1Q2012 Gross Domestic Product: First (Advance) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) estimated 1Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 2.2 percent, down noticeably from the 4Q2011 rate of 3.0 percent. Personal consumption expenditures (PCE) and, to a lesser extent, private domestic investment (PDI) contributed to 3Q growth in that order; net exports (NetX) were essentially a “wash” while government consumption expenditures (GCE) exerted a “drag.”
 

Click image for larger version

Consumer Metrics Institute (CMI) summarized the GDP report as follows:

As lackluster as it may be, the headline number of 2.20 percent is still likely overstating the health of the economy:

-- The deflator used in constructing the reported growth rate (reflecting annualized inflation of 1.54 percent) will seem patently absurd to anyone who lived in the real world during the first quarter of 2012, especially if they bought gasoline or groceries. Using the CPI-U as a deflator makes the headline growth almost completely vanish.

-- Even the BEA's optimistic "deflators" couldn't keep the per capita disposable income from shrinking during the quarter.

-- Governments continued to shrink their spending, and they sucked -0.60 percent from the headline number. That trend is unlikely to reverse anytime soon.

-- Real final sales and factory production continued to be supported by inventory building -- which is unsustainable and must ultimately reverse (even if the cost of carrying the inventories has been kept artificially low by the Fed).

Our bottom line for the economy has always been the health of households. This report shows per capita disposable income is shrinking and that any improvements in consumer spending are likely unsustainable. We suspect that the softening seen in this report the harbinger of a collapsing "recovery" that will continue to unfold during 2012.

March 2012 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Industrial production was unchanged in March for a second month but rose at an annual rate of 5.4 percent in 1Q2012. Manufacturing output declined 0.2 percent in March but jumped 10.4 percent at an annual rate in 1Q. The gain in manufacturing output in 1Q was broadly based: Even excluding motor vehicles and parts, which jumped at an annual rate of nearly 40 percent, manufacturing output moved up at an annual rate of 8.3 percent and output for all but a few major industries increased 5 percent or more. For the quarter, however, the output of utilities dropped at an annual rate of 13.8 percent, largely as a result of unseasonably warm temperatures over the past several months. At 96.6 percent of its 2007 average, total industrial production for March was 3.8 percent above its year-earlier level. Wood Products output rose by 0.3 percent, while Paper output fell by 0.5 percent.
 

Click image for larger version

Click image for larger version

Capacity utilization for total industry edged down to 78.6 percent, a rate 2.1 percentage points (2.7 percent) above its level from a year earlier but 1.7 percentage points below its long-run (1972--2011) average. As with industrial production, capacity utilization of Wood Products and Paper was split, with Wood Products rising by 0.5 percent but Paper falling by 0.4 percent.
 

Click image for larger version

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

March 2012 Consumer and Producer Price Indices

Click image for larger version

The seasonally adjusted Consumer Price Index increased 0.3 percent in March. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment. The all items index has risen 2.7 percent over the last 12 months, a decline from last month's 2.9 percent figure.

The seasonally adjusted Producer Price Index for finished goods (PPI) was unchanged in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.7 percent in March, and the crude goods index declined 2.5 percent. On an unadjusted basis, prices for finished goods moved up 2.8 percent for the 12 months ended March 2012, the smallest year-over-year increase since a 2.7 percent rise in June 2010.
 

Click image for larger version

At the end of 2011 the Bureau of Labor Statistics stopped reporting a couple of data series we tracked on this blog -- “Softwood logs, bolts and timber” (WPU085101) and “Pulpwood” (WPU085103). We have substituted “Logs, bolts, timber, pulpwood, woodchips and other roundwood products” (WPU085) in the graph above -- simplified as “Wood Fiber.” The rates of change in the individual price indices we track were mixed on a year-over-year basis in March. Nonetheless, all except Pulp, Paper & Allied Products had higher prices in March than a year earlier.
 

Click image for larger version

February 2012 International Trade

Click image for larger view

Total February exports of $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January. February exports were $0.2 billion more than in January, while imports were $6.3 billion lower.
 

Click image for larger view

Paper exports continued their fall-off, dropping by 221,000 tons (8.3 percent) in February. Imports, by contrast, fell by a much narrower margin: -10,000 tons (1.3 percent). Despite the January-to-February retreat, exports were 105,000 tons (4.4 percent) higher than a year earlier while imports were 23,000 tons (3.1 percent lower).
 

Click image for larger view

Softwood lumber exports fell by 3 MMBF (2.2 percent) in February but imports rose by 84 MMBF (12.4 percent). Exports were 9 MMBF (6.6 percent) lower than year-earlier levels; imports were 98 MMBF (14.7 percent) higher.

April 2012 Macro Pulse -- Running Out of Gas on an Incline

Those who have experienced the inconvenience of running out of fuel know the sinking feeling it engenders: the only thing one can do is hope and pray a gas station comes into view before the engine sputters to a complete stop. In a similar vein, the U.S. economy seems to be running out of “gas” even as 4Q2011 growth was the fastest since 2Q2010. In the case of an economy, however, one cannot set a parking brake to avoid rolling backwards if momentum is lost while on an incline. Some of the indications supporting the idea of a slowing economy include …

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

The Macro Pulse blog is a commentary about recent economic developments affecting 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.

