1Q2011 Gross Domestic Product: Third Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) inched up its estimate of 1Q2011 growth in real U.S. gross domestic product (GDP) by 0.1 percent, to a seasonally adjusted and annualized rate of 1.9 percent. Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed virtually all of the growth while government consumption expenditures (GCE) subtracted from it. Net exports (NetX) were a minor positive. Comparing the preliminary and final estimates shows that NetX contributed more to growth than first thought, but the downward revision to GCE nearly offset that increase.
 

Click image for larger version

As the Consumer Metrics Institute pointed out, “The BEA raised its GDP price deflator for the annualized inflation rate to 2.0 percent (from the 1.9 percent utilized in the prior reports). The 2.0 percent inflation rate remains curiously low, especially given that their sister Bureau of Labor Statistics (BLS) reported that the non-seasonally adjusted Consumer Price Index (CPI-U) for all items grew more than 2.1 percent during the first quarter alone, which (when annualized) works out to be something like an 8.7 percent. Even the unadjusted year-over-year CPI-U change was 3.2 percent, with the number clearly accelerating over the past couple of quarters. Again, the "deflating" arithmetic used by the BEA means that an understated inflation rate translates into an overstated economic growth.”

“If the BLS CPI-U of 3.2 percent year-over-year inflation is used as the deflator, the reported 1.92 percent annualized growth rate shrinks to a 0.73 percent annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.55 percent rate. Using an annualization of the unadjusted BLS data for the change in CPI-U during just the first quarter (an alarming 8.72 percent annualized), the "real" GDP would be shrinking at a 4.36 percent annualized rate.”

April 2011 International Trade

Click image for larger view

According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume plummeted by 2.5 percent in April from the previous month, following a downwardly revised rise of 1.1 percent in March. Most regions recorded declining trade volumes on either the import or export side, or both. The declines were largest among emerging economies, particularly in Africa, the Middle East and in Asia. The United States’ imports fell by 2.6 percent. Japan’s imports recovered somewhat, but its exports plunged by 7.0 percent. Trade was stagnant in the euro area.

Prices jumped nearly 2.8 percent between March and April, and are now up 27.9 percent from their February 2009 low.
 

Click image for larger view

The U.S. goods and services deficit narrowed slightly in April, to $43.7 billion (from $46.8 billion in March). Exports totaled $175.6 billion (up from $173.4 billion in March), while imports totaled $219.2 billion (down from $220.2 billion in March).
 

Click image for larger view

Paper exports increased by 44,000 tons (1.4 percent) in April, while imports fell by 34,000 tons (8.4 percent). Exports remained 357,000 tons (12.2 percent) above and imports 7,000 tons (1.9 percent) below year-earlier levels.
 

Click image for larger view

Softwood lumber exports fell by 4 MMBF (3.0 percent) in April while imports retreated by 47 MMBF (5.6 percent). Exports were 17 MMBF (13.4 percent) higher than year-earlier levels, but imports were 105 MMBF (11.8 percent) lower.

May 2011 U.S. Treasury Statement and Debt Overview

Click image for larger version

The United States’ public debt stood at $14.270 trillion as of the end of March 2011, up from $14.025 trillion at the end of 2010 and more than double the level of a decade earlier. As can be seen from the charts above and below, a little over 90 percent of that debt was held by federal intra-governmental holding accounts (over half of which was comprised of the Federal Old-Age and Survivors Insurance Trust Fund, a.k.a., Social Security), and foreign and domestic investors of various types. The Federal Reserve held the remaining 9.3 percent. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.
 

Click image for larger version

Click image for larger version

The distribution of U.S. public debt purchases among the investor types underwent a sea change in 1Q2011: Private investors divested themselves of an estimated $90 billion; intragovernmental holdings also shrank by $14 billion. Foreign and international investors picked up an additional $37 billion in debt, but that was far below the record $753 billion purchased in 4Q2010. The disappearance of the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $317 billion.
 

Click image for larger version

The debt picture has continued to worsen since March. The total public debt outstanding grew to $14.345 trillion by the end of May 2011, a change of $75 billion in just three months. Because the debt is growing, tax receipts since the beginning of FY2011 (i.e., October 1, 2010) obviously have not kept pace with budget outlays. Indeed, the red ink deepened again in May as outlays of $232.6 billion and receipts of $174.9 billion added another $57.6 billion to the federal budget deficit.
 

Click image for larger version

The amount of U.S. public debt held by foreigners was just shy of $4.5 trillion in april. China remained the largest foreign creditor ($1.153 trillion), having picked up $7.6 billion of Treasury securities. Brazil was the largest purchaser in April, with $13.4 billion.
 

