July 2011 International Trade

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume increased by 0.8 percent in July from the previous month, following a revised decline of 2.0 percent in June. The overall picture in July was one of rising trade volumes in advanced economies and declines in emerging ones, the main exceptions being a strong rebound of exports from emerging Asia and a continued decline of imports into the United States. In Japan, export growth stalled, but import growth picked up.

Prices slipped 0.6 percent between June and July, but remained 26.2 percent above their February 2009 low.
 

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The U.S. goods and services deficit shrank by 13.2 percent (to $44.8 billion) in July. Exports totaled $178.0 billion (up from $170.9 billion in June), while imports totaled $222.8 billion (down from $223.9 billion).
 

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Paper exports decreased by 57,000 tons (1.8 percent) in July, while imports shrank by 6,000 tons (1.6 percent). Exports remained 170,000 tons (5.7 percent) above year-earlier levels, and imports were 22,000 tons (6.1 percent) higher.
 

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Softwood lumber exports fell by 5 MMBF (3.1 percent) in July while imports advanced by 32 MMBF (4.2 percent). Exports were 30 MMBF (26.9 percent) higher than year-earlier levels, but imports were 30 MMBF (3.7 percent) lower.

August 2011 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $14.343 trillion as of the end of June 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, nearly 89 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 11.3 percent. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.
 

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The sea change in the distribution of U.S. public debt purchases among investor types that began in 1Q2011 continued in 2Q2011: Year to date, private investors divested themselves of an estimated $305 billion (or -96 percent the total incremental change among all of the investor classes). Intragovernmental holdings also shrank by $37 billion (-12 percent of the total), while foreign and international investors picked up an additional $83 billion (26 percent) in debt. The disappearance of the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $601 billion (189 percent of the total incremental change).
 

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The debt picture has continued to worsen since June. The total public debt outstanding grew to $14.684 trillion by the end of August 2011, a change of $341 billion in just two 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 August as outlays of $303.4 billion and receipts of $169.3 billion added another $134.2 billion to the federal budget deficit.
 

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Foreign investors appeared to be losing their “taste” for U.S. debt during the past few months. The amount of U.S. public debt held by foreigners peaked at $4.512 trillion in May, but has retreated slightly since then. The six largest holders continued to add to their positions, whereas the rest of the world was a net seller. China remained the largest foreign creditor ($1.174 trillion), having picked up $8.0 billion of Treasury securities in July.
 

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The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.638 trillion). Interestingly, the Fed’s pace of purchases has slowed considerably in the past few months. 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 add U.S. Treasury debt since July, and held $1.659 trillion as of mid-September.
 

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More evidence of waning foreign interest in U.S. debt comes from the Treasury International Capital (TIC) accounting system. Flows swung from a net +$106.0 billion in April to -$51.8 billion in July; i.e., foreigner investors have been moving more funds out of than into the United States since May. Essentially all of the net outflows occurred in short-term securities (e.g., T-bills) since long-term public debt instruments and private securities have continued to exhibit small inflows.

August 2011 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August. Over the last 12 months, the all-items index increased 3.8 percent before seasonal adjustment.

The seasonally adjusted increase in the all-items index was broad-based, with continuing increases in the indexes for gasoline, food, shelter, and apparel. The gasoline index rose for the 12th time in the last 14 months and led to a 1.2 percent increase in the energy index, while the food index rose 0.5 percent, its largest increase since March.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) was unchanged in August. Finished goods prices advanced 0.2 percent in July and declined 0.4 percent in June. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.5 percent in August, and the crude goods index moved up 0.2 percent. On an unadjusted basis, prices for finished goods increased 6.5 percent for the 12 months ended August 2011, the smallest year-over-year advance since a 5.6 percent rise in March 2011.
 

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Details at different stages of processing include:

Finished goods -- The index for finished goods was unchanged in August, as a 1.1 percent increase in finished consumer foods prices and a 0.1 percent advance in the index for finished goods less foods and energy offset a 1.0 percent decrease in prices for finished energy goods.

