4Q2012 Gross Domestic Product: Third (Final) Estimate

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The Bureau of Economic Analysis (BEA) estimated 4Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +0.4 percent, nearly 0.3 percentage point higher than the previous (preliminary) 4Q estimate and 2.7 percentage points lower than the current 3Q estimate. Personal consumption expenditures (PCE), net exports (NetX) and private domestic investment (PDI) added to 4Q growth, in that order; government consumption expenditures (GCE) -- especially defense-related purchases -- dragged on growth. We should emphasize that this report merely represents an improved understanding of 4Q2012 data, not improved economic activity.

Although the headline number showed both an upward revision and positive growth, Consumer Metrics Institute (CMI) pointed out the 0.4 percent number is statistically indistinguishable from a stalled economy. The positive revisions came primarily from fixed investments, with "less negative" exports providing an additional boost. Consumer activities were marginally weaker than previously reported, and governmental spending continued to shrink.

For this revision the BEA assumed annualized net aggregate inflation of 0.97 percent. In contrast, during 3Q the seasonally adjusted CPI-U published by the Bureau of Labor Statistics (BLS) recorded a -0.75 percent annualized inflation rate. As a reminder: an overstatement of assumed inflation decreases the reported headline number -- and in this case the BEA's relatively high deflator (more than 1 percent above the CPI-U) trimmed the headline GDP growth estimate. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been a 1.51 percent growth rate. If data for online prices from the Billion Prices Project had been used to deflate the BEA's nominal data, the growth rate would have been 1.35 percent annualized.

Previously reported improvements in real per capita disposable income were essentially sustained, with the annualized growth rate for per-capita disposable income a still-healthy +5.36 percent. More than half of this increase in disposable income was offset by increased personal savings (up about $131 billion per year -- or roughly 1 percent of GDP), however, as households spent cautiously in anticipation of the fully restored FICA deductions that will take back most of the 4Q's net disposable household cash gain during 1Q2013.

Among the notable items in the report (again, from CMI):

-- The contribution of consumer expenditures for goods to the headline number was revised downward slightly to 1.02 percent (from 1.03 percent in the previous estimate).

-- The contribution made by consumer services dropped by over a third to 0.27 percent (down from 0.44 percent previously reported).

-- The growth rate contribution from private fixed investments was up sharply to 1.69 percent (from 1.36 percent in the previous report), providing more than the entire boost to the headline number. Instead of productive capital spending, though, all of that revision was in non-residential construction (i.e., commercial real estate, which has grown back to its highest "real" level of activity since 2Q2009).

-- Inventory draw-downs moderated slightly, removing -1.52 percent from the headline number (-1.55 percent previously). Since the inventory data in the BEA's reports are often impacted significantly by not-fully compensated commodity price changes, it is difficult to tease out of these numbers the true source of any changes (e.g., uncorrected oil pricing anomalies or genuine changes to supply chain stocks and/or manufacturing schedules).

-- The previously reported sharp contraction in government spending became even slightly more negative, removing -1.41 percent from the headline number.

-- Declining exports removed -0.40 percent from the headline number (an improvement, however, of +0.15 percent from the -0.55 percent negative contribution previously reported). The net drag from exports continues to be consistent with a generally weakening global economy, and is a trend we might expect to have been continuing in the current quarter.

-- And reduced imports actually added +0.73 percent to the headline growth rate (down slightly from the 0.79 percent in the previous report). Again, this shows as a positive component in the GDP equation even though weakening demand for imports is often actually a sign of a slowing economy.

-- The annualized growth rate of "real final sales of domestic product" was revised upward to 1.90 percent, still some -0.46 percent below the prior quarter. This is the BEA's "bottom line" measurement of the economy.

-- And real per-capita disposable income was revised downward a net $35 to $33,138 per year (although that revised number is still about $430 per year above the numbers published for 3Q2012. From an economic standpoint however, a significant share of that was absorbed when the personal savings rate soared from 3.6 percent to 4.7 percent, pulling $365 of that annual improvement into savings or deleveraging activities instead of consumptive spending. 

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Expectations for 1Q2013 vary widely. The U.S. is expected to expand at a 2.5 percent rate, according to a MarketWatch forecast, "though a large slice of the gain could stem from higher inventories and a snap-back in government spending." Karl Denninger is less sanguine, however. After highlighting the following sentence from the BEA’s report: “Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- decreased $89.8 billion, in contrast to an increase of $32.5 billion,” Denninger commented, “That's not what you want to see; cash flow is the 'real deal' and it does not look positive at all.”