Click image for larger version

The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.413 trillion). Interestingly, the Fed’s pace of purchases has slowed somewhat. Earlier this year it would have doubled its holdings had the pace of purchases been maintained for 12 months; that is no longer the case. Nonetheless, more recent data shows the Fed has continued to pile up U.S. Treasury debt since April, and held $1.576 trillion as of mid-June.
 

Click image for larger version

The rising three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system indicate that more money flowed into the United States than flowed out in April. Net inflows were $68.2 billion, which raised the moving average to nearly $93 billion per month.

May 2011 Consumer and Producer Price Indices

Click image for larger version

The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May. Over the last 12 months, the all-items index increased 3.6 percent before seasonal adjustment.

The “core” index (i.e., all items less food and energy) increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) rose 0.2 percent in May. This advance followed increases of 0.8 percent in April and 0.7 percent in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.9 percent in May, and the crude goods index declined 4.1 percent. On an unadjusted basis, prices for finished goods moved up 7.3 percent for the 12 months ended May 2011, the largest year-over-year gain since an 8.8 percent advance in September 2008.
 

Click image for larger version

Details at different stages of processing include:

Finished goods -- The May advance in the finished goods index can be traced primarily to prices for finished energy goods, which rose 1.5 percent. The index for finished goods less foods and energy moved up 0.2 percent. By contrast, prices for finished consumer foods fell 1.4 percent in May.

Intermediate goods – This index moved up 0.9 percent in May, the tenth consecutive monthly increase. About two-thirds of the May rise can be traced to a 0.9 percent advance in prices for intermediate goods other than foods and energy. A 1.4 percent jump in the index for intermediate energy goods also contributed to the increase in intermediate goods prices. For the 12 months ended May 2011, intermediate goods prices rose 10.3 percent, the largest gain since a 15.3 percent jump for the 12 months ended September 2008.

Crude goods -- The index for crude goods decreased 4.1 percent in May. For the three-month period ending in May, crude materials prices moved down 0.8 percent following a 13.6 percent increase from November to February. In May, about half of the broad-based monthly decline can be attributed to a 5.2 percent drop in the index for crude energy materials. Also contributing to the May decrease, prices for crude foodstuffs and feedstuffs fell 4.4 percent and the index for crude nonfood materials less energy moved down 0.9 percent.
 

Click image for larger version

Price index changes for the forest products that we track were mixed between April and May. Lumber and Wood Products, softwood lumber, and pulpwood price indices fell; year-over-year index changes were also mixed.
 

Click image for larger version

Click image for larger version

May 2011 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. At 93.0 percent of its 2007 average, total industrial production in May was 3.4 percent above its year-earlier level. The output of Wood Products factories fell 1.8 percent, while Paper output rose by 0.4 percent.
 

Click image for larger version

Click image for larger version

Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010. Manufacturing capacity utilization rose by 0.4 percent. Wood Products downshifted by 1.6 percent, while Paper expanded by 0.5 percent.
 

Click image for larger version

Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); Wood Products dropped by 0.2 percent while Paper declined by 0.1 percent.

June 2011 Macro Pulse -- Soft Patch or Mount Everest of Weakening Conditions?

In April, the word du jour for describing unwelcome economic developments was “transitory.” Rising prices, slow employment growth, essentially anything other than the housing slowdown  – all were deemed transitory. In May, the preferred descriptor changed to “soft patch.” Much like the “green shoots” of 2009, “soft patch” seemed to pop up virtually everywhere. Even the Financial Times couldn’t resist and wrote “Mr. Bernanke’s comments suggest he expects a ‘soft patch’ rather than a more serious slowdown in the recovery.” Michael Pento, senior economist at Euro Pacific Capital, did a brilliant send-up of the term when titling his May 31 blog post “Soft Patch or Quicksand?” Actually, Pento was clever a couple of times in May, as he also turned the phrase “Mount Everest of weakening economic data” to describe the current situation.

One of the most obvious pieces of data contributing to that Mount Everest of data was…. Click here to read the entire June 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.

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

Click image for larger view

Bureau of Economic Analysis data showed that personal income increased $46.1 billion (0.4 percent), and disposable personal income (DPI) increased $35.1 billion (0.3 percent) in April. Personal consumption expenditures (PCE) increased $41.5 billion, or 0.4 percent. Real DPI (DPI adjusted to remove price changes) decreased less than 0.1 percent while real PCE increased 0.1 percent.
 

