2Q2012 Gross Domestic Product: First (Advance) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) estimated 2Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.5 percent, down noticeably from the upwardly revised 1Q2012 rate of 2.0 percent. Private domestic investment (PDI) and personal consumption expenditures (PCE) contributed to 2Q growth, in that order; net exports (NetX) and government consumption expenditures (GCE) exerted a “drag.”
 

Click image for larger version

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

-- The overall annualized growth rate is weakening. By any measure it is already far weaker than we might expect based on historical trends for the third year of a recovery.

-- The consumer is not the driving force behind the recovery (such as it is). During the most recent quarter the growth in consumer spending for goods contributed only 0.18 percent to the headline number. And although real per capita disposable income did grow at a 2.54 percent annualized rate during the quarter, it has only just now recovered to the level recorded during the first quarter of 2011 -- some five quarters ago.

-- And (perhaps unfortunately from the market's perspective) this report provides cover for the Federal Reserve to do nothing dramatic just prior to the Presidential election. A 1.54 percent annualized growth rate hardly justifies any heroics in any new round of QE monetary interventions -- which could smack of pre-election tinkering from an ostensibly non-political entity.

May 2012 International Trade

Click image for larger view

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.
 

Click image for larger view

Paper exports advanced slightly, rising by 34,000 tons (1.4 percent). Imports also increased by 38,000 tons (5.2 percent). Exports were 373,000 tons (13.5 percent) lower than a year earlier while imports were 61,000 tons (7.4 percent) lower.
 

Click image for larger view

Softwood lumber exports ticked lower, by 3 MMBF (2.5 percent), in May but imports rose by 73 MMBF (9.4 percent). Exports were 22 MMBF (14.1 percent) lower than year-earlier levels; imports were 111 MMBF (15.0 percent) higher.

June 2012 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Industrial production increased 0.4 percent in June after having declined 0.2 percent in May. In the manufacturing sector, output advanced 0.7 percent in June and reversed a decrease of 0.7 percent in May. In 2Q2012, manufacturing output rose at an annual rate of 1.4 percent, a marked deceleration from its strong gain of 9.8 percent in 1Q. The largest contribution to the increase in 2Q came from motor vehicles and parts, which climbed 18.2 percent; excluding motor vehicles and parts, manufacturing output edged up 0.1 percent. At 97.4 percent of its 2007 average, total industrial production in June was 4.7 percent above its year-earlier level.

Industrial production increased by 0.8 percent for Wood Products and 0.4 percent for Paper.
 

Click image for larger version

Click image for larger version

Capacity utilization for total industry moved up 0.2 percentage point in June to 78.9 percent, a rate 1.4 percentage points below its long-run (1972--2011) average. As with industrial production, capacity utilization rose for both components of forest products manufacturing: +1.0 percent for Wood Products, and +0.6 percent for Paper.
 

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 by 0.2 percent.

June 2012 Consumer and Producer Price Indices

Click image for larger version

The seasonally adjusted Consumer Price Index was unchanged in June. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

The energy index continued to fall in June, but its decline was offset by increases in the indexes for food and all items less food and energy. The energy index fell 1.4 percent as the gasoline index declined for the third month in a row; other energy indexes were mixed. The food index rose 0.2 percent after being unchanged last month as the index for food at home turned up in June.

The seasonally adjusted Producer Price Index for finished goods (PPI) increased 0.1 percent in June. Prices for finished goods moved down 1.0 percent in May and declined 0.2 percent in April. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.5 percent in June, and the crude goods index fell 3.6 percent. On an unadjusted basis, prices for finished goods advanced 0.7 percent for the 12 months ended in June, the same rate as in May.
 

Click image for larger version

Prices of both intermediate materials and pulp, paper & allied products are lower than they were a year earlier, but softwood lumber is up 11.0 percent.
 

Click image for larger version

July 2012 Macro Pulse -- Economic Drought Conditions

As of July 5, the U.S. Drought Monitor showed that over half of the land area of the continential United States was suffering from moderate or worse drought conditions. National news programs are replete with images of stunted crops and out-of-control wildfires, and accompanied by stories of how communities are being affected. The nation’s economy appears to be in a drought as well. For example:


Click here to read the entire July 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.

