July 2012 International Trade

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Total July exports of $183.3 billion and imports of $225.3 billion resulted in a goods and services deficit of $42.0 billion, up from $41.9 billion in June. July exports were $1.9 billion less than June exports of $185.2 billion. July imports were $1.8 billion less than June imports of $227.1 billion.
 

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Paper exports advanced slightly, rising by 43,000 tons (1.8 percent). Imports increased more dramatically, by 71,000 tons (9.4 percent). Exports were 224,000 tons (8.5 percent) lower than a year earlier while imports were 45,000 tons (5.2 percent) lower.
 

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Softwood lumber exports edged up by 1 MMBF (0.5 percent), in July while imports exploded by 167 MMBF (21.0 percent). Exports were 12 MMBF (8.6 percent) lower than year-earlier levels; imports were 177 MMBF (22.5 percent) higher.

2Q2012 Gross Domestic Product: Third (Final) 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 1.3 percent, down 0.2 percentage point from the initial (“advance”) estimate and 0.4 percentage point from the second (“preliminary”) estimate. Personal consumption expenditures (PCE), net exports (NetX) and private domestic investment (PDI) 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 an almost microscopic 0.08 percent (down from 1.11 percent in the prior quarter, and down even further (from 1.29 percent) since the fourth quarter of 2011).

-- The contribution made by consumer services dropped to 0.99 percent.

-- The growth rate contribution from private fixed investments dropped to 0.56 percent (less than half of the 1.18 percent in the first quarter).

-- Once again the biggest revision was in reported changes to inventories. The previously reported shrinkage in inventories was doubled -- with the result lowering the headline number by -0.46 percent (and now making the contraction worse that the -0.39 percent shrinkage rate reported for the prior quarter).

-- The reported drag on GDP growth from contracting expenditures by governments lessened further to -0.14 percent (milder than the -0.18 percent in the previous estimate). Federal spending is nearly neutral in its impact on the headline number (-0.02 percent), while the state and local contribution to the headline is -0.12 percent.

-- The annualized contribution to the growth rate from exports was revised downward to 0.72 percent.

-- Imports are now reported to be removing only -0.49 percent from the headline growth rate. The net of foreign trade is now reported to be adding 0.23 percent to the headline number.

-- The annualized growth rate of "real final sales of domestic product" was revised downward to 1.72 percent, now 0.64 percent below the 2.36 percent reported for the first quarter.

-- Real per-capita disposable income grew at an annualized 2.39 percent rate during the quarter (to $32,779 per year -- but up only $15 per year from the $32,764 reported for the 1st quarter of 2011, some 5 quarters ago).

August 2012 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index increased 0.6 percent in August. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.

The seasonally adjusted increase in the all items index was the largest since June 2009. About 80 percent of the increase was accounted for by the gasoline index, which rose 9.0 percent and was the major factor in the energy index rising sharply in August after declining in each of the four previous months.

The 12-month change in the index for all items was 1.7 percent in August, an increase from the July figure of 1.4 percent. The index for all items less food and energy rose 1.9 percent for the 12 months ending August, a slight decline from the 2.1 percent figure in July and its smallest increase since July 2011.

The seasonally adjusted Producer Price Index for finished goods (PPI) rose 1.7 percent in August. This increase followed advances of 0.3 percent in July and 0.1 percent in June, and marks the largest monthly rise since a 1.9 percent increase in June 2009. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent in August, and the crude goods index rose 5.8 percent. On an unadjusted basis, prices for finished goods climbed 2.0 percent for the 12 months ended August 2012, the largest advance since a 2.8 percent increase for the 12 months ended March 2012.
 

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Prices of intermediate materials; pulp, paper & allied products; and wood fiber are lower than they were a year earlier, while the other categories are higher.
 

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August 2012 Industrial Production, Capacity Utilization and Capacity

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Industrial production fell 1.2 percent in August after having risen 0.5 percent in July. Hurricane Isaac restrained output in the Gulf Coast region at the end of August, reducing the rate of change in total industrial production by an estimated 0.3 percentage point. Manufacturing output decreased 0.7 percent in August after having risen 0.4 percent in both June and July. Precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of the hurricane contributed to a drop of 1.8 percent in the output of mines for August. The output of utilities declined 3.6 percent. At 96.8 percent of its 2007 average, total industrial production in August was 2.8 percent above its year-earlier level. Industrial production decreased by 0.2 percent for Wood Products and by 0.3 percent for Paper.
 

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Capacity utilization for total industry moved down 1.0 percentage point to 78.2 percent, a rate 2.1 percentage points below its long-run (1972--2011) average. Capacity utilization was unchanged for both Wood Products and 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 by 0.2 percent.

September 2012 Macro Pulse -- Rewarding the Market’s Tantrum

Like to a child throwing a tantrum, the financial markets collectively have been insisting the Federal Reserve provide another round of accommodative monetary policy. The Fed, playing the part of the weak-willed parent, finally gave in to the incessant demands by promising on September 13 to not only keep the federal funds rate essentially at zero percent into 2015, but also to purchase $40 billion of mortgage-backed securities per month for an unspecified length of time; should those measures fail to stimulate employment, the Fed will also consider purchasing other assets. Now, we will be the first to admit the U.S. economy is showing increasing signs of weakness. For example:

Click here to read the entire September 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.

