1Q2012 Gross Domestic Product: Third (Final) 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), private domestic investment (PDI), and net exports (NetX) contributed to 1Q growth in that order; government consumption expenditures (GCE) exerted a “drag.”
 

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

Although the headline number was unchanged, there were signals within the details that the economy is shifting in significant ways:

-- The inventory growth cycle has likely begun to reverse, with producers sensing that inventories have grown more than enough to support disappointing levels of consumer spending. Historically such realizations come only after inventories have actually grown too large, causing subsequent quarterly production numbers to drop as inventories are drawn down to levels justified by actual sales.

-- Federal defense spending is contracting fast enough to remove nearly half a percent from the GDP's annualized growth rate. This is the flip side of the U.S. disengagement from Iraq, and it should at least continue as the disengagement spreads to other theaters of operation.

-- In this revision the growth rates in foreign trade flattened substantially relative to the view held only a month earlier. In the BEA's sequential estimating process the trade numbers are generally the last to firm up, and it is clear that the numbers finally came in far softer than the trade experts at the BEA had anticipated during the first two estimates. Although the nominal trade numbers are still increasing quarter-to-quarter, the actual rate of growth was only half of that previously projected -- signaling that the global economy has been weaker than the BEA's trade experts had expected.

-- The now-weaker growth in consumer spending (such as it is) has not come from any material growth in per capita disposable income. It remains hard to see how an extra $2 per year per consumer is going to provide significant long term growth for this economy. Any reported consumer spending growth is neither organic nor long-term sustainable -- and likely fueled by governmental student loans and household cash flows improved by refinancing or mortgage defaults (whether strategic or involuntary).

April 2012 International Trade

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Total April exports of $182.9 billion and imports of $233.0 billion resulted in a goods and services deficit of $50.1 billion, down from $52.6 billion in March. April exports were $1.5 billion less than March exports of $184.4 billion. April imports were $4.1 billion less than March imports of $237.1 billion.
 

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Paper exports retreated somewhat, falling by 270,000 tons (10.3 percent). Imports also decreased, but by a much narrower margin: -72,000 tons (9.0 percent). Exports were 424,000 tons (15.2 percent) lower than a year earlier while imports were 162,000 tons (18.3 percent) lower.
 

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Softwood lumber exports ticked lower, by 6 MMBF (4.4 percent), in April and imports fell by 30 MMBF (3.8 percent). Exports were 7 MMBF (4.8 percent) lower than year-earlier levels; imports were 11 MMBF (1.4 percent) lower.

May 2012 Industrial Production, Capacity Utilization and Capacity

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Industrial production edged down 0.1 percent in May after having gained 1.0 percent in April. A decrease of 0.4 percent for manufacturing production in May partially reversed a large increase in April. Outside of manufacturing, the output of mines advanced 0.9 percent in May, while the output of utilities rose 0.8 percent. At 97.3 percent of its 2007 average, total industrial production in May was 4.7 percent above its year-earlier level. Wood Products output rose by 1.0 percent, while Paper retreated by 0.4 percent.
 

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Capacity utilization for total industry declined 0.2 percentage point to 79.0 percent, a rate 1.3 percentage points below its long-run (1972--2011) average. As with industrial production, capacity utilization was split: +1.1 percent for Wood Products, and -0.4 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.

May 2012 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index decreased 0.3 percent in May. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

The gasoline index declined 6.8 percent in May, leading to a sharp decrease in the energy index and the decline in the all items index. The indexes for natural gas and fuel oil declined as well, though the electricity index increased. The food index was unchanged, with a slight decline in the index for food at home offsetting an increase in the food away from home index.

The index for all items less food and energy rose 0.2 percent in May, the third consecutive such increase. The indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares, and new vehicles.

The seasonally adjusted Producer Price Index for finished goods (PPI) fell 1.0 percent in May. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.8 percent in May, and the crude goods index fell 3.2 percent. On an unadjusted basis, prices for finished goods advanced 0.7 percent for the 12 months ended in May, the eighth 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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Prices of both intermediate materials and pulp, paper & allied products are lower than they were a year earlier, but softwood lumber is up 10.5 percent.
 

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Are We There Yet?

Anyone who has taken an extended trip with children has undoubtedly heard the plaintive question “Are we there yet?” as they wearied of sitting still. In some respects, we feel like those young travelers when it comes to the U.S. economy. Despite hoping to avoid that outcome, long-time readers know we have been predicting the economy would fall back into contraction. Our expectation came close to being realized in 1Q2011 when GDP growth dipped to just 0.4 percent. Although subsequent quarters have yielded somewhat stronger growth, 1Q2012’s slowdown has renewed speculation the United States is once more in danger of contracting. Some of the indicators contributing to that idea include....