May 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 $25.4 billion (0.2 percent), and disposable personal income (DPI) increased $18.5 billion (0.2 percent) in May. Personal consumption expenditures (PCE) decreased $4.7 billion, or less than 0.1 percent. Real (inflation-adjusted) DPI increased 0.3 percent while real PCE increased 0.1 percent.
 

Click image for larger view

Click image for larger view

Consumers decreased spending on retail goods for the second month in a row during May (0.2 percent, seasonally adjusted), the first time that has happened in two years. If gas purchases are omitted, however, retail spending actually rose 0.1 percent. Sales at gas stations slumped 2.2 percent in May, the biggest retreat since December.

Auto sales rose 0.8 percent (seasonally adjusted). The increase was somewhat of a surprise since industry figures showed that total vehicle sales fell in May from April -- to a 13.7 million annual rate from 14.4 million. Excluding car sales, retail sales fell 0.4 percent.
 

Click image for larger view

Total consumer debt outstanding jumped by a seasonally adjusted $17.1 billion (8.0 percent annualized). Revolving (mostly credit card) debt increased by $8.0 billion (11.2 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $9.1 billion (6.5 percent annualized). In May, student loans comprised nearly two-thirds of the increase in non-revolving debt.
 

Click image for larger view

June 2012 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics (BLS) non-farm payroll employment continued to edge up in June (+80,000), and the unemployment rate remained unchanged at 8.2 percent. Professional and business services added jobs, and employment in other major industries changed little over the month. Government employment shrank by 4,000. The change in total non-farm payroll employment for April was revised from +77,000 to +68,000, and the change for May was revised from +69,000 to +77,000.
 

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 4.94 million fewer jobs than at the January 2008 peak.
 

Click image for larger view

The number of people not in the labor force rose by 34,000 in June, within 430,000 of the peak set back in April. The ratio of employed persons to the entire population continued moving 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) was unchanged in June, at 63.8 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked up to 1.49 percent. But with the price index for urban consumers rising at a 1.7 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 rose by 361,000 jobs, but part-time employment also rose by 112,000. The declining trend for part-time employment had appeared to be strengthening (especially if viewed from January 2010), but the last several months of data call that trend into question.

June 2012 ISM Reports

Click image for larger version

Manufacturing contracted slightly in June, with the Institute for Supply Management’s (ISM) PMI dropping to 49.7 percent, from 53.5 in May (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 [respondent] panel range from continued optimism to concern that demand may be softening due to uncertainties in the economies in Europe and China."
 

Click image for larger version

The non-manufacturing sector grew at a noticeably slower pace in June, reflected by a 1.6 percentage point drop (to 52.1 percent) in the non-manufacturing index (now known simply as the “NMI”). "The Employment Index increased by 1.5 percentage points to 52.3 percent, indicating continued growth in employment at a faster rate," observed Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, in regard to perhaps the only solidly positive aspect of the report.
 

Click image for larger version

Although the subindices netted out to no change for Wood Products, we note the decrease in customer inventoreies as a potentially positive sign. Paper Products contracted as the drop in production and export orders overwhelmed the positive effect of rising new orders. Real Estate and Ag & Forestry both reported contraction in overall activity, while Construction expanded. Nonetheless, "[the g]eneral state of business this month is flat, with no changes." claimed one Construction respondent.

Prices for paper increased in June, while diesel fuel fell. No relevant commodities were in short supply.

May 2012 Manufacturers’ Shipments, Inventories and New Orders

Click image for larger view

Click image for larger view

According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $2.3 billion (0.5 percent) to $476.0 billion in May. Shipments of durable goods increased $1.7 billion (0.8 percent) to $224.3 billion, led by transportation equipment.

Shipments of nondurable goods increased $0.6 billion (0.2 percent) to $251.7 billion, led by beverage and tobacco products. Wood shipments rose by 1.7 percent while Paper fell by 0.4 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 25.1 percent decrease in not-seasonally adjusted rail shipments in May (relative to April), and a 2.8 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 4.2 percent. Seasonal adjustments dampened the 25.1 percent March-to-April increase to +1.8 percent. Rail shipments of forest-related products were higher in May than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose by 0.8 percent on a seasonally and workday adjusted basis in May, extending the 0.1 percent rise in April. The PCI’s increase disagreed with the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index, which fell by 0.7 percent in May.
 