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

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Bureau of Economic Analysis data showed that personal income increased $42.3 billion (0.3 percent), and disposable personal income (DPI) increased $39.9 billion (0.3 percent) in July. Personal consumption expenditures (PCE) increased $46.0 billion (0.4 percent). Real (inflation-adjusted) DPI increased 0.3 percent while real PCE increased 0.4 percent.
 

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The Census Bureau reported that consumers increased spending on retail goods during July (0.8 percent, seasonally adjusted). Interestingly, retail sales were up by an identical percentage across all categories. Excluding gasoline sales, retail spending also rose 0.8 percent from June to July.
 

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Total consumer debt outstanding fell by a seasonally adjusted $3.3 billion (1.5 percent annualized). Revolving (mostly credit card) debt decreased by $4.8 billion (6.8 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $1.5 billion (1.0 percent annualized). For a change, in July federal student loans comprised less than one-third of the increase in non-revolving debt.
 

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The most prominent feature of the last two charts is the December 2010 spike. The Federal Reserve revised data from that month onward, but not prior data. That discontinuity in the series has created a firestorm of criticism.

August 2012 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by just 96,000 in August, and the unemployment rate dropped by 0.2 percentage point to 8.1 percent. Three-fourths of August’s job gains occurred in food services and drinking places (+28,000), in professional and technical services (+27,000), and in health care (+17,000). Government employment shrank by 7,000. The change in total non-farm payrolls for June was revised by -19,000 (from +64,000 to +45,000), and the change for July was revised by -21,000 (from +163,000 to +141,000).
 

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Employment is converging with the previous peak at a slower pace than nearly all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 4.72 million fewer jobs than at the January 2008 peak.
 

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The number of people not in the labor force rose by 581,000 in August, for a new all-time high of 88.9 million that is 500,000 more than the previous record set in April. The ratio of employed persons to the entire population dipped lower in the range seen 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) dipped to 63.5 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 1.4 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 rose by 43,000 jobs, while part-time employment dropped by 215,000. We infer from those numbers that only a fraction of the part-timers found full-time work; the rest either became unemployed or left the workforce. It appears the rising trend in full-time employment, although perhaps not reversed, has at least stalled out.

August 2012 ISM Reports

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Manufacturing’s contraction picked up the slightest bit of speed in August, with the Institute for Supply Management’s (ISM) PMI ticking down to 49.6 percent, from 49.8 in July (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 generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies." The mix among the sub-indices was disheartening, as new orders, new export orders and order backlogs shrank in the face of rising producer inventories and input prices.
 

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The service sector grew at a faster clip in August, reflected by a 1.1 percentage point rise (to 53.7 percent) in the non-manufacturing index (now known simply as the “NMI”). Comments by Anthony Nieves, chair of ISM’s Non-manufacturing Business Survey Committee, were almost identical to Holcomb’s. “Respondents' comments continue to be mixed,” said Nieves, “and for the most part reflect uncertainty about business conditions and the economy." The mix of service sub-indices was somewhat more upbeat; at least new orders, order backlogs and new export orders increased (even if, as in some cases, only barely); however, the number of firms facing higher input prices rose dramatically.
 

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Wood Products remained unchanged in August, with the good news of shrinking customer inventories offset by rising imports. Paper Products expanded, but some clouds may be on the horizon from falling new orders, new export orders and order backlogs; some of that bad news may be mitigated by declining imports. Real Estate and Ag & Forestry both reported expansion in overall activity, thanks primarily to new orders. Construction, by contrast, is facing an uphill battle from falling new orders and shrinking order backlogs.

Prices for corrugated cartons, diesel, gasoline, lumber (pine, spruce and treated) and caustic soda increased in August. No relevant commodities either fell in price or were in short supply.

August 2012 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil continued its ascent in August, advancing by $6.23 (7.1 percent) to $94.16 per barrel. That rise was concurrent with a weakening of the dollar, the lagged impacts of an increase in consumption of 208,000 barrels per day (BPD) -- to 18.9 million BPD -- during June, and a drawdown of still-plentiful crude stocks.

The price spread between Brent crude (the predominant grade used in Europe) and WTI expanded slightly in July (August Brent data was not yet available when this was written), to $14.69 per barrel. Brent and WTI prices had been essentially identical until the end of 2010.
 

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August 2012 Currency Exchange Rates

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The U.S. dollar lost ground in August on a monthly average basis against all three currencies we track: 2.1 percent relative to Canada’s loonie, 1.0 percent against the euro and 0.3 percent against the yen. On a trade-weighted index basis, the dollar weakened by 0.9 percent against a basket of 26 currencies.
 

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July 2012 U.S. Construction

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Overall construction spending in the United States decreased by 0.9 percent during July, to a seasonally adjusted and annualized rate (SAAR) of $834.4 billion. All categories retreated, especially private residential spending.
 

