May 2011 International Trade

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume recovered by 2.3 percent in May from the previous month, following a revised fall of 2.2 percent in April. Imports of all major regions and countries increased strongly. However, exports of the emerging countries declined further with the exception of Latin America. Exports of the advanced economies recovered to the highest level since the outbreak of the financial crisis, but are still 4 percent down on the pre-crisis peak. U.S. exports declined in May, while Japanese exports recovered further from the blow caused by the March earthquake.

Prices slipped 0.3 percent between April and May, but remained 24.4 percent above their February 2009 low.
 

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The U.S. goods and services deficit expanded by 15.1 percent (to $50.2 billion) in May, its widest gap since October 2008. Exports totaled $174.9 billion (down from $175.8 billion in April), while imports totaled $225.1 billion (up from $219.4 billion in April).
 

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Paper exports decreased by 56,000 tons (1.7 percent) in May, while imports rose by 24,000 tons (6.3 percent). Exports remained 462,000 tons (16.7 percent) and imports 8,000 tons (2.0 percent) above year-earlier levels.
 

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Softwood lumber exports rose by 12 MMBF (8.2 percent) in May while imports retreated by 49 MMBF (6.2 percent). Exports were 41 MMBF (36.7 percent) higher than year-earlier levels, but imports were 83 MMBF (10.1 percent) lower.

June 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $292.7 billion and receipts of $49.7 billion added another $43.1 billion to the federal budget deficit in June, a month that typically sees revenue slightly exceeding outlays. The U.S. federal debt held by the public stood at $14.343 trillion at the end of June.
 

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Foreigners held $4.514 trillion, or a little less than one-third of the U.S. public debt at the end of May. China remained the largest foreign creditor ($1.160 trillion). The United Kingdom was the biggest buyer in both absolute ($13.5 billion) and percentage change (4.1 percent) terms. Holdings by the “other” (aggregated) category have been trending lower since last November, dropping $81 billion over that time period.
 

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The Federal Reserve put more distance between itself and both China and Japan during May in terms of U.S. Treasury holdings. Moreover, were the Fed to maintain its May rate of Treasury purchases for a year, it would nearly double its current holdings. Both China and Japan’s added modest amounts to their holdings.

More recent data shows the Fed has slowed purchases of U.S. Treasury debt since May, but still held nearly $1.6 trillion as of mid-June.

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Flows into the United States for all types of investments were overwhelmed by outflows in May, as evidenced by the sharp drop-off in three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system. Net flows were -$67.5 billion in May.
 

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Short-term U.S. securities (e.g., T-bills) continued to decline in May. With the exception of October, foreign investors have been net sellers of short-term U.S. debt during every month since September 2010.
 

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Net inflows into long-term public debt were essentially stable (at $29.690 billion) in May. Purchases of private securities also jumped by less than $1 billion in May, to $14.888 billion.

June 2011 Consumer and Producer Price Indices

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

The gasoline index declined sharply in June, falling 6.8 percent. While this decrease was the major factor in the seasonally adjusted decline in the all items index, the index for household energy declined as well. In contrast, the index for all items less food and energy increased 0.3 percent for the second consecutive month. The indexes for shelter, apparel, new vehicles, used cars and trucks, and medical care all continued to rise in June.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) decreased 0.4 percent in June. This decline followed increases of 0.2 percent in May and 0.8 percent in April. At the earlier stages of processing, prices received by manufacturers of intermediate goods were unchanged in June, and the crude goods index moved down 0.6 percent. On an unadjusted basis, prices for finished goods climbed 7.0 percent for the 12 months ended June 2011.
 

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Details at different stages of processing include:

Finished goods -- The decline in finished goods prices can be attributed to the index for finished energy goods, which decreased 2.8 percent. By contrast, prices for finished goods less foods and energy and for finished consumer foods moved up 0.3 percent and 0.6 percent, respectively.

Intermediate goods -- This index was unchanged in June following ten straight monthly increases. Price advances of 0.3 percent for intermediate goods less foods and energy and 0.4 percent for intermediate foods and feeds offset a 0.8- percent decline in the index for intermediate energy goods. On a 12-month basis, prices for intermediate goods climbed 11.0 percent, the largest increase since a 15.3-percent rise in September 2008.

Crude goods -- The index for crude goods fell 0.6 percent in June. For the 3 months ended in June, prices for crude materials declined 0.9 percent after rising 5.6 percent for the 3 months ended in March. In June, the monthly decrease in the crude goods index is attributable to prices for crude energy materials, which moved down 4.1 percent. By contrast, the indexes for crude foodstuffs and feedstuffs and for crude nonfood materials less energy increased 2.1 percent and 1.1 percent, respectively.
 