Click image for larger view

Inventories decreased $1.4 billion (0.2 percent) to $604.5 billion. The inventories-to-shipments ratio was 1.27, down from 1.28 in April. Inventories of durable goods increased $1.6 billion (0.5 percent) to $365.6 billion -- the highest level since the series was first published on a NAICS basis in 1992. Transportation equipment led the increase in durables inventories.

Inventories of nondurable goods decreased $3.0 billion (1.2 percent) to $238.9 billion. Petroleum and coal products led the decrease, down $2.3 billion (4.3 percent) to $51.9 billion. Wood and Paper inventories dropped 0.2 and 0.1 percent, respectively.
 

Click image for larger view

New orders for manufactured goods increased $3.3 billion (0.7 percent) to $469.0 billion in May. Excluding transportation, new orders increased 0.4 percent. New orders for durable goods in May increased $2.7 billion (1.3 percent) to $217.4 billion), led by transportation equipment. Nondurable goods orders increased $0.6 billion (0.2 percent) to $251.7 billion.

June 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 lower in June, retreating by $12.29 (13.0 percent) to $82.41 per barrel. That drop was concurrent with a strengthening of the dollar and a continuation of plentiful crude stocks, but occurred despite the lagged impacts of an increase in consumption of 109,000 barrels per day (BPD) -- to 18.3 million BPD -- during April,. Oil consumption in April was just slightly above its September 2008 nadir.

The price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed slightly in May (June Brent data was not yet available when this was written), to $15.64 per barrel. Brent and WTI prices had been essentially identical until the end of 2010.
 

Click image for larger view

Click image for larger view

June 2012 Currency Exchange Rates

Click image for larger view

The U.S. dollar gained ground against two of the three currencies we track: 1.8 percent relative to Canada’s loonie and 2.1 percent against the euro; however, the dollar depreciated by 0.4 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 1.4 percent against a basket of 26 currencies.
 

Click image for larger view

May 2012 U.S. Construction

Click image for larger view

Click image for larger view

Overall construction spending in the United States increased by 0.9 percent during May, to a seasonally adjusted and annualized rate (SAAR) of $830.0 billion. Only the public category retreated relative to April ($1.0 billion or 1.1 percent).
 

Click image for larger view

Total housing starts fell by 4.8 percent in May, to 708,000 units (SAAR). Single-family starts increased to 516,000 units (by +16,000 units or 3.2 percent) relative to April; multi-family starts pulled the overall average lower, however, when retreating to 192,000 units (-52,000 units or 21.3 percent).
 

Click image for larger view

Click image for larger view

New-home sales advanced by 7.6 percent in May, to 369,000 (SAAR). The median price of new homes sold ticked down, by 0.6 percent, to $234,500. Although single-unit sales (+26,000) exceeded starts (+11,000 units), the three-month average starts-to-sales ratio bumped up to 1.43 in May.
 

Click image for larger view

Single-unit completions fell by 6.3 percent; the inventory of new single-family homes increased in absolute terms (+1,000), but months of inventory decreased by 0.3 month. Inventory stood at 145,000 units and 4.7 months.
 

Click image for larger view

Existing home sales dropped by 70,000 (1.5 percent) in May, to 4.55 million units (SAAR). The share of total sales comprised of new homes rose from 6.9 to 7.5 percent.
 

Click image for larger view

The median price of existing homes sold in April jumped by $12,900 (7.8 percent), to $178,600, causing housing affordability to plummet 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 seven consecutive monthly declines by each rising 1.3 percent in April.

“With April 2012 data, we finally saw some rising home prices,” said David Blitzer, chair of the Index Committee at S&P Indices. “On a monthly basis, 19 of the 20 metropolitan statistical areas (MSAs) and both Composites rose in April over March. Detroit was the only city that saw prices fall, down 3.6 percent… It has been a long time since we enjoyed such broad-based gains. While one month does not make a trend, particularly during seasonally strong buying months, the combination of rising positive monthly index levels and improving annual returns is a good sign. The 10-City and 20-City Composites each rose by 1.3 percent for the month and posted annual rates of return of -2.2 percent and -1.9 percent compared to April 2011….

“We were hoping to see some improvement in April. First, changes in home prices are very seasonal, with the spring and early summer being the most active buying months. Second, while not as strong and we believe less reliable, the seasonally adjusted data were also largely positive, a possible sign that the increase in prices may be due to more than just the expected surge in spring sales. Additionally, the last few months have seen increased sales and housing starts amidst a lot of talk of better housing markets, so some price gains were anticipated….”