All of the improvement in starts occurred in the multi-family category; single-family starts declined by 1.0 percent.
 

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Homebuyers must have attempted to beat a self-imposed year-end deadline, because new-home sales slumped by 12.6 percent in January. Although sales dropped, the falloff in starts was sufficient to lower the ratio of starts to sales for a third month.
 

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Because sales fell more dramatically (especially on a percentage basis) than did completions, the inventory of new homes rose in months-of-inventory terms even though the absolute number of available homes declined slightly. Inventory stood at 188,000 units (down from 189,000 in December) and 7.9 months (up from 7 months).
 

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Existing home sales rose for a third month in December. That, in combination with the retreat in new home sales, pared the latter’s proportion of total sales back to 5.0 percent.
 

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A drop of nearly $10,000 in the median existing home price between December and January jacked housing affordability to a new, all-time high. As we have indicated in the past, however, falling home prices are a two-edged sword: While they make housing purchases more affordable, in a perverse way they also discourage those purchases. Why buy a home if there is a high likelihood that continued price erosion will quickly wipe out whatever equity the buyer has in the home?
 

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The seasonally adjusted S&P/Case-Shiller home price indices also retreated in all but a handful of metropolitan statistical areas (MSAs) in December. Most MSAs saw prices erode on a year-over-year basis as well.

“We ended 2010 with a weak report.” said David Blitzer, chair of the Index Committee at Standard & Poor's. “The National Index is down 4.1 percent from 4Q2009 and 18 of 20 cities are down over the last 12 months. Both monthly Composites and the National Index are moving closer to their 2009 troughs. The National Index is within a percentage point of the low it set in 1Q2009. Despite improvements in the overall economy, housing continues to drift lower and weaker. Unlike the 2006 to 2009 period when all cities saw prices move together, we see some differing stories around the country. California is doing better with gains from their low points in Los Angeles, San Diego and San Francisco. At the other end is the Sun Belt – Las Vegas, Miami, Phoenix and Tampa. All four made new lows in December. Also seeing renewed weakness are some cities that were among the last to reach their peaks including Atlanta, Charlotte, Portland OR and Seattle, where news lows were also seen. Dallas, which peaked late, has so far stayed above its low marked in February 2009.”
 

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February 2011 ISM Reports

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The pace of growth in manufacturing rose in Febuary, with the Institute for Supply Management’s (ISM) PMI ticking up by 0.6 percentage point. "February's report from the manufacturing sector indicates continuing strong performance as the PMI registered 61.4 percent, a level last achieved in May 2004,” said Norbert Ore, chair of ISM’s Manufacturing Business Survey Committee. "New orders and production, driven by strength in exports in particular, continue to drive the composite index. New orders are growing significantly faster than inventories, and the Customers' Inventories Index indicates supply chain inventories will require continuing replenishment. The Employment Index is above 60 percent for only the third time in the last decade. While there are many positive indicators, there is also concern as industries related to housing continue to struggle and the Prices Index indicates significant inflation of raw material costs across many commodities."

Both Wood and Paper Products showed signs of improvement once again, although those signs were quite sparse in the case of Wood Products.
 

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The non-manufacturing sector also grew slightly faster again in February, thanks to a 0.3 percentage point (to 59.7 percent) increase in the NMI. This time around, however, Real Estate was the only service industry among those we track to share in that expansion.

The rate of input price increases tamed somewhat in February. The prices-paid index rose a modest 0.5 percentage point for manufacturers, while non-manufacturers faced a 1.2 percentage point jump in their price index. Plywood, gasoline, diesel, energy, and paper and paper bags were among the relevant commodities up in price. No relevant commodity was down in price, neither was any relevant commodity described as in short supply.

February 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil was virtually unchanged in February, rising by only $0.16 (0.2 percent) to $89.58 per barrel. That degree of stability likely occurred because the effects of a slightly weaker dollar and a substantial rise in consumption of 685,000 barrels per day (BPD) -- to 19.8 million BPD -- during December were offset by a continued rise in crude stocks during February.
 

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ASPO-USA summed up the current oil price situation as follows:

“[During the last full week of February] the oil markets were dominated by the Libyan uprising. Brent crude nearly touched $120 a barrel on Thursday before settling to close Friday at $112 after President Obama, the IEA, OPEC and the Saudis all assured the markets that the shut-in Libyan crude would be replaced. Areas controlled by the protestors in Libya increased during the week as numerous armed forces units announced their allegiance to the revolution. By week‘s end, security forces still loyal to Gadhafi controlled little more than parts of Tripoli and some small towns. Oil production seems to have fallen by at least 75 percent as foreign oil workers fled the country. Any remaining production will likely go to domestic refineries with little if any available for export. Rumors that Gadhafi intends to sabotage oil facilities continue to surface. The natural gas line from Libya which supplies about 10 percent of Italy‘s consumption has been closed by the disturbances….

“In NY, oil continued to trade about $14 a barrel lower than in London, closing near $98 a barrel after reaching $103.41 on Thursday. U.S. crude inventories increased by 800,000 barrels the week before last, but total commercial inventories fell by 12 million barrels.

“Beijing increased retail gasoline and diesel prices this week, a move some believe will stimulate demand for crude by making oil refining more profitable. It is still not clear how a major crop failure in China will affect the country‘s demand for oil, but drought continues in the country’s grain growing region….

“Oil prices fell rapidly on Thursday after assurances that even a prolonged outage of Libyan oil production could easily be compensated for by increased OPEC production and withdrawals from strategic reserves. As the shutdown of Libyan oil production seems to be growing and soon may be total, the question of just how much sustainable spare capacity OPEC really has may soon be answered.

“At week‘s end there were reports that the Saudis had increased their production to over 9 million BPD from the 8.6 billion they pumped in January. As the winter heating season slackens, this is the time of the year when there is usually a decrease in demand and indeed Oil Movements, the leading tanker tracker, is forecasting a 310,000 BPD drop in OPEC shipments between mid-February and mid-March.

“Most of Libya‘s exports consist of light, sweet crude which is shipped to refineries in Europe that can only refine the better grades of crude. If OPEC is to “replace” the lost Libyan production, it must not only come up the necessary quantities of oil but also the right qualities. Last week there was discussion of redirecting shipments of the light West African crudes to Europe and letting the Saudis send more oil to Asia which can better handle the heavy sour crudes.

“During the week there was much discussion of OPEC‘s 4 or even 6 million BPD of spare capacity. Many experienced observers remain skeptical that anywhere near this quantity can be brought into production quickly. So far we have one unofficial report that the Saudis have increased output by 400,000-500,000 BPD, way below what would be necessary to compensate for what seems likely to be the lost Libyan production of 1.6 million BPD. Indeed if the Saudis are to compensate for most of the lost output, they would have to exceed the 10 million BPD figure that many doubt they still can, or would want to, achieve.

“The other option is to draw on what the IEA says is 1.6 billion barrels of already produced reserves. Some of this, however, is simply part of the production pipeline and is not available for use elsewhere. Objections are already being raised about tapping strategic reserves just to control prices. With the possibility that other Middle Eastern oil producers could be subject to domestic unrest many feel that these reserves should be saved for truly critical situations.

“This question should be resolved in the next few weeks when shortages of Libyan crude start developing at European refineries. Either OPEC will have increased production of the right grades of crude sufficiently to offset the loss, the IEA will have authorized releases from stockpiles, or oil prices will be still higher.”