3Q2012 Gross Domestic Product: Third (Final) Estimate

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The Bureau of Economic Analysis (BEA) estimated 3Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 3.1 percent, an upward revision of 0.4 percentage point from the previous 3Q estimate, and 1.8 percentage points higher than the current 2Q estimate. Personal consumption expenditures (PCE), private domestic investment (PDI), government consumption expenditures (GCE) and net exports (NetX) contributed to 3Q growth, in that order.
 

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Consumer Metrics Institute (CMI) provided useful commentary about the GDP report, some of which is reproduced below:

* The contribution of consumer expenditures for goods to the headline number was revised upward to 0.85 percent (from 0.83 percent in the previous report).

* The contribution made by consumer services increased to 0.26 percent -- up from the 0.16 percent in the previous report.

* The growth rate contribution from private fixed investments was largely unchanged at 0.12 percent (up slightly from 0.10 percent in the prior report).

* The contribution from inventories remained relatively high (+0.73 percent), providing about a quarter of the headline number. Over time inventory growth should be a nearly zero-sum game, and presumably this quarter's growth from inventory building will be offset in future quarters by reduced production to shrink excessive inventories.

* From a long-term perspective, the biggest change in the third quarter's economy came from sharply increasing governmental expenditures. Growth in government spending at all levels is now reported to have added +0.75 percent to the headline number after subtracting -0.60 percent as recently as 1Q2012.

* Exports added more than a quarter of a percent to the headline number (+0.27 percent). The improving export picture seems to imply an improving global economy despite any number of reports to the contrary.

* And reduced imports actually added +0.11 percent to the headline growth rate (a change in direction from the -0.02 percent previously reported).

* The annualized growth rate of "real final sales of domestic product" was revised sharply upward to 2.36 percent, some 0.46 percent above the prior report and now at the same level as reported for 1Q2012.

* Real per-capita disposable income was down $20 during the quarter (to $32,691 per year). This is down $73 from the $32,764 reported for 1Q2011, now some six quarters ago. The reported annualized contraction rate of -0.24 percent benefits from the relatively low deflators used by the BEA. If per-capita disposable income were "deflated" using the BLS CPI-U (which presumably is what consumers actually experience when spending their incomes) the annualized contraction rate for per capita consumer spending power is more like -3.65 percent.

CMI summarized the report, including “issues that merit caution moving forward” as follows:

* About a quarter of the headline growth rate came from a surge in governmental spending.

* Inventory growth also contributed about a quarter of the headline growth rate. The BEA's inventory valuations are notoriously dependent on the deflators used, and the wild fluctuation of these numbers from earlier reports raises at least some concerns about their credibility. But even assuming that the reported numbers are correct, substantial growth in current inventories does not bode well for factory production schedules in future quarters.

* The continued contraction of per-capita disposable income means that households are under sustained pressure. Any growth in consumer spending is not coming from fatter paychecks -- it is coming instead from other sources, including refinancing, strategic defaults, reduced personal savings (which now reportedly shrank by $25.9 billion during the quarter) and increased student loans.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

October 2012 International Trade

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Total October exports of $180.5 billion and imports of $222.8 billion resulted in a goods and services deficit of $42.2 billion, up from $40.3 billion in September. October exports were $6.8 billion less than September exports of $187.3 billion, while imports were $4.9 billion less than September imports of $227.6 billion.
 

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Paper exports advanced noticeably, rising by 193,000 tons (8.0 percent). Imports rose more modestly, by 58,000 tons (8.2 percent). Exports were 74,000 tons (2.8 percent) lower than a year earlier while imports were unchanged.
 

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U.S. pulp exports to China are an order of magnitude larger than exports to the next three countries in the list above, and have been relatively stable year-to-date compared to 2011. Asia is the destination for over three-fourths of U.S. pulp exports, with the rest of North America running a distant second.
 

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Paper and paperboard exports are somewhat more evenly split; the combination of Mexico and Canada receive a little more than one-third of U.S. exports, while Asia (especially India and Japan) is the destination for just under a third.
 

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Canada supplies over two-thirds of pulp imports into the United States, followed distantly by Brazil.
 

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Pegging nearly 90 percent, Canada absolutely dominates paper and paperboard imports into the United States.
 

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Softwood lumber exports rose by 28 MMBF (25.1 percent) in October while imports jumped by 124 MMBF (15.4 percent). Exports were 1 MMBF (0.6 percent) lower than year-earlier levels; imports were 82 MMBF (9.7 percent) lower.
 

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North America (Canada and Mexico), followed by Asia (especially China and Japan), continue to be the primary destinations for U.S. softwood lumber exports. Meanwhile, Canada is far-and-away the largest source of softwood lumber imports into the United States.
 