Click image for larger view

Click image for larger view

Retail sales rose by 0.5 percent in nominal terms during April, the tenth straight month of increases. All categories advanced except for food service sales, which declined by 0.1 percent.

Click image for larger view

Total consumer debt outstanding increased for a seventh month in March, at a seasonally adjusted and annualized rate of 3.1 percent. Some of the increase was due to seasonal adjustments, as revolving credit shrank in not-seasonally adjusted terms. For a change, the increase in non-revolving credit was broader based than just student loans; loans at commercial banks and credit unions also expanded.

April 2011 Manufacturers’ Shipments, Inventories and New Orders

Click image for larger view

Shipments, inventories and new orders put in mixed performances at the total manufacturing and individual industry levels during April according to the U.S. Census Bureau.
 

Click image for larger view

Shipments decreased $0.9 billion (0.2 percent) to $444.5 billion in April, breaking a trend of seven consecutive monthly increases. Durable goods shipments decreased $2.5 billion (1.3 percent) to $194.4 billion, led by transportation equipment. Shipments of nondurable goods partially offset the durable-goods decline by increasing $1.6 billion (0.6 percent) to $250.1 billion. Food products led the nondurable increase. Wood and Paper shipments both fell, by 0.1 and 0.6 percent, respectively.
 

Click image for larger view

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 21.2 percent drop in not-seasonally adjusted rail shipments in April. Seasonal adjustments turned that decline into an increase of 1.2 percent. The PCI (which measures diesel consumption of highway trucking) fell by a seasonally and workday adjusted 0.5 percent relative to March.
 

Click image for larger view

Inventories increased $7.7 billion (1.3 percent) to $587.8 billion. The inventories-to-shipments ratio was 1.32, up from 1.30 in March. Durable goods inventories increased $3.3 billion (0.9 percent) to $350.6 billion, the highest level since the series was first published on a NAICS basis. Transportation equipment had the largest increase among the durable goods category.

Inventories of nondurable goods increased $4.4 billion (1.9 percent) to $237.2 billion, led by petroleum and coal products. Wood and Paper inventories were mixed; Wood inventories rose by 0.4 percent while Paper shrank by 0.2 percent.
 

Click image for larger view

New orders for manufactured goods in April, down two of the last three months, decreased $5.5 billion (1.2 percent) to $440.4 billion. This followed a 3.8 percent March increase. Excluding transportation, new orders decreased 0.2 percent.

Durable goods orders decreased $7.1 billion (3.6 percent) to $190.3 billion, on the heels of a 4.6 percent March increase; transportation equipment had the largest decrease, $4.8 billion (9.3 percent) to $46.9 billion. New orders for nondurable goods increased $1.6 billion (0.6 percent) to $250.1 billion.

May 2011 ISM Reports

Click image for larger version

The pace of growth in manufacturing slowed dramatically in May, with the Institute for Supply Management’s (ISM) PMI falling to 53.5, from 60.4 in April. Although the manufacturing sector has been expanding for nearly two years, "this month's index…is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. "Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, [although that] is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs."

Wood and Paper Products reverted to a now-familiar pattern, with only Paper Products reporting growth in May. Paper Products’ improvement was fairly broad, encompassing new export and domestic orders, the need to replenish inventories, and increases in production and employment. One Paper Products respondent wrote that "demand remains strong; however, inflation is evident everywhere in virtually every material purchased."
 

Click image for larger version

The non-manufacturing sector grew at a somewhat faster pace in May, reflected by a 1.8 percentage point (to 54.6 percent) rise in the non-manufacturing index (now known simply as the “NMI”). All three service industries we track expanded. One Agriculture, Forestry, Fishing & Hunting respondent indicated that "business is okay[, although fuel] prices and truck availability are starting to be a negative force on our supply chain."

The rate of input price increases slowed for both the manufacturing and service sectors. The index of prices paid by manufacturers tumbled by 9.0 percentage points, to 76.5. At the same time, non-manufacturers saw a 0.5 percentage point decline in their index. Copper and steel were the only commodities down in price during May. No relevant commodity was described as in short supply.

May 2011 Employment Report

Click image for larger view

Headline numbers from the May employment report were disappointingly weak. That report showed the U.S. economy added only 54,000 nonfarm jobs, and that the unemployment rate ticked up by a 0.1 percentage point, to 9.1 percent. Taking into consideration downward revisions to the March (-27,000) and April (-12,000) data, only 15,000 jobs were added in May, which brought the change in nonfarm employment back nearly to 5 percent below the December 2007 peak.

The lion’s share of job gains occurred in two service categories -- Professional & Business Services and Education & Health Services. Job losses were concentrated at the local government level.
 