“At the end of the day only profits matter and corporations have been floating higher in stock price based on squeezing every possible gain out of their people and process,” Denninger continued. “That must eventually end simply due to the lack of additional fat to be cut and we've been running into the end of that now for the last six to nine months, with the inevitable push-back coming now from a roundly abused labor force.” MarketWatch agreed, saying that, “The sluggish growth in wages, combined with recent payroll tax increases and higher gas prices, could act as a drag on consumer spending. Americans could also decide to set more money aside to rebuild a low savings rate.”

“Facing the economy is a triple-whammy in the form of relentless currency debasement engaged in by [Fed Chair] Bernanke that has trashed consumer purchasing power (witness the unbridled rise in both disability claims and food stamps; there's no 'recovery' evident in either of those programs!), the flat population employment ratio that confirms people are not being hired at a rate sufficient to reduce government dependency and grow organic final demand along with historically high and unsustainable margins,” Denninger concluded.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2013 Consumer and Producer Price Indices (incl. Forest Products)

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The seasonally adjusted Consumer Price Index (CPI) increased 0.7 percent in February -- the biggest month-to-month increase in more than a year. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment -- the largest annual change in three years.

The gasoline index rose 9.1 percent in February to account for almost three-fourths of the seasonally adjusted all-items increase. The indexes for electricity, natural gas, and fuel oil also increased, leading to a 5.4 percent rise in the energy index. The food index increased slightly in February, rising 0.1 percent. A sharp increase in the fruits and vegetables index was the major cause of the 0.1 percent increase in the food at home index, with other major grocery store food group indexes mixed.

The index for all items less food and energy (i.e., the “core” index) increased 0.2 percent in February. Analysts polled by MarketWatch had expected the overall CPI to increase 0.6 percent and for the core reading to increase 0.2 percent. The indexes for shelter, used cars and trucks, recreation, and medical care all rose in February. These increases more than offset declines in the indexes for new vehicles, apparel, airline fares, and tobacco.

The seasonally adjusted Producer Price Index for finished goods (PPI) increased 0.7 percent in February. Prices for finished goods moved up 0.2 percent in January and declined 0.3 percent in December. At the earlier stages of processing, the index for intermediate goods advanced 1.3 percent in February, and crude goods prices decreased 0.3 percent. On an unadjusted basis, the finished goods index moved up 1.7 percent for the 12 months ended February 2013, the largest 12-month increase since a 2.3-percent rise in October 2012.

Karl Denninger highlighted a potential red flag in the PPI report: namely, that “energy was up big.  While energy is quite volatile this change is unwelcome.  The bigger issue is that the trend in intermediate goods has shifted from stability to increases, and ex-food-and-energy it was up 0.7 percent on the month. Core intermediate price advances are extremely unwelcome as they tend to translate right into profit margins -- in the wrong direction.” 

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Forest industry-related price indices are either at or near their highest levels since at least 2005. In the case of Softwood Lumber, the rate of month-to-month change may have slowed, but it was quite substantial nonetheless. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2013 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 0.7 percent in February after having been unchanged in January. Manufacturing output rose 0.8 percent, and the index revised up for the previous two months. In February, the output of utilities advanced 1.6 percent, as temperatures for the month were near their seasonal norms after two months of unseasonably warm weather. At 99.5 percent of its 2007 average, total industrial production in February was 2.5 percent above its level of a year earlier.

Industrial production of Wood Products increased by 1.6 percent while Paper rose by 0.2 percent relative to January. 

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The capacity utilization rate for total industry increased to 79.6 percent, a rate that is 0.6 percentage point below its long-run (1972--2012) average. Capacity utilization jumped by 1.7 percent for Wood Products while Paper nudged higher by a comparatively modest 0.3 percent. 

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Capacity at the all-industries and manufacturing levels moved higher (0.2 percent). By contrast, Wood Products dropped by 0.2 percent while Paper fell by 0.1 percent.