Intermediate goods -- This index fell 0.5 percent, the first decrease since July 2010. Most of the August decline can be attributed to lower prices for intermediate energy goods, which dropped 2.3 percent. The index for intermediate materials less foods and energy also contributed to this decrease, edging down 0.1 percent. By contrast, prices for intermediate foods and feeds advanced 1.7 percent. On a 12-month basis, the index for intermediate goods moved up 10.3 percent in August.

Crude goods -- The index for crude goods moved up 0.2 percent. For the three-month period ending in August, prices for crude materials declined 1.6 percent following a 1.3 percent drop from February to May. In August, the increase in the crude goods index is mostly attributable to prices for crude foodstuffs and feedstuffs, which climbed 4.7 percent. Also contributing to the August advance was a 1.6-percent rise in prices for crude nonfood materials less energy. By contrast, the index for crude energy materials decreased 5.1 percent.
 

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All of the price index changes for the forest products that we track rose more quickly on a year-over-year basis. Pulpwood and softwood logs, bolts & timber exhibited the most noteworthy year-over-year increases, with 10.4 and 9.5 percent changes, respectively. Pulpwood also had the largest monthly price rise (10.5 percent).
 

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August 2011 Industrial Production, Capacity Utilization and Capacity

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Industrial production advanced 0.2 percent in August. Manufacturing rose 0.4 percent in August, after a similarly sized gain in July, and the rates of change were revised down slightly in April, May, and June. At 94.0 percent of its 2007 average, total industrial production for August was 3.4 percent above its year-earlier level. The output of Wood Products and Paper factories both shrank, respectively 0.8 and 0.3 percent.
 

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Capacity utilization for total industry edged up to 77.4 percent, a rate 1.9 percentage points (2.5 percent) above its level from a year earlier but 3.0 percentage points below its long-run (1972-2010) average. Manufacturing capacity utilization also rose by 0.3 percent from July. Wood Products capacity utilization decreased by 0.6 percent, while Paper trailed slightly with -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.

September 2011 Macro Pulse -- From Too Big to Fail to Too Big to Save?

Although the term “too big to fail” has been in the economics lexicon for a long time, it was not a term typically tossed about at cocktail parties -- until the Lehman Brothers 2008 bankruptcy. At least in the United States, since then the phrase has perhaps been applied most often to firms (e.g., General Motors) deemed too crucial to the U.S. economy to be permitted to “go under.” The prevailing attitude overseas was that countries were “too big to fail.”


More recently a new variant of “too big to fail” has emerged: “Too big to save.” As the size of companies -- and now countries -- that are teetering on the edge of insolvency continues to increase, policymakers are realizing there are insufficient funds in the system to keep such foundering entities afloat. Particularly with respect to Europe, officials there have been implementing half-measures that, arguably, are likely to accomplish little more than postpone the worsening inevitable. Given the interconnectedness of the world’s markets, insolvency of a European country could have profoundly adverse effects on the U.S. economy.

Beyond Europe’s troubles….

Click here to read the entire September 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.

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

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Bureau of Economic Analysis data showed that personal income increased $42.4 billion (0.3 percent) and disposable personal income (DPI) increased $32.5 billion (0.3 percent) in July. Personal consumption expenditures (PCE) increased $88.4 billion (0.8 percent). Real (inflation-adjusted) DPI decreased 0.1 percent while real PCE increased 0.5 percent.
 

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Retail sales rose by 0.5 percent in nominal terms during July. The “other” category exhibited the largest percent change (+0.6 percent). Within that category, gas stations saw the largest percentage increase (1.6 percent).
 

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Total consumer debt outstanding increased for a tenth month in July, jumping to a seasonally adjusted and annualized rate of 5.9 percent. The month-to-month increase in not seasonally adjusted revolving debt was $1.5 billion, less than one-tenth the size of the increase in non-revolving credit. The overall debt increase was broad based: only non-financial business loans and pools of securitized assets shrank.

August 2011 ISM Reports

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The pace of growth in manufacturing slowed a bit further in August, with the Institute for Supply Management’s (ISM) PMI falling to 50.6 percent, from 50.9 in July (50 percent is the breakpoint between contraction and expansion); it was the weakest reading in two years. After reciting some index details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

Wood and Paper Products both reported growth, although Wood Products’ growth was once again limited to new orders. Paper Products’ improvement, as has also been the case for several months, encompassed new export and domestic orders, the need to replenish customers’ inventories, and increases in production and employment. One Paper Products respondent wrote that "demand remains constant and strong."
 