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Price index changes for the forest products that we track either rose more quickly or fell more slowly on a year-over-year basis.
 

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June 2011 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 0.2 percent in June after having edged down 0.1 percent in May. For 2Q2011 as a whole, total industrial production increased at an annual rate of 0.8 percent. Manufacturing output was unchanged in June. In the second quarter, supply chain disruptions following the earthquake in Japan curtailed the production of motor vehicles and parts and restrained output in related industries; the production index for overall manufacturing was little changed for the quarter. At 93.1 percent of its 2007 average, total industrial production in June was 3.4 percent above its year-earlier level. The output of Wood Products factories fell 1.2 percent, while Paper output fell by 0.3 percent.
 

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The capacity utilization rate for total industry remained essentially unchanged at 76.7 percent in June, a rate 2.2 percentage points above the rate from a year earlier but 3.7 percentage points below its average from 1972 to 2010. Manufacturing capacity utilization was also unchanged. Wood Products downshifted by 1.0 percent, while Paper also declined by 0.3 percent.
 

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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.

July 2011 Macro Pulse -- Signs and Blunders

Earlier this spring, religious broadcaster Harold Camping very publicly predicted that Jesus Christ would return for the faithful on May 21. Five months of fire, brimstone and plagues would follow that event, with millions of people dying each day, before the world ended on October 21. “I can tell you very candidly,” said Camping on May 23, “that when May 21 came and went, it was a very difficult time for me, a very difficult time.”

Forecasting, like prophecy, is a notoriously difficult endeavor, and Camping is hardly alone in making an embarrassing call. Quite a number of economic forecasts have been put forward in recent days, some ending up almost as wide of the mark as Camping’s. One of the most obvious involved….

Click here to read the entire July 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.

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

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Bureau of Economic Analysis data showed that personal income increased $36.2 billion (0.3 percent), and disposable personal income (DPI) increased $29.2 billion (0.2 percent), in May. Personal consumption expenditures (PCE) increased $4.6 billion (less than 0.1 percent). Real (inflation-adjusted) DPI increased 0.1 percent while real PCE decreased 0.1 percent.
 

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Retail sales fell by 0.2 percent in nominal terms during May, breaking a 10-month string of increases. With a drop of 2.9 percent, motor vehicle sales dragged the total lower.
 

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Total consumer debt outstanding increased for a eighth month in May, at a seasonally adjusted and annualized rate of 2.5 percent. Once again, the increase in non-revolving credit was broader based than just student loans; loans at commercial banks and credit unions also expanded.

June 2011 Employment Report

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Headline numbers from the June employment report were stunningly weak. That report showed the U.S. economy added only 18,000 nonfarm jobs, and that the unemployment rate ticked up by another 0.1 percentage point, to 9.2 percent. If future revisions to the June report follow the pattern set by April (another -15,000, bringing the total April revisions to -27,000) and May’s (-29,000) data, it is entirely possible that June’s gain could ultimately be wiped out.

Once again, the lion’s share of job gains occurred in Leisure & Hospitality; typically, those jobs are part-time and/or pay low wages. Job losses were greatest in Financial Activities and at the federal and local government levels.
 

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Breaking the employment data out by full- and part-time categories showed that the number of persons employed full time fell by 435,000 in June, while the number of persons employed part time for economic reasons rose by 4,000. One would ordinarily expect to see more full-time employees and fewer part-timers in an improving economy.

Over 7.1 million people were not counted as being in the labor force but who would like a job now. On a potentially positive note, however, the total number of persons not considered part of the labor force fell back to 85.0 million -- slightly below May’s 85.9 million.
 

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Other discouraging aspects of the report included a civilian labor force participation rate that fell to 64.1 percent (a 27-year low) while the annual percentage increase in average hourly earnings of production and non-supervisory employees dropped by nearly 0.2 percentage point, to 1.9 percent; with the consumer price index for urban consumers rising at a 3.6 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

June 2011 ISM Reports

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The pace of growth in manufacturing rebounded somewhat in June, with the Institute for Supply Management’s (ISM) PMI ticking up to 55.3, from 53.5 in May. “New orders and production were both modestly up from last month, and employment showed continued strength,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. "The rate of increase in prices slowed for the second consecutive month,…[to] the lowest figure since August 2010…. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries."

Wood and Paper Products exhibited their too-familiar patterns, with Paper Products reporting growth and Wood Products contracting. 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 "sales continue to be stronger than expected across both retail and industrial channels. Material costs are definitely rising and will force increases to end-use customers."
 

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The non-manufacturing sector grew at a somewhat slower pace in June, reflected by a 1.3 percentage point drop (to 53.3 percent) in the non-manufacturing index (now known simply as the “NMI”). Two of the three service industries we track expanded: Real Estate, Rental & Leasing; and Construction.

