1Q2012 Gross Domestic Product: Second (Preliminary) Estimate

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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 1.9 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 1Q growth; net exports (NetX) and government consumption expenditures (GCE) exerted a “drag.”
 

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Consumer Metrics Institute (CMI) made the following observations about the GDP report:

-- The contribution to the annualized growth rate for consumer expenditures for goods weakened very slightly to 1.44 percent, (down from 1.47 percent in the prior report, but still up 0.15 percent from the 1.29 percent for 4Q2011).

-- The contribution made by consumer services also deteriorated (to 0.47 percent).

-- The growth rate contribution from private fixed investments improved significantly to 0.61 percent (up from 0.18 percent in the last report). But this number was nearly completely offset by a drop in the contribution made by inventories (now 0.21 percent, down substantially from the 0.59 percent reported earlier).

-- The reported drag on GDP growth from contracting expenditures by governments grew somewhat at -0.78 percent, now nearly the same as the -0.84 percent reported for 4Q-2011. The largest share of the contractions continued to be federal defense spending, although state and local governments still provided a net -.30 percent contribution to the headline number.

-- The annualized contribution to the growth rate from exports rose to 0.98 percent (up from 0.73 percent in the prior report and materially improved from the 0.37 percent contribution provided in the prior quarter).

-- Imports are now removing -1.05 percent from the growth rate of the overall economy, significantly worse than the -0.63 percent recorded during 4Q2011. The net of foreign trade was still very slightly negative (subtracting -0.05 percent from the headline number).

-- The annualized growth rate of "real final sales of domestic product" rose to 1.67 percent, but it is still a 1.49 percent below the +3.16 percent reported for 3Q2011. This report's improvement is largely the result of a weakening in the growth of inventories. If this number is accepted at face value (and not as a consequence of deflators playing havoc with inventory valuations) it still indicates a much weaker economy than is conveyed in the headline number.

-- Real per-capita disposable income shrank at an annualized -0.22 percent rate during the quarter (from $32,572 per capita to $32,554 per capita) -- and it still remains lower than it was during the 3Q2010, some five quarters ago.

March 2012 International Trade

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Total March exports of $186.8 billion and imports of $238.6 billion resulted in a goods and services deficit of $51.8 billion, up from $45.4 billion in February. March imports were $11.7 billion more than February imports of $226.9 billion.
 

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Paper exports recovered somewhat, rising by 159,000 tons (6.4 percent) in March. Imports also rose, but by a much narrower margin: +70,000 tons (9.7 percent). Exports were 132,000 tons (4.8 percent) lower than a year earlier while imports were 31,000 tons (3.7 percent) lower.
 

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Softwood lumber exports rose by 15 MMBF (12.3 percent) in March but imports rose by 45 MMBF (5.9 percent). Exports were 5 MMBF (3.5 percent) lower than year-earlier levels; imports were 27 MMBF (3.3 percent) lower.

April 2012 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 1.1 percent in April. Output is now reported to have fallen 0.6 percent in March and to have moved up 0.4 percent in February; previously, industrial production was estimated to have been unchanged in both months. Manufacturing output increased 0.6 percent in April after having decreased 0.5 percent in March. Excluding motor vehicles and parts, which increased nearly 4 percent, manufacturing output moved up 0.3 percent, and output for all but a few major industries increased. At 97.4 percent of its 2007 average, total industrial production for April was 5.2 percent above its year-earlier level. Wood Products output retreated by 1.4 percent, while Paper advanced by 0.7 percent.
 

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Capacity utilization for total industry moved up to 79.2 percent, a rate 3.1 percentage points (or 4.1 percent) above its level from a year earlier but 1.1 percentage points below its long-run (1972--2011) average. As with industrial production, capacity utilization was split: -1.2 percent for Wood Products, and +0.7 percent for Paper.
 

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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: respectively, by 0.2 and 0.1 percent.

April 2012 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index unchanged in April. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment. Over the last 12 months, the all items index increased 2.3 percent before seasonal adjustment.

The energy index, which had risen in each of the three previous months, declined in April on a seasonally adjusted basis and offset increases in the other major indexes. The gasoline index fell 2.6 percent in April and accounted for most of the decline in energy, though the indexes for natural gas and fuel oil decreased as well. The food index rose in April as five of the six major grocery store food group indexes increased.

The index for all items less food and energy rose 0.2 percent in April, the same increase as in March. Increases in the indexes for shelter, used cars and trucks, medical care, airline fares, new vehicles, and apparel all contributed significantly to the April increase.

The seasonally adjusted Producer Price Index for finished goods (PPI) fell 0.2 percent in April. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.5 percent in April, and the crude goods index moved down 4.4 percent. On an unadjusted basis, prices for finished goods advanced 1.9 percent for the 12 months ended in April, the seventh straight month of slowing year-over-year increases following a 7.0 percent rise for the 12 months ended September 2011.
 

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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 April. Nonetheless, all except Pulp, Paper & Allied Products had higher prices in April than a year earlier.
 

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May 2012 Macro Pulse -- Siding or Main Line?

