2Q2012 Gross Domestic Product: Second (Preliminary) Estimate

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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 1.7 percent, up 0.2 percentage point from the initial (“advance”) estimate. Personal consumption expenditures (PCE), private domestic investment (PDI) and net exports (NetX) contributed to 2Q growth, in that order; 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 from consumer expenditures for goods weakened further to 0.09 percent (down from 1.11 percent in 1Q, and down even further -- from 1.29 percent -- since 4Q2011).

-- The contribution made by consumer services rose to 1.11 percent (up a significant 0.24 percent from the initial estimate of 0.87 percent).

-- The growth rate contribution from private fixed investments dropped to 0.63 percent (down from 0.76 percent in the previous report).

-- The biggest revision was in reported changes to inventories. The previously reported growth from inventory building was revised sharply downward to a net draw-down of inventories -- enough to contract the headline number by 0.23 percent (although this revised number was still up somewhat from the revised 0.39 percent contraction rate for the prior quarter).

-- The reported drag on GDP growth from contracting expenditures by governments lessened further to -0.18 percent (down from the initial figure of -0.28 percent in the previous estimate). The vast bulk of the contraction has now shifted from federal spending (-0.01 percent) to state and local spending (-0.17 percent).

-- The annualized contribution to the growth rate from exports was revised upward to 0.82 percent.

-- Imports are now reported to be removing only 0.51 percent from the headline growth rate (substantially better than the 1.04 percent drag previously reported). The net of foreign trade is now reported to adding 0.31 percent to the headline number.

-- The annualized growth rate of "real final sales of domestic product" was revised upward to 1.96 percent, still 0.40 percent below the 2.36 percent reported for 1Q.

-- Real per-capita disposable income grew at an annualized 2.38 percent rate during the quarter (to $32,778 per year -- up only $14 per year from the $32,764 reported for the 1Q2011, some 5 quarters ago).

June 2012 International Trade

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Total June exports of $185.0 billion and imports of $227.9 billion resulted in a goods and services deficit of $42.9 billion, down from $48.0 billion in May, revised. June exports were $1.7 billion more than May exports of $183.3 billion. June imports were $3.5 billion less than May imports of $231.4 billion.

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Paper exports retreated slightly, falling by 15,000 tons (0.6 percent). Imports also decreased by 14,000 tons (1.8 percent). Exports were 312,000 tons (11.6 percent) lower than a year earlier while imports were 50,000 tons (6.2 percent) lower.
 

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Softwood lumber exports ticked lower, by 4 MMBF (3.3 percent), in June while imports fell by 51 MMBF (6.0 percent). Exports were 18 MMBF (12.2 percent) lower than year-earlier levels; imports were 42 MMBF (5.6 percent) higher.

July 2012 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 0.6 percent in July after rising 0.1 percent in both May and June. Revisions to the rates of change for recent months left the level of the index in June little changed from its previous estimate. Manufacturing output rose 0.5 percent in July, the same rate of increase as was recorded for June. At 98.0 percent of its 2007 average, total industrial production in July was 4.4 percent above its year-earlier level. Industrial production decreased by 1.8 percent for Wood Products but rose by 0.2 percent for Paper.
 

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Capacity utilization for total industry moved up 0.4 percentage point to 79.3 percent, a rate 1.0 percentage point below its long-run (1972--2011) average. As with industrial production, capacity utilization fell for Wood Products (-1.6 percent) but rose for Paper (+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.

July 2012 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index was unchanged again in July. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment.

Major indexes posted small movements in July, with a 0.3 percent decline in the energy index offsetting 0.1 percent increases in the indexes for food and all items less food and energy. Within energy, declines in the indexes for electricity, natural gas, and fuel oil more than offset a small increase in the gasoline index. Within the food component, the food at home index was unchanged with major grocery store food group indexes mixed, while the food away from home index increased.

The 12-month change in the index for all items was 1.4 percent in July. This compares to 1.7 percent in June and is the smallest 12- month change since November 2010. The index for all items less food and energy rose 2.1 percent for the 12 months ending July, a slight decline from the 2.2 percent figure in June and its smallest increase since October 2011.

The seasonally adjusted Producer Price Index for finished goods (PPI) increased 0.3 percent in July. This advance followed a 0.1 percent increase in June and a 1.0 percent decline in May. At earlier stages of processing, prices received by manufacturers of intermediate goods moved down 0.9 percent in July, and the crude goods index advanced 1.8 percent. On an unadjusted basis, prices for finished goods rose 0.5 percent for the 12 months ended July 2012, continuing the trend 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, while the other categories are higher.
 