It is always useful to compare one data source with another. A contemporary source (despite the different geographic reach and time frame) can be found in the New York Fed’s Empire State Manufacturing Survey. The March 2013 survey indicated that conditions for New York manufacturers continued to improve modestly. As usual, however, closer inspection below the headline revealed some less-cheerful details. ZeroHedge explains (emphasis in the original):

“Following last month's surprising surge in the Empire Fed from a deep negative number to 10.04, the March print was less exciting, declining modestly to 9.24, on expectations of an unchanged number. The new orders and shipments indexes remained above zero, though both were somewhat lower than last month’s levels, dropping from 13.31 to 8.18 and 13.08 to 7.76, respectively. Price indexes showed that input price increases continued at a steady pace while selling prices were flat. Employment indexes suggested that labor market conditions were sluggish, with little change in employment levels and the length of the average workweek. The Number of Employees index dropped from 8.08 to 3.23, back to September 2012 levels. Naturally, with reality worse than expected, all hopes were put in the future as indexes for the six-month outlook pointed to an increasing level of optimism about future conditions, with the future general business conditions index rising to its highest level in nearly a year. This is only the 4th year in a row in which optimism about the future is orders of magnitude higher than the current reality.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

January 2013 International Trade

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January exports of $184.5 billion and imports of $228.9 billion resulted in a goods and services deficit of $44.4 billion, up from $38.1 billion in December (revised). January exports were $2.2 billion less than December exports of $186.6 billion. January imports were $4.1 billion more than December imports of $224.8 billion.

Interestingly, exports to the United States as a percentage of total Chinese exports has fallen to an all-time low. This calls into question the argument that the United States is pulling the rest of the world out of recession.

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Exports of pulp, paper and paperboard declined by 169,000 tons (6.1 percent). Imports, meanwhile, rose by 57,000 tons (8.1 percent). Exports were 104,000 tons (3.9 percent) lower than a year earlier while imports were up by 22,000 tons (3.0 percent).

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U.S. pulp exports to China were nearly an order of magnitude larger than exports to the second-largest country in the list above (i.e., Mexico), 6.7 percent lower than January 2012. Asia was the destination for over three-fourths of U.S. pulp exports in January, with the rest of North America running a distant second.

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Paper and paperboard exports were somewhat more evenly split; the combination of Mexico and Canada received nearly one-half of U.S. exports, while Asia (especially India and Japan) was the destination for just over one-quarter.

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Canada supplied over two-thirds of pulp imports into the United States, followed distantly by Brazil.

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Pegging nearly 90 percent, Canada absolutely dominates paper and paperboard imports into the United States.

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Softwood lumber exports fell by 15 MMBF (9.9 percent) in January while imports added 53 MMBF (7.2 percent). Exports were just 5 MMBF (3.8 percent) above year-earlier levels; imports were 114 MMBF (16.8 percent) higher.

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North America (Canada and Mexico), followed by Asia (especially China and Japan), continue to be the primary destinations for U.S. softwood lumber exports. Although relatively small by comparison, exports to Jamaica jumped significantly relative to the same month in 2012. Meanwhile, Canada is far-and-away the largest source of softwood lumber imports into the United States. Imports from Sweden also increased substantially in January relative to a year earlier.

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One-half of U.S. softwood lumber exports left the country through West Coast (especially Seattle, WA) customs districts in January. At the same time, however, Great Lakes customs districts (especially Duluth, MN) have handled most of the softwood lumber imports coming into the United States.

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Douglas-fir made up nearly one-quarter of all softwood lumber exports in January, followed by southern yellow pine.

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume decreased by 0.5 percent in December while prices rose by 0.8 percent.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2013 Retail Sales

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The Census Bureau reported that seasonally adjusted retail spending increased by a robust $4.4 billion or 1.1 percent (MarketWatch had expected +0.7 percent) during February as higher sales at gas stations trumped the drag from food service & drinking places. The gain was the largest in five months.

“It appears that, for now at least, consumers are willing to run down savings or take on additional credit to maintain spending,” said Andrew Grantham of CIBC World Markets. “However, with the savings rate already extremely low, it may be a matter of when, rather than if, consumers need to curtail their enthusiasm for shopping.” 

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As was the case in January, however, February’s increase can once again be largely attributed to seasonal adjustments since -- on an unadjusted basis -- overall sales fell by $1.3 billion (0.4 percent). Cells with a yellow background in the figure above indicate a decline from the previous month; green indicates an increase from the previous month. February marked the first time since 2010 that unadjusted retail sales retreated in consecutive months, which reinforces our hypothesis that elevated gasoline prices and higher taxes are, in fact, taking a bite out of consumers’ wallets. 