February 2012 U.S. Construction

Click image for larger view

Click image for larger view

Overall construction spending in the United States decreased by 0.1 percent during January, to a seasonally adjusted and annualized rate (SAAR) of $827.0 billion. Only the private residential category posted an increase relative to December ($4.4 billion and 1.8 percent).
 

Click image for larger view

Total housing starts dropped by 1.1 percent in February, to 698,000 units (SAAR). Single-family starts fell to 457,000 units (by -50,000 units or 9.9 percent); multi-family starts, by contrast, rose to 241,000 units (by +42,000 units or 21.1 percent), over 85 percent above year-earlier levels.
 

Click image for larger view

Click image for larger view

Click image for larger view

New-home sales retreated in February, by 1.6 percent, to 313,000 (SAAR). The median price of new homes sold jumped by 8.3 percent, to $233,700. Although single-unit starts fell more rapidly than sales (respectively, -50,000 and -5,000), the three-month average starts-to-sales ratio was nearly steady at 1.5 in February.
 

Click image for larger view

Single-unit completions rose by 8.2 percent; the inventory of new single-family homes was unchanged in absolute terms, but months of inventory increased by 0.1 month. Inventory stood at 150,000 units and 5.8 months. As has repeatedly been the case since March 2011, the number of new homes for sale was its lowest since such records began in January 1963.
 

Click image for larger view

Existing home sales fared slightly better than their new-home counterparts in February, falling by “only” 40,000 units (SAAR) or 0.9 percent. The share of total sales comprised of new homes was unchanged at 6.4 percent.
 

Click image for larger view

Although the median price of existing homes sold rose by $2,500 (1.6 percent), to $157,100, housing affordability jumped to a new all-time high. This followed on the heels of decreases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during January (both -0.8 percent).

“Despite some positive economic signs, home prices continued to drop. The 10- and 20- City Composites and eight cities – Atlanta, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa – made new lows,” said David Blitzer, chair of the Index Committee at S&P Indices. “Detroit and Phoenix, two cities that have suffered massive price declines, plus Denver, saw increasing prices versus January 2011. The 10-City Composite was down 3.9 percent and the 20-City was down 3.8 percent compared to January 2011….”
 

Click image for larger view

“Atlanta continues to stand out in terms of recent relative weakness. It was down 2.1 percent over the month, and has fallen by a cumulative 19.7 percent over the last six months. It also posted the worst annual return, down 14.8 percent. Seven of the cities were down by 1.0 percent or more over the month. With the new lows, both Composites are now 34.4 percent off their relative 2006 peaks.”
 

Click image for larger view

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

Click image for larger view

Bureau of Economic Analysis data showed that personal income increased $28.2 billion (0.2 percent), and disposable personal income (DPI) increased $18.9 billion (0.2 percent) in February. Personal consumption expenditures (PCE) increased $86.0 billion (0.8 percent). Real (inflation-adjusted) DPI decreased 0.1 percent while real PCE increased 0.5 percent.
 

Click image for larger view

Click image for larger view

Consumers bumped up spending on retail goods in February by a seasonally adjusted 1.1 percent. Two-thirds of growth in retail sales was due to rising gasoline and auto sales; general merchandise sales declined 0.1 percent, due to the substitutionary effects caused by inflation.
 

Click image for larger view

Total consumer debt outstanding rose by a seasonally adjusted $8.7 billion (4.2 percent annualized). Revolving (mostly credit card) debt fell by $2.2 billion (3.3 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $10.9 billion (7.7 percent annualized). In February, seasonal adjustments changed declines in both revolving and non-revolving loans into increases. Even student loans, which have risen every month since January 2008, were virtually nonexistent.
 

Click image for larger view

March 2012 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 120,000 in March, and the unemployment rate dropped by 0.1 percentage point to 8.2 percent. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade. Government employment shrank by 1,000 (primarily at the local level). The change in total nonfarm payroll employment for January was revised down from +284,000 to +275,000, and the change for February was revised up from +227,000 to +240,000.
 

Click image for larger view

Click image for larger view

As we have been pointing out for quite some time, employment is converging with the previous peak at a slower pace than any prior recession going back to 1973. The economy still has 5.2 million fewer jobs than at the January 2008 peak, a level previously seen in February 2009 and March 2005.
 

Click image for larger view

The number of people not in the labor force rose by 333,000 in March, after falling by 310,000 in February; the March level is a new all-time high and is the primary explanation for why the unemployment rate dropped. The ratio of employed persons to the entire population continues to move sideways.
 

Click image for larger view

The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) retreated to 63.8 percent, from February’s 63.9 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked higher, to 1.76 percent (0.1 percentage point higher than in February). With the price index for urban consumers rising at a 2.9 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

Click image for larger view

Full-time employment increased by 882,000 at the same time part-time employment fell by 447,000. The declining trend for part-time employment appears to be strengthening; so, too, is the upward trend in full-time employment (especially if viewed from January 2010).