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Just over half of U.S. softwood lumber exports have left the country through West Coast (especially Seattle, WA) customs districts. At the same time, however, Great Lakes customs districts (especially Duluth, MN) have handled most of the softwood lumber imports coming into the United States.
 

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Douglas-fir has made up nearly one-quarter of all softwood lumber exports so far in 2012, followed by southern yellow pine.
 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume edged up by 0.8 percent in September while prices rose by 1.3 percent. Both indices are confirming tepid demand; volume growth is stalling at the same time prices are trending lower.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index declined 0.3 percent in November. Over the last 12 months, the all-items index increased 1.8 percent before seasonal adjustment.

The gasoline index fell 7.4 percent in November; this decrease more than offset increases in other indexes, resulting in the decline in the seasonally adjusted all items index. The energy index fell 4.1 percent in November despite increases in the indexes for natural gas and electricity. The food index rose 0.2 percent with the food at home index increasing 0.3 percent.

The index for all items less food and energy increased 0.1 percent in November after a 0.2 percent increase in October. The indexes for shelter, household furnishings and operations, airline fares, recreation, new vehicles, and medical care all increased in November, while the indexes for apparel and used cars and trucks declined.

The all items index increased 1.8 percent over the last 12 months, a decline from the 2.2 percent figure in October. The index for all items less food and energy rose 1.9 percent over the last 12 months, slightly lower than the October figure of 2.0 percent. The food index has risen 1.8 percent over the last 12 months, and the energy index has risen 0.3 percent.

The seasonally adjusted Producer Price Index for finished goods (PPI) fell 0.8 percent in November. Prices for finished goods decreased 0.2 percent in October and rose 1.1 percent in September. Prices received by manufacturers of intermediate goods declined 1.2 percent in November, and the crude goods index edged up 0.1 percent. On an unadjusted basis, the finished goods index advanced 1.5 percent for the 12 months ended November 2012, the smallest increase since a 0.5 percent rise for the 12 months ended July 2012.
 

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Prices received for intermediate goods also declined relative to a year earlier (-0.3 percent); so, too, did the cost of wood fiber (-1.5 percent); the other categories rose on a year-over-year basis -- especially prices for softwood lumber (+13.7 percent).
 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 1.1 percent in November after having fallen 0.7 percent in October. The Federal Reserve attributed the gain in November to a recovery in production for industries that had been negatively affected by Hurricane Sandy, which hit the Northeast region in late October. In November, manufacturing output increased 1.1 percent after having decreased 1.0 percent in October; in addition to the storm-related rebound, a sizable rise in the production of motor vehicles and parts boosted factory output in November. Actually, however, it appears the reported rise in manufacturing industrial production is almost wholly attributable to seasonal adjustments; November’s not-seasonally adjusted estimate was 0.9 percent lower than in October and 2.0 percent below September’s peak. At 97.5 percent of its 2007 average, total industrial production in November was 2.5 percent above its year-earlier level. Industrial production of Wood Products increased by 3.4 percent and Paper rose by 0.2 percent.
 

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Capacity utilization for total industry increased 0.7 percentage point to 78.4 percent, a rate 1.9 percentage points below its long-run (1972--2011) average. Capacity utilization rose by 3.6 percent for Wood Products, but Paper increased by only 0.4 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent). By contrast, Wood Products and Paper both dropped by 0.2 percent.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

December 2012 Macro Pulse -- Muddling Through TEOTWAWKI

Thanks to a flood of pop culture take-offs on the supposed Mayan doomsday prediction, many people have bought into the belief that the end of the world as we know it (TEOTWAWKI) will occur on December 21. So many, in fact, even NASA felt compelled to reassure the public – especially young children – that these claims are just "manufactured fantasy" and have no scientific basis. In a similar vein, although the U.S. economy was “chugging along” near the theoretical long-term potential in 3Q, some of the more easily excited pundits have been warning it is about to nosedive into the ground. A more measured analysis of current statistics suggests the most likely outcome is for continued “muddling through” instead of TEOTWAWKI. For example,...

Click here to read the entire December 2012 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

October 2012 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis data showed that personal income increased $0.4 billion (less than 0.1 percent) and disposable personal income (DPI) increased $0.8 billion (less than 0.1 percent) in October. Concurrently, personal consumption expenditures (PCE) decreased $20.2 billion (0.2 percent). Real (inflation-adjusted) DPI decreased 0.1 percent while real PCE decreased 0.3 percent.
 