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The non-manufacturing sector grew at a somewhat faster pace in August, reflected by a 0.6 percentage point rise (to 52.7 percent) in the non-manufacturing index (now known simply as the “NMI”). "There is a degree of uncertainty concerning business conditions for the balance of the year,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

Two of the three service industries that we track expanded: Real Estate, Rental & Leasing; and Agriculture, Forestry, Fishing & Hunting. " We had a good first half; starting to see inflation in many of our input costs; consumer demand is flat," one Ag & Forestry respondent indicated. Reflecting the downturn in construction, one respondent indicated that "this month we have seen a downward trend in sales activities due to weather and economic conditions."

As the table above indicates, the rate of input price increases was mixed during August: it slowed (-3.6 percentage points) for manufacturing and accelerated (+7.6 percentage points) for the service sector (again, 50 is the breakpoint between rising and falling prices).

Paper was the only relevant commodity up in price during August; some respondents indicated paying more for diesel fuel and gasoline while others paid less. No relevant commodity was described as being in short supply.

August 2011 Employment Report

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The markets were stunned when the Bureau of Labor Statistics (BLS) reported results from its business establishment survey that showed no net growth among nonfarm jobs in the U.S. economy during August. That outcome has occurred only one other time -- in February 1945 -- since 1939 when the Labor Department began compiling data. Moreover, the change in total nonfarm payroll employment for June was revised from +46,000 to just +20,000 (nearly back to the initial June estimate) while the change for July was revised from +117,000 to +85,000. By contrast, because the BLS’s household survey showed a stronger gain in jobs, the unemployment rate remained at 9.1 percent.
 

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One positive piece of news was that both part-time and full-time employment increased in August (respectively, by 430,000 and 471,000 jobs).
 

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The civilian labor force participation rate ticked higher -- to 64.0 percent from 63.9 percent (a 27-year low) -- but the annual percentage increase in average hourly earnings of production and non-supervisory employees dropped by nearly 0.4 percentage point, to below 1.8 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).

July 2011 U.S. Construction

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Overall construction spending in the United States decreased by 1.3 percent during July (from an upwardly revised June figure), to a seasonally adjusted and annualized rate (SAAR) of $789.5 billion. All categories posted decreases, but public construction showed the largest decline in both absolute and percentage terms.
 

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Not only did the value of residential construction put in place fall in July, but so too did total housing starts -- by 1.5 percent, to 604,000 units (SAAR).
 

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The decline in total starts was entirely the result of a fallback in the single-family category, as multi-family starts rose by 13,000 (7.8 percent).
 

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New-home sales retreated again in July, by 0.7 percent to 298,000 (SAAR). The median price of new homes sold also dropped by 6.3 percent, to $222,000. With single-unit starts declining more slowly than sales, the starts-to-sales ratio jumped nearly to 1.5, toward the upper end of the typical historical range seen since 2000.
 

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Although completions rose by 6.1 percent, the inventory of new single-family homes shrank slightly in absolute terms while months of inventory stabilized. Inventory stood at 165,000 units and 6.6 months. Once again, the number of new homes for sale was the lowest since such records began in January 1963.
 

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Existing home sales fared much worse than their new-home counterparts in July, falling by 170,000 units (SAAR) or 3.5 percent. The share of total sales comprised of new homes remained nearly unchanged at 6.0 percent.
 

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With the median price of existing homes sold falling by $1,300 (0.9 percent), to just shy of $175,000, housing affordability improved slightly in July. This followed on the heels of an uptick in the seasonally adjusted 10-city and a correspondingly small decrease in the 20-city S&P/Case-Shiller home price index during June (less than 0.1 percent in each case).

“This month’s report showed mixed signals for recovery in home prices,” said David Blitzer, chair of the Index Committee at S&P Indices. “No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates. The National Index was up 3.6 percent from 1Q2011, but down 5.9 percent compared to a year-ago. Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities -- Las Vegas, Miami, Phoenix and Tampa -- as well as the weakest of all, Detroit. These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together.
 