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August 2012 Macro Pulse -- Synchronized Slowdown: Not an Olympic Event

Beginning in late July, a significant share of the world’s population watched the Olympics take place in London. Some 36 different sports, including synchronized swimming, were showcased during the two-week event. While not an Olympic sport, another synchronized event has also been unfolding in a wider venue. In the words of Pacific Investment Management Co.’s Mohammed El-Erian, the global economy has been experiencing “a serious, synchronized slowdown” in which the manufacturing sectors of most economically important countries are shrinking. Supporting El-Erian’s position are….

Click here to read the entire August 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.

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

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Bureau of Economic Analysis data showed that personal income increased $61.8 billion (0.5 percent), and disposable personal income (DPI) increased $52.4 billion (0.4 percent) in June. Personal consumption expenditures (PCE) decreased $1.3 billion (less than 0.1 percent). Real (inflation-adjusted) DPI increased 0.3 percent while real PCE decreased 0.1 percent.
 

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Consumers decreased spending on retail goods for the third month in a row during June (0.5 percent, seasonally adjusted), the first time that has happened since autumn 2008. Excluding sales at gas stations, retail spending fell 0.3 percent from May to June.
 

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Total consumer debt outstanding rose by a seasonally adjusted $6.5 billion (3.0 percent annualized). Revolving (mostly credit card) debt decreased by $3.7 billion (5.1 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $10.2 billion (7.2 percent annualized). In June, federal student loans comprised nearly 92 percent of the increase in non-revolving debt.
 

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June 2012 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments decreased $5.3 billion (1.1 percent) to $469.9 billion in June. Durable goods decreased $0.3 billion (0.1 percent) to $224.8 billion, led by transportation equipment. Nondurable goods decreased $5.0 billion (2.0 percent) to $245.1 billion, led by petroleum and coal products.

Forest products shipments fell: Wood by 0.9 percent and Paper by 0.4 percent.
 

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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 18.1 percent decrease in not-seasonally adjusted rail shipments in June (relative to May), and a 1.3 percent drop from a year earlier; excluding coal carloads, shipments increased 2.2 percent. Seasonal adjustments turned the 18.1 percent May-to-June decrease to a 2.9 percent increase. Rail shipments of forest-related products were higher in June 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.
 

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Inventories increased $0.4 billion (0.1 percent) to $605.4 billion. The inventories-to-shipments ratio was 1.29, up from 1.27 in May. Durable goods increased $1.6 billion (0.4 percent) to $367.2 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 $1.2 billion (0.5 percent) to $238.2 billion; petroleum and coal products led the decrease. Wood and Paper inventories rose by 0.7 and 0.6 percent, respectively.
 

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New orders for manufactured goods decreased $2.1 billion (0.5 percent) to $465.8 billion in June. Excluding transportation, new orders decreased 1.8 percent. Durable goods orders increased $2.9 billion (1.3 percent) to $220.7 billion, led by transportation equipment. Nondurable goods orders decreased $5.0 billion (2.0 percent) to $245.1 billion.

July 2012 ISM Reports

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Manufacturing contracted marginally agin in July, with the Institute for Supply Management’s (ISM) PMI ticking up to 49.8 percent, from 49.7 in June (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, “A growing number of comments from the [respondent] panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty."
 

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The non-manufacturing sector grew at a slightly faster pace in July, reflected by a 0.5 percentage point rise (to 52.6 percent) in the non-manufacturing index (now known simply as the “NMI”). In light of the Bureau of Labor Statistics’ report that employment expanded in July, perhaps the most noteworthy aspect of the ISM reports is that employment either grew more slowly (manufacturing sector) or contracted outright (service sector).
 

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Wood and Paper Products both contracted in July; about the only good news is that customers’ inventories shrank, which could result in additional new orders in the future. "We have noticed a marked slowing in business overall,” said one Wood Products respondent, having “confirmed this with other companies in our industry as well." Construction and Ag & Forestry also reported contraction in overall activity, while Real Estate expanded thanks to new orders.

Prices for copier paper increased in July, while fuel prices rose in some areas and fell in others. No relevant commodities were in short supply.

July 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 163,000 in July, and the unemployment rate ticked up by 0.1 percentage point to 8.3 percent. Professional and business services, food services and drinking places, and manufacturing added jobs. Government employment shrank by 9,000. The change in total non-farm payroll employment for May was revised from +77,000 to +87,000, but the change for June was revised from +80,000 to +64,000.
 