Click image for larger view

Click image for larger view

Click image for larger view

Breaking the employment data out by full- and part-time categories showed that the number of persons employed full time fell by 142,000 in May, while the number of persons employed part time for economic reasons shrank by 52,000. One would ordinarily expect to see more full-time employees and fewer part-timers in an improving economy.

Over 6.8 million people were not counted as being in the labor force but who would like a job now -- a jump of roughly 300,000 relative to April. On a more positive note, however, the total number of persons not considered part of the labor force fell back to 85.9 million -- slightly below last month’s record above 86.2 million.

Other discouraging aspects of the report included a civilian labor force participation rate that appears anchored at 64.2 percent (a 27-year low) while the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked up by 0.5 percentage point, to 2.1 percent; one might be tempted to think the earnings increase is a positive until realizing that, with the consumer price index for urban consumers rising at a 3.2 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

April 2011 U.S. Construction

Click image for larger view

Click image for larger view

Overall construction spending in the United States increased by 0.4 percent during April, to a seasonally adjusted and annualized rate (SAAR) of $765.0 billion. Private residential construction rose by the largest margin, gaining 3.1 percent; by contrast, public construction fell 1.9 percent.

Click image for larger view

Although the value of residential construction put in place rose, total housing starts declined by 10.6 percent -- to 523,000 units (SAAR). Total starts remained 77 percent below the January 2006 peak of nearly 2.3 million units.
 

Click image for larger view

Click image for larger view

Most of the retreat in starts occurred in the multi-family component (-41,000 units); single-family starts fell by 21,000 units.
 

Click image for larger view

New-home sales added to gains experienced in March, increasing by 7.3 percent to 323,000 (SAAR) in April. The median price of new homes sold also rose (by 1.6 percent) to $217,900.
 

Click image for larger view

Strangely, the inventory of new single-family homes shrank in both months-of-inventory and absolute terms even though completions outstripped sales by nearly one-third. Inventory stood at 175,000 units and 6.5 months (down from 7.2 months). It is interesting to note that the number of homes for sale was the lowest since such records began in January 1963.
 

Click image for larger view

Existing home sales fared worse than their new-home counterparts in April, falling by 40,000 units (SAAR), or -0.8 percent. The share of total sales comprised of new homes remained at 5.1 percent.
 

Click image for larger view

With the median existing home price rising by $3,900 (2.4 percent), to $163,700 in April, housing affordability retreated noticeably once again. We find this existing-home price appreciation somewhat surprising in light of other sources of data (e.g., the Federal Housing Finance Agency and S&P/Case-Shiller) that suggest existing home prices are falling -- not rising.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation.” said David M. Blitzer, Chairman of the Index Committee at S&P Indices in reference to the S&P/Case-Shiller home price indices. “The National Index, the 20-City Composite and 12 metropolitan statistical areas (MSAs) all hit new lows with data reported through March 2011. The National Index fell 4.2 percent over the first quarter alone, and is down 5.1 percent compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight. Since December 2010, we have found an increasing number of markets posting new lows. In March 2011, 12 cities -- Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland (OR) and Tampa -- fell to their lowest levels as measured by the current housing cycle. Washington D.C. was the only MSA displaying positive trends with an annual growth rate of +4.3 percent and a 1.1 percent increase from its February level.
 

Click image for larger view

“The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit,” Blitzer continued. “Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”
 

Click image for larger view

May 2011 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate crude oil fell back in May, dropping by $8.71 (7.9 percent) to $101.33 per barrel. That retreat occurred despite a weak dollar and an increase in consumption of 379,000 barrels per day (BPD) -- to 19.2 million BPD -- during March, but coincided with a continued rise in crude stocks during May.
 

Click image for larger view

Click image for larger view

According to ASPO-USA, although oil prices fell early in the final full week of May -- at one point dropping below $97 a barrel in New York as the dollar rose to a two-month high (on a daily value basis) following a spate of bad news about the various debt crises in the euro zone -- they quickly bounced back to the vicinity of $100 after Goldman Sachs released a forecast that oil prices were heading higher as demand was outrunning the global oil production and economic recovery was picking up. Goldman was soon joined by Morgan Stanley, JPMorgan, and Barclays in forecasting considerably higher oil prices in the next 18 months. JPMorgan sees Brent crude trading at $130 a barrel by the third quarter of 2011 and Goldman is forecasting Brent at $120 by the end of 2011 and $140 by the end of 2012. NY crude closed out last week at $100 a barrel and, in London, Brent crude settled on Friday at $115.