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“As with May’s report, June showed unusually large revisions across the same metropolitan statistical areas (MSAs) -- Detroit, New York, Tampa and Washington DC. Our sales pairs data indicate that, once again, these markets reported a lot more sales closing in prior months, which caused the revisions. Since deed recording is usually county based, if the price trends across counties are very different, then delays from a subset of counties can lead to larger revisions. And data lag lengths tend to vary across the counties within a metro area. If counties with relatively stronger/weaker markets report sales with longer/shorter lags, this will result in larger revisions as we receive the lagged data. Revisions are also likely to be larger when sales volumes are low or the proportions of distressed/non-distressed sales are changing rapidly. Any and all of these factors are likely contributing to the revisions we have seen over the past few reports.

“Nineteen of the 20 MSAs and both Composites were up in June over May. Portland was flat. Cleveland has improved enough that average home prices in this market are back above its January 2000 levels. Only Detroit and Las Vegas remain below those levels.”
 

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August 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil slumped by $10.86 (11.2 percent) to $86.33 per barrel in August. That drop coincided with a slightly stronger dollar and a modest rise in crude stocks during August, but occurred despite the lagged impacts of an increase in consumption of 914,000 barrels per day (BPD) -- to 19.3 million BPD -- during June. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in July (August data was not yet available at the time of this writing), it was in fact nearly $20 per barrel more expensive than WTI on a U.S. dollar basis ($116.97 versus $97.19, respectively).
 

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August 2011 Currency Exchange Rates

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The U.S. dollar gained ground against Canada’s “loonie” (2.8 percent) but depreciated against the euro (0.4 percent) and the yen (2.9 percent). On a trade-weighted index basis, the dollar gained 0.6 percent against a basket of 26 currencies. The dollar is now at its weakest since January 2000 relative to the yen.
 

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July 2011 Manufacturers’ Shipments, Inventories and New Orders

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The value of shipments, inventories and new orders rose almost “across the board” during July for the sectors we track, according to the U.S. Census Bureau.
 

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Shipments, up two consecutive months, increased $7.1 billion (1.6 percent), to $453.2 billion. Shipments of durable goods increased $4.7 billion (2.4 percent), to $201.9 billion, led by transportation. Nondurable goods shipments increased $2.5 billion (1.0 percent), to $251.2 billion, with petroleum and coal products in the lead. Wood shipments rose by 2.0 percent while Paper shipments rose by 0.3 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. Although the value of shipments rose, the picture is less clear in volumetric terms. For example, AAR reported a 22.2 percent decline in not-seasonally adjusted rail shipments in July (relative to June), and a 1.0 percent drop relative to a year earlier. Seasonal adjustments turned the 22.2 percent June-to-July decline into a 0.7 percent increase.

The PCI (which measures diesel consumption of highway trucking) dipped by 0.2 percent in July on a seasonally and workday adjusted basis relative to June. “In July, the U.S. economy remained in ‘she loves me, she loves me not’ mode,” said Ed Leamer, chief PCI economist. “July’s result falls in the ‘she loves me not’ category and represents a continuation of the idling economic conditions that have persisted for over a year. Over this time period, bad news has been alternating with good, leaving investors and forecasters nervous and unable to identify sustainable trends.”
 

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Inventories, up 21 of the last 22 months, increased $2.9 billion (0.5 percent), to $598.0 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.32, down from 1.33 in June.

Inventories of durable goods increased $3.1 billion (0.9 percent), to $361.4 billion, led -- like shipments – by transportation equipment. Nondurable goods inventories decreased $0.2 billion (0.1 percent), to $236.7 billion; petroleum and coal products drove the decrease. Wood inventories fell by 0.5 percent, but Paper ticked 0.3 percent higher.
 

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New orders, up two of the last three months, increased $10.5 billion (2.4 percent), to $453.2 billion. Excluding transportation, new orders increased 0.9 percent.

New orders for durable goods increased $8.0 billion (4.1 percent), to $201.9 billion; transportation equipment had the largest increase. However, orders for core (i.e., omitting the volatile defense and transportation sectors) capital goods, which give a better read on trends in the private sector, fell by 1.5 percent. Nondurable goods orders increased $2.5 billion (1.0 percent), to $251.2 billion.