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Although aggregate personal income continues to set new highs on a nominal basis, in inflation-adjusted terms it is still slightly below the May 2008 peak -- and declining slowly. Taking population growth into account makes the picture even gloomier; per-capita real personal income has recouped only about 54percent of the prior peak-to-trough loss. Moreover, it appears real income metrics have rolled over and are declining again. The purchasing power consumers “feel” with their pocketbooks is most closely related to the per-capita RPI line.
 

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Household wealth increased by nearly $1.8 trillion in 3Q2012 -- a jump of 8.6 percent during the past year -- but remains nearly 4 percent below the 3Q2007 peak. Taking price inflation into account, household wealth is 14 percent below the peak.
 

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The Census Bureau reported that consumers decreased spending on retail goods during October (by 0.3 percent, seasonally adjusted). On an unadjusted basis, sales rose 3.5 percent between September and October.
 

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Total consumer debt outstanding rose by a seasonally adjusted $14.2 billion (6.2 percent annualized) in October. Revolving (mostly credit card) debt increased by $3.4 billion (4.7 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $10.8 billion (6.9 percent annualized). Federal student loans comprised more than three-fourths of the increase in non-revolving debt, and over two-thirds of the increase in total debt outstanding.
 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 146,000 in November. The unemployment rate edged down to 7.7 percent; the decrease was due more to the 350,000 persons who left the workforce than the number of new jobs. With the exception of Construction and Manufacturing, all private supersectors reported some growth in November; government employment, on the other hand, contracted at the federal and local levels. Revisions to prior months’ employment estimates were quite substantial: The change in total non-farm payroll employment for September was revised from +148,000 to +132,000, and the change for October was revised from +171,000 to +138,000.
 

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The number of people not in the labor force jumped by 542,000 (to 88.9 million) in November, just 38,000 short of August’s all-time high; as mentioned above 350,000 left the workforce between October and November, while the other 192,000 came from population growth. The ratio of employed persons to the entire population was essentially unchanged, at its highest value since August 2009.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) dropped by 0.2 percentage point, to 63.6 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees rose to 1.28 percent. With the price index for urban consumers rising at a 2.2 percent annual pace, that means wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

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Full-time employment added another 198,000 jobs while part-time employees fell by 168,000.
 

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We like to cross-check the validity of data whenever alternative sources are available. The U.S. Treasury’s income and withholding tax data is one source we use to sanity test the BLS’s non-farm employment report. In principle, revenue from withholding taxes should rise when more people are working and fall when job losses occur. As the figure above shows, the revenue data are very “noisy;” even year-over-year percentage changes are quite volatile, thus we show a three-month moving average in the year-over-year line to better identify ongoing trends. The drop-off in November revenue appears to raise doubts about the BLS’s claim of job growth.
 

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Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 4.17 million fewer jobs than at the January 2008 peak.
 

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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At November’s rate of job gains, it would take until April 2015 to retake January 2008’s employment level (i.e., without adjusting for population growth).


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 ISM Reports

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Manufacturing contracted slightly in November, with the Institute for Supply Management’s (ISM) PMI falling back to 49.5 percent -- from 51.7 percent in October (50 percent is the breakpoint between contraction and expansion). Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, was upbeat nonetheless. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (51.8 percent) corresponds to a 3.1 percent increase in real GDP,” Holcomb said. “In addition, if the PMI for November (49.5 percent) is annualized, it corresponds to a 2.3 percent increase in real GDP annually." Despite Holcomb’s optimism, the sub-indices exhibited widespread weakness; most showed either slower expansion or faster contraction. Only production and deliveries expanded at a faster pace, while imports contracted at a slower pace.
 

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The service sector report was much more upbeat. The non-manufacturing index (now known simply as the “NMI”) registered 54.7 percent in November, 0.5 percentage point higher than October’s 54.2 percent -- indicating faster growth. “Respondents' comments are mixed;” said Anthony Nieves, chair of ISM’s Non-manufacturing Business Survey Committee, adding, “however, the majority of survey respondents reflect a cautious optimism about current economic conditions.”
 

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Wood Products reported contracting activity once again; increased production contributed essentially all of the meager upbeat news for that industry. Paper Products’ expansion, on the other hand, was supported from nearly all sub-indices. Overall activity expanded in Real Estate, but changes were limited to new and backlogged orders. Construction and Ag & Forestry exhibited growth in employment and new orders.

Prices increased for a variety of commodities, including corrugated boxes/packaging, lumber and caustic soda. Some respondents reported gasoline and diesel as higher in price, and some as down in price. No relevant commodities were in short supply.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

October 2012 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $1.9 billion (0.4 percent) to $482.3 billion. The unfilled orders-to-shipments ratio was 6.25, up from 6.24 in September.