Click here to read the entire June 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.

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

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Bureau of Economic Analysis data showed that personal income increased $31.7 billion (0.2 percent), and disposable personal income (DPI) increased $22.0 billion (0.2 percent) in April. Personal consumption expenditures (PCE) increased $31.8 billion (0.3 percent). Real (inflation-adjusted) DPI increased 0.2 percent while real PCE increased 0.3 percent.
 

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Consumers increased spending on retail goods at a slower pace in April (0.1 percent, seasonally adjusted). Excluding car sales, retail sales also increased 0.1 percent.
 

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Total consumer debt outstanding jumped by a seasonally adjusted $6.5 billion (3.2 percent annualized). Revolving (mostly credit card) debt declined by $3.4 billion (-4.8 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $10.0 billion (+7.1 percent annualized). In April, student loans comprised over two-thirds of the increase in non-revolving debt.
 

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May 2012 ISM Reports

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The pace of growth in manufacturing slowed slightly in May, with the Institute for Supply Management’s (ISM) PMI dropping to 53.5 percent, from 54.8 in March (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, concluded with, “Comments from the panel generally reflect stable-to-strong orders, with sales showing steady improvement over the first five months of 2012."
 

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The non-manufacturing sector grew at a slightly faster pace in May, reflected by a 0.2 percentage point rise (to 53.7 percent) in the non-manufacturing index (now known simply as the “NMI”). "The majority of the respondents' comments are positive and optimistic about business conditions and the direction of the economy," concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.
 

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Although the subindices netted out to no change for Wood Products, we note the increase in new orders (including exports) and decreasing imports as positive signs. Paper Products expanded as new orders (including exports), production and employment all rose. Real Estate and Construction both reported expansion in overall activity, while Ag & Forestry was unchanged. "Q2 will be a strong quarter for us; the building market is starting to wake up," claimed one Construction respondent.

Prices for corrugated, lumber and paper products all increased in May. Caustic soda was the only relevant commodity down in price. No relevant commodities were in short supply.

April 2012 Manufacturers’ Shipments, Inventories and New Orders

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

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Shipments, down following four consecutive monthly increases, decreased $1.5 billion (0.3 percent) to $473.2 billion. This followed a 0.1 percent March increase. Shipments of durable goods increased $1.4 billion (0.6 percent) to $222.5 billion, led by transportation equipment.

Nondurable goods shipments decreased $2.9 billion (1.1 percent) to $250.8 billion. Petroleum and coal products drove the decrease with a drop of $3.2 billion (4.4 percent) to $69.8 billion -- the largest decline in petroleum and coal products since a 7.9 percent decrease in July 2009.

Wood and Paper shipments rose 0.8 and 0.4 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 0.9 percent decrease in not-seasonally adjusted rail shipments in April (relative to March), and a 5.5 percent drop from a year earlier. The reason give the for the year-over-year decline was decreased coal shipments; excluding coal carloads, shipments increased 3.2 percent. Seasonal adjustments amplified the 0.9 percent March-to-April decrease to a 2.0 percent drop. Except for Pulp & Paper Products, rail shipments of forest-related products were higher in April than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose by 0.1 percent on a seasonally and workday adjusted basis in April. The PCI’s rise disagreed with the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index, which fell by 1.1 percent in April.
 

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Inventories, up 22 of the last 23 months, increased $0.1 billion to $607.2 billion -- once again the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.1 percent March increase. The inventories-to-shipments ratio was 1.28, unchanged from March.

Inventories of durable goods increased $1.2 billion (0.3 percent) to $364.2 billion, led by machinery. Nondurable goods inventories decreased $1.2 billion (0.5 percent) to $243.1 billion, led again by petroleum and coal products.

Wood inventories jumped by 0.7 percent while Paper was unchanged.
 

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New orders for manufactured goods, down three of the last four months, decreased $2.9 billion (0.6 percent) to $466.0 billion in April. This followed a 2.1 percent March decrease. Excluding transportation, new orders decreased 1.1 percent.

New orders for durable goods decreased $0.1 billion to $215.2 billion, led by machinery. Nondurable goods orders decreased $2.9 billion (1.1 percent) to $250.8 billion.