While real U.S. GDP growth slowed in 1Q2012 -- to 2.2 percent real, from 3.0 percent in 4Q2011 -- different components appear to be diverging onto what Federal Reserve Bank of San Francisco President John Williams described as “two tracks” -- one track exhibiting strength and the other weakness. Time will tell whether (in railroad parlance) the economy is being shunted off onto a siding or continues on the main line. What follows are examples of both the “slow” and “fast” tracks….

Click here to read the entire May 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.

March 2012 U.S. Construction

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Overall construction spending in the United States increased by 0.1 percent during March, to a seasonally adjusted and annualized rate (SAAR) of $808.1 billion. Only the public construction category retreated relative to February ($3.0 billion and 1.1 percent).
 

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Total housing starts dropped by 5.8 percent in March, to 654,000 units (SAAR). Single-family starts fell to 462,000 units (by -1,000 units or 0.2 percent); multi-family starts put in a far worse showing, dropping to 192,000 units (by -39,000 units or 16.9 percent).
 

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New-home sales retreated in March, by 7.1 percent, to 328,000 (SAAR). The median price of new homes sold ticked down by 1.0 percent, to $234,500. Although single-unit starts fell more slowly than sales (respectively, -1,000 and -25,000), the three-month average starts-to-sales ratio dropped to 1.36 in March.
 

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Single-unit completions rose by 1.4 percent; the inventory of new single-family homes actually dropped in absolute terms, but months of inventory increased by 0.3 month. Inventory stood at 144,000 units and 5.3 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.
 

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Existing home sales fared far worse in absolute terms than their new-home counterparts in March, falling by 1200,000 units (SAAR); the percentage change for existing homes (-2.6 percent) looked better than for new (-7.1 percent), however. The share of total sales comprised of new homes slightly, to 6.8 percent.

The not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices declined during February (respectively, -3.6 and -3.5 percent).

“While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” said David Blitzer, chair of the Index Committee at S&P Indices. “Nine MSAs -- Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa -- and both Composites hit new post-crisis lows. Atlanta continued its downward spiral, posting its lowest annual rate of decline in the 20-year history of the index at -17.3%. The 10-City Composite declined 3.6% and the 20-City was down 3.5% compared to February 2011.

“Due to delays in reporting for Mecklenburg County, we did not publish a January index level for Charlotte, North Carolina last month. With this month’s report we have enough data to publish data points for both January and February. The unfortunate news is that it confirms that Charlotte is one of the cities that is still reaching new lows.

“Phoenix and Atlanta stand out this month in terms of their contrasting relative strength and weakness in the early 2012 housing market. At one end of the spectrum, we have Atlanta posting a double-digit, and lowest on record, annual rate at -17.3%. Atlanta has now recorded five consecutive months of double-digit negative annual rates and seven consecutive monthly declines. On the other hand, Phoenix has posted two consecutive months of positive annual rates, with its latest being +3.3%, and five consecutive positive monthly returns.”

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

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Bureau of Economic Analysis data showed that personal income increased $50.3 billion (0.4 percent), and disposable personal income (DPI) increased $42.5 billion (0.4 percent) in March. Personal consumption expenditures (PCE) increased $29.6 billion (0.3 percent). Real (inflation-adjusted) DPI increased 0.2 percent while real PCE increased 0.1 percent.
 

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Consumers increased spending on retail goods in March by a seasonally adjusted 0.8 percent. Excluding car and gasoline sales, retail sales increased 0.7 percent, better than February's gain for that category. Sales at electronics stores rose 1 percent, the most in five months.
 

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Total consumer debt outstanding jumped by a seasonally adjusted $21.4 billion (10.2 percent annualized). Revolving (mostly credit card) debt rose by $5.2 billion (7.8 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $16.2 billion (11.3 percent annualized). In March, student loans comprised over 78 percent of the increase in non-revolving debt.
 

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April 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 115,000 in April, and the unemployment rate was “little changed” at 8.1 percent. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing. Government employment shrank by 15,000 (primarily at the local level). The change in total non-farm payroll employment for February was revised from +240,000 to +259,000, and the change for March was revised from +120,000 to +154,000.
 

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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 5.03 million fewer jobs than at the January 2008 peak, a level previously seen in February 2009 and April 2005.
 

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The number of people not in the labor force rose by 522,000 in April, extending the 333,000 rise in March; the April level is a new all-time high and is an important element for why the unemployment rate dropped. Unlike in January, the rise cannot be blamed on Census Bureau population adjustments. The ratio of employed persons to the entire population continues to move sideways, with a possibly weakening bias.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) retreated to 63.6 percent, from March’s 63.8 percent -- the lowest rate since December 1981. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked lower, to 1.70 percent (over 0.1 percentage point lower than in March). With the price index for urban consumers rising at a 2.7 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

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Full-time employment dropped by 812,000 at the same time part-time employment rose by 181,000. The declining trend for part-time employment had appeared to be strengthening along with the upward trend in full-time employment (especially if viewed from January 2010), but April’s changes call those trends into question.

Taken at face value, this employment report is quite disappointing.