Shipments of durable goods decreased $0.8 billion (0.4 percent) to $222.7 billion, led by transportation equipment. Nondurable goods shipments increased $2.7 billion (1.1 percent) to $259.7 billion, led by petroleum and coal products. Forest products shipments advanced by 2.7 percent (Wood) and 0.6 percent (Paper).
 

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Data from the Association of American Railroads (AAR) and the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index help round out the picture on goods shipments. AAR reported a 23.5 percent increase in not-seasonally adjusted rail shipments in October (relative to September), but a 6.1 percent drop from a year earlier. Excluding coal carloads, year-over-year shipments were up 1.9 percent. Seasonal adjustments reversed the 23.5 percent September-to-October increase, changing it to a 2.1 percent decrease. Rail shipments of forest-related products were higher in October than a year earlier, thanks exclusively to a 17.9 percent jump in lumber and wood products shipments. The ATA’s advance index showed a 3.8 percent contraction in October.
 

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Inventories increased $0.5 billion (0.1 percent) to $616.0 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.6 percent September increase. The inventories-to-shipments ratio was 1.28, unchanged from September.

Inventories of durable goods increased $1.7 billion (0.4 percent) to $374.5 billion -- also the highest level since the series was first published on a NAICS basis -- led by transportation equipment. Nondurable goods inventories decreased $1.2 billion (0.5 percent) to $241.5 billion, led by petroleum and coal products. Wood and Paper inventories were split: Wood rose by 0.3 while Paper fell by 0.2 percent.
 

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New orders for manufactured goods in October increased $3.8 billion (0.8 percent) to $477.6 billion. Excluding transportation, new orders increased 1.3 percent. New orders for durable goods increased $1.1 billion (0.5 percent) to $217.9 billion, led by machinery, while nondurable goods orders increased $2.7 billion (1.1 percent) to $259.7 billion.

While the Census Bureau’s estimates of new orders for manufactured goods in early 2012 recovered nearly to their previous peak in nominal terms, converting to real, inflation-adjusted terms reveals a quite different story. On that basis, new orders recouped only about half of the loss incurred since December 2007. More worrisome for the future is the observation that new orders are either flat (nominal) or trending lower (real).


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 Currency Exchange Rates

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The U.S. dollar appreciated “across the board” in November against the three currencies we track: by 1.1 percent relative to Canada’s loonie, 1.4 percent against the euro, and 2.1 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 0.7 percent against a basket of 26 currencies.
 

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Canada: The loonie gave up ground against the greenback as Canada’s real GDP growth remained unchanged in September after edging down 0.1 percent in August. Confidence may also have been shaken a bit after Finance Minister Jim Flaherty said he will delay plans to balance the federal budget by one year. Flaherty's latest budget update projects a return to a balanced budget by 2016. "Our country is not immune to global forces,” Flaherty said, “nor can we control the economic shocks that ripple outwards from other nations." The loonie stayed at parity with the U.S. dollar, however, at least partly because manufacturing sales advanced 0.4 percent in September.

Europe: The euro weakened as Europe’s long-running debt crisis dragged the 17-nation zone back into recession. Eurozone GDP shrank 0.1 percent in 3Q compared to 2Q, for an annualized contraction of around 0.4 percent. That followed a 0.2 percent quarterly contraction during 2Q. A recession is often defined as two consecutive quarters of shrinking GDP.

On a national basis, German growth slowed less than expected, to 0.2 percent from a 0.3 percent 2Q pace. By contrast, France rebounded with 0.2 percent growth after a 0.1 percent contraction during 2Q. Italy remained mired in recession, but the pace of the contraction slowed to 0.2 percent after shrinking 0.7 percent in 2Q. Likewise, Spain contracted 0.3 percent after shrinking 0.4 percent the previous quarter.

The euro’s depreciation might have been even more dramatic were it not for Greece’s institutional lenders reaching a deal that was touted as paving the way for the country to receive almost 44 billion euros of financial aid while bringing its debt down to a sustainable level. “Greece has shown that it is serious about reform” and has kept to its commitments, European Commissioner for Monetary Affairs Olli Rehn said. “Greece has already come a very, very long way.”

As we have been stating for quite some time, Europe’s problems are hardly over; one should not be deluded into thinking this latest “tire patch” has restored the region to economic health. In fact, a serious case could be made that the worst is yet to come. Spain, Italy and even France are still on a downward slope and likely will be for some time to come.

Japan: The announcement of yet another round of quantitative easing by the Bank of Japan contributed to the yen’s depreciation against the greenback in November. That weakening was likely also helped by uncertainty over the results of upcoming elections in Japan. The yen is widely considered a safe-haven currency, but economic fundamentals suggest that perception is flawed.