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Total housing starts fell by 1.1 percent in July, to 746,000 units (SAAR). Single-family starts decreased to 502,000 units (-35,000 units or 6.5 percent) relative to June; at the same time, multi-family starts increased to 244,000 units (+27,000 units or 12.4 percent).
 

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New-home sales advanced by 3.6 percent, to 372,000 (SAAR). The median price of new homes sold ticked down, by 2.1 percent, to $224,200. Although the change in single-unit sales (+13,000) exceeded that of starts (-35,000 units), the three-month average starts-to-sales ratio ticked up to 1.42 in July.
 

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Single-unit completions fell by 5.9 percent; the inventory of new single-family homes decreased in absolute terms (-1,000), and months of inventory increased by 0.2 month. Inventory stood at 142,000 units and 4.6 months.
 

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Existing home sales rose by 100,000 (2.3 percent) in July, to 4.47 million units (SAAR). The share of total sales comprised of new homes increased from 7.6 to 7.7 percent.
 

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The median price of previously owned homes sold in June jumped by $9,900 (5.5 percent), to $190,100, causing housing affordability to continue its descent from the 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 rising, respectively, 2.2 and 2.3 percent in June.

“Home prices gained in the second quarter,” said David Blitzer, chair of the Index Committee at S&P Indices. “In this month’s report all three composites and all 20 cities improved both in June and through the entire second quarter of 2012. All 20 cities and both monthly Composites rose for the second consecutive month. It would have been a third consecutive month had we not seen home prices fall in Detroit back in April.
 

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“The National Composite rose by 6.9 percent in the second quarter alone, and is up 1.2 percent from the same quarter of 2011. The 10- and 20-City Composites closely mimic these results; the 10-City was up 5.8 percent over the quarter and the 20-City was up 6.0 percent. The two Composites also entered positive territory on an annual basis, up 0.1 percent and 0.5 percent, respectively.

“Only two cities – Charlotte and Dallas – saw annual rates of change worsen in June. The other 18 cities and both composites saw improvement in this statistic, and 13 of these had a positive trend. There were only six cities – Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego – where the annual rates of change were still negative. Boston’s annual rate was flat. We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change. The market may have finally turned around.

“The regions showed positive results for June. All 20 of the cities saw average home prices rise in June over May and all were by at least 1.0 percent. Detroit was up the most, +6.0 percent, and Charlotte the least, +1.0 percent. The Composites showed the same increases as last month – the 10-City rose by 2.2 percent in June and the 20-City by 2.3 percent. We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market.”
 

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July 2012 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $9.5 billion or 2.0 percent to $478.8 billion. This followed a 1.2 percent June decrease. Durable goods shipments increased $5.7 billion or 2.5 percent to $230.7 billion. This was the highest level since the series was first published on a NAICS basis, and followed a slight June decrease. Transportation equipment had the largest increase: $5.5 billion or 8.6 percent to $69.8 billion.

Shipments of nondurable goods increased $3.7 billion (1.5 percent) to $248.1 billion. This followed a 2.3 percent June decrease. Petroleum and coal products led the increase, up $1.5 billion or 2.3 percent to $68.6 billion.

Forest products shipments rose: Wood by 0.9 percent and Paper by 0.7 percent.
 

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Data from the Association of American Railroads (AAR) and the American Trucking Associations’ (ATA) advance seasonally adjusted For-Hire Truck Tonnage Index help round out the picture on goods shipments. AAR reported a 3.2 percent decrease in not-seasonally adjusted rail shipments in July (relative to June), and a 0.7 percent drop from a year earlier. Excluding coal carloads, shipments were flat. Seasonal adjustments turned the 3.2 percent June-to-July decrease to no change. Rail shipments of forest-related products were higher in June than a year earlier. The ATA’s advance index was also flat in July.
 

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Inventories increased $3.1 billion or 0.5 percent to $607.3 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.1 percent June decrease. The inventories-to-shipments ratio was 1.27, down from 1.29 in June.

Durable goods inventories increased $2.7 billion or 0.7 percent to $369.2 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 0.3 percent June increase. Transportation equipment had the largest increase.

Inventories of nondurable goods increased $0.4 billion or 0.2 percent to $238.1 billion. This followed a 0.7 percent June decrease. Petroleum and coal products drove the increase, up $0.6 billion or 1.1 percent to $51.6 billion.

Wood and Paper inventories were split: Wood rose by 0.4 while Paper fell by 0.3 percent.
 

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New orders for manufactured goods increased $12.9 billion or 2.8 percent to $478.6 billion. This followed a 0.5 percent June decrease. Excluding transportation, new orders increased 0.7 percent.

Durable goods orders increased $9.2 billion or 4.1 percent to $230.5 billion. This followed a 1.6 percent June increase. Transportation equipment had the largest increase: $10.1 billion or 14.4 percent to $80.6 billion.

New orders for nondurable goods increased $3.7 billion or 1.5 percent to $248.1 billion.