The rate of input price increases slowed for both the manufacturing and service sectors. The index of prices paid by non-manufacturers tumbled by 8.7 percentage points, to 60.9 percent; manufacturers saw a similar drop of 8.5 percentage points, to 68.0 (50 is the breakpoint between rising and falling prices). Paper (including copy paper) was listed as up in price; diesel fuel and gasoline were listed as both up and down in price. No relevant commodity was described as in short supply.

May 2011 Manufacturers’ Shipments, Inventories and New Orders

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Shipments, inventories and new orders all rose at the total manufacturing level during May, but put in mixed performances among the individual industries we track, according to the U.S. Census Bureau.
 

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Shipments, up eight of the last nine months, increased $0.4 billion (0.1 percent) to $443.9 billion. Shipments of durable goods increased $0.9 billion (0.4 percent) to $195.0 billion, led by machinery. Nondurable goods shipments decreased $0.4 billion (0.2 percent) to $249.0 billion, dragged lower by petroleum and coal products. Wood and Paper shipments were both off, by 1.4 and 1.0 percent, respectively.
 

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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 1.5 percent drop in not-seasonally adjusted rail shipments in May (relative to April). Shipments were flat on a seasonally adjusted basis.

The PCI (which measures diesel consumption of highway trucking) fell by 0.9 percent in May on a seasonally and workday adjusted basis relative to April. “The index has now declined in four of the first five months of 2011, and in eight of the past twelve months,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “The PCI makes it clear that the high-growth recovery lasted only four quarters from 2009Q3 to 2010Q2. Since then the PCI and the economy have been idling, not powering forward.”
 

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Inventories, up 19 of the last 20 months, increased $4.5 billion (0.8 percent) to $593.0 billion -- the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.34, up from 1.33 in April.

Inventories of durable goods increased $4.7 billion (1.3 percent) to $356.1 billion, led by transportation equipment. Nondurable goods inventories decreased $0.2 billion (0.1 percent) to $236.9 billion, thanks once again to petroleum and coal products. Wood and Paper inventories both rose, by 2.9 and 0.2 percent, respectively.
 

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New orders for manufactured goods, up two of the last three months, increased $3.5 billion (0.8 percent) to $445.3 billion. Excluding transportation, new orders increased 0.2 percent. New orders for durable goods increased $4.0 billion (2.1 percent) to $196.3 billion; transportation equipment had the largest increase: $2.9 billion (6.3 percent) to $49.9 billion. Nondurable goods orders decreased $0.4 billion (0.2 percent) to $249.0 billion.

June 2011 Currency Exchange Rates

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The U.S. dollar gained ground against Canada’s “loonie” (0.9 percent) but depreciated against the yen (0.9 percent) and euro (0.5 percent). On a trade-weighted index basis, the dollar was unchanged against a basket of 26 currencies.
 

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Canada: The loonie gave up ground in June as the country’s rate of real GDP growth stalled in April.

Europe: Despite concerns during most of June that Greece could experience a “Lehman Brothers moment” if its parliament failed to vote for implementation of austerity measures, the euro managed to eke out modest gains against the dollar. Some attributed the euro’s appreciation to European Central Bank rate hikes and expectations that those rates will rise further. China’s expressed willingness to keep investing in Europe’s sovereign bond market is another likely explanation.

Japan: Although business sentiment has turned sharply negative since the March earthquake and tsunami, recent surveys show companies expect conditions to improve over the next three months. Officials in the government and Bank of Japan have become increasingly upbeat about the timing of the economy’s recovery, as manufacturers make quicker-than-expected progress in their recovery efforts.

June 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil extended its fall in June, dropping by $5.04 (5.0 percent) to $96.29 per barrel. That retreat occurred despite a weak dollar and a drop-off in crude stocks during June, but coincided with a decrease in consumption of 635,000 barrels per day (BPD) -- to 18.6 million BPD -- during April.
 

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Perhaps the most noteworthy development during past the month was the announcement by the International Energy Agency (IEA) that several members with large stockpiles were releasing 60 million barrels of oil from their strategic reserves for sale to refiners. New York crude prices, which had already fallen earlier in June on bad economic news, were only marginally affected by the announcement. By contrast, London’s Brent crude fell by nearly $10, to the lowest settlement since February 18. The generally accepted explanation for the difference in the reaction to the announcement was the expectation that release of stockpiled crude would have more impact in Europe, which has been doing without 1.3 million BPD of Libyan exports for the last few months. The loss of Libya’s oil was largely responsible for the price increases this spring which sent Brent crude as high as $125 a barrel in May.