Caixin contributor Andy Xie identified three current developments that strengthen the case for the yen’s day of reckoning.

* Japan’s corporate sector has deteriorated so much that its well known companies may go bankrupt. If these companies do go under, the contraction of Japan’s economy could accelerate, increasing the likelihood of a financial crisis.

* The fiscal situation has reached some hard limits. The latest fiscal stimulus package is 0.1 percent of GDP. It is laughably small and unlikely to make any difference.

If the government could do a bigger one, it is likely to do so. The fact that the government is reduced to doing symbolic fiscal stimulus suggests that no more is possible. Hence, there is no offsetting factor against a strong yen in propping up the economy.

* The territorial dispute with China kills Japan’s dream of growing out of its problems. The dispute is unlikely to be resolved soon.

Chan Akya essentially concurred with Xie when concluding in a recent Asia Times article that, “recent events, ranging from the declining fortunes of electronics majors to the uncertain policies around power consumption and generation, may well mean that Japan is on its last stretch as a major global economy.”

China: Data releases are providing mixed messages about the health of China’s economy. Although HSBC/Markit’s flash manufacturing PMI jumped into expansion territory in November for the first time in 13 months, the services PMI -- while still expanding -- dropped to its lowest reading in 15 months. The conflicting data caused blog site Zerohedge to reproduce a lengthy excerpt of an article by Michael Pettis speculating on whether China has truly “bottomed out.”

In other developments, China’s leadership continues to push forward on renminbi convertibility. These steps would make the renminbi more attractive for cross-border trade, thereby eroding the dollar’s position as the world’s reserve currency. Although the process is likely to progress very slowly, we expect the dollar to gradually depreciate relative to the renminbi.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2012 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended its downturn in November, retreating by $2.91 (-3.2 percent) to $86.66 per barrel. That drop was concurrent with a slight strengthening of the dollar and the lagged impacts of a slump in consumption of over 1 million barrels per day (BPD) -- to 18.2 million BPD -- during September, but occurred despite a topping out of crude stocks.

The price spread between Brent crude (the predominant grade used in Europe) and WTI shrank in October (November Brent data was not yet available when this was written), to $22.14 per barrel; that differential was the widest in over a year. Brent and WTI prices had been essentially identical until the end of 2010.
 

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It appears that futures traders think the crude oil market is going through another transition. As a result, near-term contracts are in “contango” (each subsequent contract is priced higher than its predecessor) while latter contracts are in “backwardation” (each subsequent contract is priced higher than its predecessor). Our interpretation of this pattern is that traders anticipate tight oil markets through mid-year 2013, but loosening supplies thereafter.

Is the United States set to overtake Saudi Arabia in oil output?

That is what the International Energy Agency (IEA) predicted in its mid-November World Energy Outlook. The global energy map "is being redrawn by the resurgence in oil and gas production in the United States," IEA said, and could mean U.S. production might outstrip that of Saudi Arabia. "By around 2020, the United States is projected to become the largest global oil producer" and overtake Saudi Arabia for a time, the agency said. "The result is a continued fall in U.S. oil imports (currently at 20 percent of its needs) to the extent that North America becomes a net oil exporter around 2030."

Although the emergence of shale oil and gas may be a game changer in global energy, increased competition for water resources needed for energy projects is a risk factor that may prevent the IEA’s forecast from coming to pass. Shale oil and gas are extracted by pumping water, sand and chemicals into the ground at high pressure to crack rocks open, a process known as hydraulic fracturing, or "fracking." But the intensive use of water, "will increasingly impose additional costs," and could "threaten the viability of projects" for shale oil and gas, and also biofuels, the agency said.

Coal-fired electrical generation capacity continues shift out of the United States.

Within the next three to five years, more than 200 coal-fired power generating units will be shut down across 25 states; the closures are due primarily to increasing restrictions imposed by U.S. Environmental Protection Agency regulations. While those U.S. plants are closing, a report by the World Resources Institute{http://pdf.wri.org/global_coal_risk_assessment.pdf} reveals nearly 1,200 new coal-fired power plants may be opening elsewhere around the world -- primarily in India and China. It seems apparent that any perceived environmental benefits derived from shuttering U.S. plants will be completely inundated by the capacity coming online overseas. It is also entirely possible U.S. coal will be exported to countries that still encourage its consumption instead of being used for domestic power production. Because there is no alternative energy source (e.g., biomass) ready to step into the void, adverse effects will include higher unemployment in not only the coal-dependent sectors but across the entire economy as higher utility bills cause both consumers and industries to curb activity.


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.