May 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 69,000 in May, and the unemployment rate ticked back up to 8.2 percent. Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries. Government employment shrank by 13,000. The change in total non-farm payroll employment for March was revised from +154,000 to +143,000, and the change for April was revised from +115,000 to +77,000.
 

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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 5.01 million fewer jobs than at the January 2008 peak.
 

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The number of people not in the labor force fell by 461,000 in May, recouping much of the 522,000 rise in April. The ratio of employed persons to the entire population continued moving sideways.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) ticked up by 0.2 percentage point in May (April’s 63.6 percent was the lowest rate since May 1983); that increase did not reverse the downward trend in place since January 2007, however. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees dropped to 1.39 percent. With the price index for urban consumers rising at a 2.3 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 266,000 at the same time part-time employment rose by a nearly equivalent 245,000. 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 the last two months of data call those trends into question.

Taken at face value, this employment report is abysmal.

April 2012 U.S. Construction

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Overall construction spending in the United States increased by 0.3 percent during April, to a seasonally adjusted and annualized rate (SAAR) of $820.7 billion. Only the private residential category advanced relative to March ($7.0 billion and 2.8 percent).
 

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Total housing starts rose by 2.6 percent in April, to 717,000 units (SAAR). Single-family starts increased to 492,000 units (by +11,000 units or 2.3 percent); multi-family starts put in a somewhat smaller showing, rising to 225,000 units (+7,000 units or 3.2 percent).
 

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New-home sales advanced by 3.3 percent in April, to 343,000 (SAAR). The median price of new homes sold ticked up by 0.7 percent, to $235,700. Although single-unit starts and sales were equal (+11,000), the three-month average starts-to-sales ratio bumped up to 1.44 in April.
 

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Single-unit completions jumped by 11.4 percent; the inventory of new single-family homes increased in absolute terms, but months of inventory decreased by 0.1 month. Inventory stood at 146,000 units and 5.1 months.
 

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Existing home sales more than recouped March’s drop-off in April, rising by 1500,000 units (SAAR); the percentage change for existing homes (+3.4 percent) was on par with the percentage change in new home sales (+3.3 percent). The share of total sales comprised of new homes was stable at 6.9 percent.
 

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The median price of existing homes sold in March jumped by $7,500 (4.8 percent), to $163,600, causing housing affordability to retreat slightly from its all-time high in February.

Simultaneously, the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices broke a string of five consecutive monthly declines by remaining essentially unchanged in March.

“While there has been improvement in some regions, housing prices have not turned,” said David Blitzer, chair of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.

“The National Composite fell by 2.0 percent in the first quarter alone, and is down 35.1 percent from its 2Q2006 peak, in addition to recording a new record low. The 10- and 20-City Composite mimic these results; also down about 35 percent from their relative peaks and hit new lows.

“There are some better numbers: Only three cities – Atlanta, Chicago and Detroit – saw annual rates of change worsen in March. The other 17 cities and both composites saw improvement in this statistic, even though most are still showing a negative trend. Moreover, there are now seven cities -- Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix -- where the annual rates of change are positive. This is what we need for a sustained recovery; monthly increases coupled with improving annual rates of change. Once we see this on a broader level we will be able to say the market has turned around.

“The regions showed mixed results for March. Twelve of the cities saw average home prices rise in March over February, seven saw prices fall and one -- Las Vegas -- was flat. The Composites were largely unchanged with the 10-City down only 0.1 percent and the 20-City unchanged. After close to six consecutive months of price declines across most cities, this is relatively good news. We just need to see it happen in more of the cities and for many months in a row. Since we are entering a seasonal buying period, it becomes very important to look at both monthly and annual rates of change in home prices in order to understand the broader trend going forward.”

May 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 May, retreating by $8.63 (8.4 percent) to $94.70 per barrel. That drop was concurrent with a strengthening of the dollar, the lagged impacts of a decrease in consumption of 714,000 barrels per day (BPD) -- to 18.0 million BPD -- during March, and a surge in crude stocks since mid-March. Oil consumption in March slumped nearly to its September 2008 nadir.

The price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed slightly in April (May Brent data was not yet available when this was written), to $16.42 per barrel. Brent and WTI prices had been essentially identical until the end of 2010.
 

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May 2012 Currency Exchange Rates

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The U.S. dollar gained ground against two of the three currencies we track: 1.7 percent relative to Canada’s loonie and 2.8 percent against the euro; however, the dollar depreciated by 2.0 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 1.7 percent against a basket of 26 currencies.
 

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