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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 4.78 million fewer jobs than at the January 2008 peak.
 

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The number of people not in the labor force rose by 348,000 in July, within 79,000 of the peak set back in April. The ratio of employed persons to the entire population continued moving sideways, as it has since the end of 2009.
 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) ticked lower in July, 63.7 percent. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees fell back to 1.28 percent. With the price index for urban consumers rising at a 1.7 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 dropped by 228,000 jobs, while part-time employment rose (+36,000) for a fourth straight month. It appears the rising trend in full-time employment, although perhaps not reversed, has at least stalled out.

July 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 higher in July, advancing by $5.52 (6.7 percent) to $87.93 per barrel. That rise was concurrent with a weakening of the dollar, the lagged impacts of an increase in consumption of 377,000 barrels per day (BPD) -- to 18.7 million BPD -- during May, and a drawdown of still-plentiful crude stocks.

The price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed slightly in June (July Brent data was not yet available when this was written), to $12.75 per barrel. Brent and WTI prices had been essentially identical until the end of 2010.
 

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July 2012 Currency Exchange Rates

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The U.S. dollar lost ground in July on a monthly average basis against two of the three currencies we track: 1.2 percent relative to Canada’s loonie and 0.4 percent against the yen; however, the dollar appreciated by 2.1 percent against the euro. On a trade-weighted index basis, the dollar strengthened by 0.4 percent against a basket of 26 currencies.
 

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June 2012 U.S. Construction

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Overall construction spending in the United States increased by 0.4 percent during June, to a seasonally adjusted and annualized rate (SAAR) of $842.1 billion. All categories advanced except for public construction, which was essentially unchanged relative to May.
 

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Total housing starts rose by 6.9 percent in June, to 760,000 units (SAAR). Single-family starts increased to 539,000 units (by +24,000 units or 4.7 percent) relative to May; at the same time, multi-family starts also increased to 221,000 units (+15,000 units or 12.8 percent).
 

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New-home sales retreated by 8.4 percent in June, to 350,000 (SAAR). The median price of new homes sold ticked down, by 1.9 percent, to $232,600. Although the change in single-unit sales (-32,000) fell below that of starts (+24,000 units), the three-month average starts-to-sales ratio ticked up to 1.44 in June.
 

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Single-unit completions rose by 1.3 percent; the inventory of new single-family homes increased in absolute terms (+1,000), and months of inventory increased by 0.4 month. Inventory stood at 144,000 units and 4.9 months.
 

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Existing home sales dropped by 250,000 (-5.4 percent) in June, to 4.37 million units (SAAR). The share of total sales comprised of new homes dropped from 7.6 to 7.4 percent.
 

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The median price of existing homes sold in May jumped by $8,800 (5.0 percent), to $182,900, causing housing affordability to continue plummeting from its all-time high in February.

Simultaneously, the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices extended the previous month’s increase by each rising 2.2 percent in April.

“With May’s data, we saw a continuing trend of rising home prices for the spring,” said David Blitzer, chair of the Index Committee at S&P Indices. “On a monthly basis, all 20 cities and both Composites posted positive returns and 17 of those cities saw those rates of change increase compared to what was observed for April. Seventeen of the 20 cities and both Composites also saw improved annual rates of return. We have observed two consecutive months of increasing home prices and overall improvements in monthly and annual returns; however, we need to remember that spring and early summer are seasonally strong buying months so this trend must continue throughout the summer and into the fall.

“The 10- and 20-City Composites were each up 2.2% for the month and recorded respective annual rates of decline of 1.0% and 0.7%, compared to May 2011. While still negative, these annual changes are the best we’ve since in at least 18 months.

“Taking a closer look at the cities, Phoenix again posted the best annual return. Average home prices in that region were up 11.5% versus May 2011. It was one of the hardest hit cities in the collapse, and prices are still more than 50% below their June 2006 peak, but the past five months have been positive for that market. Miami and Tampa are two other Sunbelt cities that were hard-hit in the downturn, but are now showing positive annual rates of change. Boston, Charlotte and Detroit, on the other hand, saw their annual rates of return deteriorate compared to April, even though prices rose over the month of May. Las Vegas posted both a positive monthly change in May and saw an improvement in its annual return; that said, the market is still more than 60% below it August 2006 peak.

“June data for existing home sales, new home sales, housing starts and mortgage default rates were a bit mixed, but all are better than their year-ago levels. The housing market seems to be stabilizing, but we are definitely in a wait-and-see mode for the next few months.”