April 2012 ISM Reports

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The pace of growth in manufacturing sped up slightly in April, with the Institute for Supply Management’s (ISM) PMI rising to 54.8 percent, from 53.4 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, “Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March.... Comments from the panel generally indicate stable to strong demand, with some concerns cited over increasing oil prices and European stability."
 

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The non-manufacturing sector grew at a slower pace in April, reflected by a 2.5 percentage point drop (to 53.5 percent) in the non-manufacturing index (now known simply as the “NMI”). "Respondents' comments affirm the slowing rate of growth," concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “In addition, they remain concerned about rising fuel costs and the impact on shipping, transportation and petroleum-based product costs.” As shown by the graph above, input prices rose at the same pace for the manufacturing sector but more slowly for the service sector.
 

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A drop in order backlogs was the only change in Wood Products, which shrank in April; other than perhaps higher input prices and expanded imports, the positive news for Paper Products was widespread. Real Estate and Construction both reported expansion in overall activity, while Ag & Forestry contracted.

Prices for gasoline, diesel fuel, lumber and paper products all increased in April. No relevant commodities were either down in price or in short supply.

March 2012 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of shipments and inventories generally rose during March for the sectors and industries we track, but new orders for durable goods declined.
 

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Shipments, up ten consecutive months, increased $3.3 billion or 0.7 percent to $466.2 billion. This followed a 0.1 percent February increase.

Shipments of manufactured durable goods in March, up three of the last four months, increased $2.0 billion or 0.9 percent to $208.8 billion, revised from the previously published 1.0 percent increase. This followed a 0.3 percent February decrease.

Machinery, up four of the last five months, had the largest increase, $2.0 billion or 6.5 percent to $32.9 billion.

Shipments of manufactured nondurable goods, up four of the last five months, increased $1.4 billion or 0.5 percent to $257.4 billion. This followed a 0.5 percent February increase. Food products, up following two consecutive monthly decreases, led the increase, up $0.8 billion or 1.2 percent to $61.5 billion. Wood and Paper shipments rose 0.5 and 0.6 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 20.4 percent decrease in not-seasonally adjusted rail shipments in March (relative to February), and a 5.8 percent drop from a year earlier; the reason give the for the decline was decreased coal shipments. Seasonal adjustments reduced the 20.4 percent February-to-March decrease to a 3.4 percent drop. Rail shipments of forest-related products were higher overall in March than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose by 0.3 percent on a seasonally and workday adjusted basis in March. The PCI’s rise was in line with the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index, which rose 0.3 percent in March.
 

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Inventories, up twenty-nine of the last thirty months, increased $1.9 billion or 0.3 percent to $618.4 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.3 percent February increase. The inventories-to-shipments ratio was 1.33, unchanged from February.

Inventories of manufactured durable goods in March, up twenty-seven consecutive months, increased $1.8 billion or 0.5 percent to $375.1 billion, revised from the previously published 0.4 percent increase. This was at the highest level since the series was first published on a NAICS basis and followed a 0.3 percent February increase.

Transportation equipment, also up twenty-seven consecutive months, had the largest increase, $0.8 billion or 0.7 percent to $118.1 billion.

Inventories of manufactured nondurable goods, up six of the last seven months, increased slightly to $243.2 billion. This followed a 0.3 percent February increase. Plastic and rubber products, up three consecutive months, drove the increase, up $0.3 billion or 1.3 percent to $21.2 billion.

Wood inventories dropped by 0.5 percent while Paper rose by 0.4 percent.
 

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New orders for manufactured goods in March, down two of the last three months, decreased $7.1 billion or 1.5 percent to $460.5 billion, the U.S. Census Bureau reported today. This followed a 1.1 percent February increase. Excluding transportation, new orders increased slightly.

New orders for manufactured durable goods in March, down two of the last three months, decreased $8.4 billion or 4.0 percent to $203.0 billion, revised from the previously published 4.2 percent decrease. This followed a 1.9 percent February increase.

Transportation equipment, also down two of the last three months, had the largest decrease, $7.1 billion or 12.6 percent to $49.6 billion.

New orders for manufactured nondurable goods increased $1.4 billion or 0.5 percent to $257.4 billion.

April 2012 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved lower in April, retreating by $2.86 (2.7 percent) to $103.33 per barrel. That drop was concurrent with a slight strengthening of the dollar and a surge in crude stocks during April, but occurred despite the lagged impacts of an increase in consumption of 466,000 barrels per day (BPD) -- to 18.7 million BPD -- during February.

The price spread between Brent crude (the predominant grade used in Europe) and WTI widened in March (April data was not yet available when this was written), to $19.26 per barrel -- the largest gap since October 2011. Brent and WTI prices had been essentially identical until the end of 2010.
 

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April 2012 Currency Exchange Rates

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The U.S. dollar lost ground against two of the three currencies we track: 0.1 percent relative to Canada’s loonie and 1.5 percent against the yen; however, the dollar appreciated by 0.4 percent against the euro. On a trade-weighted index basis, the dollar strengthened by 0.3 percent against a basket of 26 currencies.
 

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