Taken at face value, this employment report is about what we expected.

March 2012 ISM Reports

Click image for larger version

The pace of growth in manufacturing sped up slightly in March, with the Institute for Supply Management’s (ISM) PMI rising to 53.4 percent, from 52.4 in February (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Of the 18 industries included in the survey, 15 are experiencing overall growth. Comments from the panel remain positive, with several respondents citing increased sales and demand for the next few months."
 

Click image for larger version

The non-manufacturing sector grew at a slower pace in March, reflected by a 1.3 percentage point drop (to 56.0 percent) in the non-manufacturing index (now known simply as the “NMI”). "Respondents' comments remain mostly optimistic about business conditions. They indicate that increased discretionary spending reflects the increased confidence level of businesses and consumers," concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. However, “there is continued concern about cost pressures and the instability of fuel prices.” As shown by the graph above, input prices rose more slowly for both the manufacturing and service sectors.
 

Click image for larger version

More new orders and added employment helped Wood Products expand in March; the positive news for Paper Products was even broader. Real Estate and Construction both reported expansion in overall activity, while Ag & Forestry contracted.

Lumber, crude oil, diesel fuel and gasoline were up in price. Natural gas was the only relevant commodity down in price. No relevant commodities were in short supply.

February 2012 Manufacturers’ Shipments, Inventories and New Orders

Click image for larger view

According to the U.S. Census Bureau, the value of shipments, inventories and new orders were mixed in February for the sectors and industries we track.
 

Click image for larger view

Shipments increased for a ninth month, by $0.3 billion (0.1 percent) to $462.6 billion. Despite the overall uptick, durable goods shipments decreased $0.7 billion 0.4 percent) to $206.7 billion, led by transportation equipment. Shipments of nondurable goods made up the difference when increasing $1.1 billion (0.4 percent) to $255.9 billion. Petroleum and coal products drove the increase.

Wood and Paper shipments were down, respectively, 5.0 and 0.2 percent.

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 23.3 percent increase in not-seasonally adjusted rail shipments in February (relative to January), and a 1.9 percent drop from a year earlier. Seasonal adjustments converted the 23.3 percent January-to-February increase to a 2.9 percent drop, however. Rail shipments of forest-related products were higher overall in February than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose by 0.7 percent on a seasonally and workday adjusted basis in February -- not enough to offset the 1.7 percent drop in January. “Even with the February increase, the PCI signals that the economy is much weaker than suggested by many other

Indicators,” the PCI report stated. “Specifically, the PCI suggests that the first quarter is shaping up very poorly… With those negatives already known, we will need the PCI to grow by over 4 percent from February to March just to allow the PCI to grow positively in the first quarter of 2012 compared with the last quarter of 2011. That has happened only once in the 157 months since January 1999, the month that the PCI data dates back to. In other words, the PCI indicates a very weak or even negative GDP growth rate in the first quarter of 2012. That’s not a forecast. That is a word of caution regarding our currently exuberant state.”

The PCI’s rise was in line with the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index, which rose 0.5 percent in February after falling 4.6 percent in January.
 

Click image for larger view

Inventories increased $2.2 billion (0.4 percent) to $616.8 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.33, unchanged from January.

Durable goods inventories increased $1.4 billion (0.4 percent) to $373.6 billion, led by machinery. Inventories of nondurable goods increased $0.8 billion (0.3 percent) to $243.2 billion. As with shipments, petroleum and coal products drove the increase.

Forest products inventories rose in February: 0.3 percent for Wood and 0.1 percent Paper.
 

Click image for larger view

New orders increased $6.0 billion (1.3 percent) to $468.4 billion. Excluding transportation, new orders increased 0.9 percent. Durable goods orders increased $5.0 billion (2.4 percent) to $212.5 billion, led by transportation equipment. New orders for nondurable goods increased $1.1 billion (0.4 percent) to $255.9 billion.

March 2012 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved higher in March, advancing by $3.94 (3.9 percent) to $106.19 per barrel. That rise occurred despite a slight strengthening of the dollar, the lagged impacts of a decrease in consumption of 470,000 barrels per day (BPD) -- to 18.3 million BPD -- during January, and an uptick in crude stocks during March. Oil consumption was back practically to levels last seen when the U.S. economy began coming out of the recession in mid-2009.

The price spread between Brent crude (the predominant grade used in Europe) and WTI widened in February (March data was not yet available when this was written), to $17.08 per barrel -- the largest gap since October 2011. Brent and WTI prices had been essentially identical until the end of 2010.
 

Click image for larger view

Click image for larger view

March 2012 Currency Exchange Rates

Click image for larger view

The U.S. dollar gained ground against two of the three currencies we track: 5.1 percent relative to the yen and 0.2 percent against the euro; however, the dollar depreciated by 0.3 percent against Canada’s loonie. On a trade-weighted index basis, the dollar strengthened by 0.6 percent against a basket of 26 currencies.
 

Click image for larger view