Given that the oil to be released from OECD stocks amounts to only about 16 hours of global oil consumption, many analysts are skeptical the release will depress prices for long; futures price patterns indicate that traders expect oil prices to rise in the fall after the two months of stockpile releases are over. Some analysts are worried that the stockpile release plan will backfire, sending oil prices higher later this summer when the supply picture tightens again. The well-documented critique by Alt-Market.com’s Brandon Smith was particularly scathing.

ASPO-USA presented its “take” on the release as follows: “Within hours of the announcement, the action became controversial with many skeptics wondering why this was the time to release reserves. The disruption in Libyan supplies has been going on for several months, and the Saudis just announced that, as the only country with significant spare capacity, they were going increase production as soon as possible even without the agreement of their fellow OPEC members. In the United States the oil industry and Congressional Republicans denounced the release as a raid on emergency supplies being done for political objectives. The move is expected to step up pressure to relax U.S. drilling restrictions.

“Prior to the announcement, the IEA had been warning for weeks that economy-damaging oil prices were coming in the third quarter and that even Saudi Arabia’s best efforts could not respond quickly enough to prevent economic damage. Moreover, the IEA’s director had warned several times that the Agency was willing and able to respond to the OPEC “price hawks” — primarily Venezuela and Iran - that were only interested in collecting more oil revenue for themselves than the welfare of the global economy.

Although President Obama discussed the release with the Saudi King last month and dispatched a delegation of senior officials to alert the Saudis, the UAE, and Kuwait to the decision, there is still concern that the release may dissuade those nations from stepping up production as rapidly as they say they intend to do.

“Some OPEC members, worried that the release of stockpiled oil will deprive them of revenues they had been counting on, denounced the move and warned that it could backfire on the OECD if OPEC members made production cuts to push prices higher. Theories as to the reasons for the decision to release the stocks abound and range from preparing for next year’s elections and hurting speculators to the rationale given by the IEA about making up for lost Libyan oil. The only reason that seems to make sense is to keep prices under control, in the midst of increasingly dour economic news, until the Saudis and their OPEC allies have time to increase production.

“Viewed in the context of global oil depletion, the release of 60 million barrels of oil into a world that consumes some 30 billion barrels a year is insignificant. The price drops which followed the announcement are likely to be short-lived in face of continuing unrest in the Middle East and what is shaping up to be increasing demand from China.”

May 2011 U.S. Construction

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Overall construction spending in the United States decreased by 0.6 percent during May, to a seasonally adjusted and annualized rate (SAAR) of $753.5 billion. Private non-residential construction was the only category to post an increase, gaining 1.2 percent; by contrast, private residential construction fell 2.1 percent.
 

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Although the value of residential construction put in place fell, total housing starts rose by 3.5 percent -- to 560,000 units (SAAR). Total starts remained 75 percent below the January 2006 peak of nearly 2.3 million units.
 

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Most of the rise in starts occurred in the single-family component (15,000 units); multi-family starts rose by 4,000 units.
 

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New-home sales retreated in May, falling by 2.1 percent to 319,000 (SAAR). The median price of new homes sold rose 2.6 percent to $222,600.
 

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Despite the slowdown in sales and a jump in completions, the inventory of new single-family homes shrank in both months-of-inventory and absolute terms. Inventory stood at 166,000 units and 6.2 months (down from 6.3 months). Once again, the number of homes for sale was the lowest since such records began in January 1963.
 

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Existing home sales fared worse than their new-home counterparts in May, falling by 190,000 units (SAAR), or -3.8 percent. The share of total sales comprised of new homes ticked up to 6.2 percent.
 

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With the median existing home price rising by $5,400 (3.4 percent), to $166,500 in May, housing affordability retreated noticeably once again. For the first time in about a year, home price data from S&P/Case-Shiller also rose.

“In a welcome shift from recent months, this month is better than last -- April’s numbers beat March,” said David Blitzer, Chairman of the Index Committee at S&P Indices in reference to the S&P/Case-Shiller home price indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.
 

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“Other housing statistics show the same trends,” Blitzer continued. “Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low…. While foreclosures remain a large factor in most parts of the country, the S&P/Experian Consumer Credit Default indices show a small decline in the pace of new defaults since last November. Other reports confirm that banks have tightened lending standards in the past year making it harder to qualify for a mortgage despite very low interest rates.

“In the monthly details, we saw home prices increase in April over March. The 10-City was up 0.8 percent and the 20-City rose 0.7 percent [on a seasonally unadjusted basis]. Only seven cities experienced lower prices compared to 18 in March. However, the seasonally adjusted figures saw less dramatic improvement. The annual rate of change for the 10-City remained the same at -3.1 percent; whereas the 20-City fell further from -3.8 percent reported for March to -4.0 percent for April. For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”
 

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