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Although February’s seasonally adjusted retail sales reached a new all-time high in nominal terms, adjusting the data to account for inflation and population growth shows that sales have yet to recover their November 2007 high; moreover, sales are less than 2.5 percent above their January 2000 level.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

March 2013 Macro Pulse -- March Madness

College basketball fans eagerly await “March Madness” and its crescendo of action culminating with the NCAA championship team cutting down the nets. Euphoria seems to have taken hold in the U.S. economy as well; one would hardly suspect the most recent growth estimate showed a stalled economy, the unemployment rate remains elevated, and real disposable income is flat to down for a consumer spending-dominated economy. As of this writing the Dow Jones Industrial Average was enjoying an eight-session “winning” streak, closing at 14,405.06 – a new record. Explanations for the markets’ exuberance are legion, but one that is notably absent is a robust economy. At some point one would expect earnings to correspond with economic growth, and stock price to correspond with earnings. From our perspective, however, a review of recent U.S. and global economic data lends little support for the current level of excitement.

The global economy has definitely slowed (possibly stalled) and is perhaps headed towards recession (if not in one already). Even the “economic juggernaut” called China faltered in 2012 and the 2013 outlook remains murky. For the U.S. economy in particular:

Click here to read the entire March 2013 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

February 2013 Employment Report

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According to the Bureau of Labor Statistics’s (BLS) establishment survey, non-farm payroll employment rose by a greater-than-expected 236,000 jobs in February. The unemployment rate (based upon the BLS’s household survey) edged down by 0.2 percentage point to 7.7 percent. All private supersectors reported some growth in February; Construction and Professional & Business Services were the “standouts.” Government employment, by contrast, contracted at the federal and local levels. The change in total non-farm payroll employment for December was revised from +196,000 to +219,000 while the change for January was revised from +157,000 to +119,000. 

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Although the headline numbers of the BLS surveys were fairly upbeat, many underlying details were less encouraging. For example, the ratio of employed persons to the entire population remained mired in the range seen since late 2009, which means employment gains have barely kept pace with population growth. Also, the number of people not in the labor force jumped by 296,000 (to a new all-time high of 89.3 million) in February. When one realizes the labor force also shrank by 130,000, it is not surprising that the unemployment rate dropped; put another way, a higher proportion of the shrinking pool of remaining workers found at least part-time work. 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) ticked down by 0.1 percentage point to 63.5 percent. One relatively bright spot was that the annual percentage increase in average hourly earnings of production and non-supervisory employees extended recent gains when rising to just over 2.0 percent. Thus, with the price index for urban consumers rising at a 1.6 percent annual pace, wages are at least holding steady in real terms (i.e., wage increases are keeping up with official estimates of price inflation). 

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However, full-time employment fell by 77,000 jobs, while part-time employment added 15,000. As stated previously, we suspect these trends may be related to the ObamaCare requirement that firms with 50 or more employees provide health care benefits to everyone working 30 or more hours per week. Many employers cannot afford that mandate and are avoiding it by cutting workers’ hours to below that threshold. 

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Employment is converging with the previous peak at a slower pace than 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 3.0 million fewer jobs than at the January 2008 peak. 

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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At January’s rate of job gains, it will take until March 2014 to recapture January 2008’s employment level (i.e., without adjusting for population growth).

To sum up, then, our assessment of this jobs report is that while it looks good at a distance, the warts and blemishes become more evident the closer one looks.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

January 2013 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis (BEA) data showed that personal income decreased $505.5 billion (3.6 percent) and disposable personal income (DPI) decreased $491.4 billion (4.0 percent) in January. Personal consumption expenditures (PCE) increased $18.2 billion (0.2 percent). Real (inflation-adjusted) DPI decreased 4.0 percent while real PCE increased 0.1 percent. 

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The BEA indicated that the January drop in DPI “mainly reflected the effect of special factors, which boosted employee contributions for government social insurance in January and which had boosted wages and salaries and personal dividends in December.  Excluding these special factors and others…DPI increased $37.6 billion, or 0.3 percent in January, after increasing $38.6 billion, or 0.3 percent, in December.” What the foregoing means in plain English is that those who could do so moved the timing of compensation (e.g., bonuses) forward in time to beat the imposition of new taxes that began with the new year. 

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The beginning-of-the-year tax hike apparently restrained consumer spending as well. The Census Bureau reported that consumers increased retail spending by a meager 0.1 percent (seasonally adjusted) during January as higher sales at general merchandise stores overcame the drag from other retailers. The increase can be attributed to seasonal adjustments, however, since -- on an unadjusted basis -- sales fell 18.4 percent between December and January, led (ironically) by general merchandise stores.

“Normally people reduce their savings when their tax rates go up,” said Steve Rick, senior economist at Credit Union National Association in Wisconsin. “It looks like consumers did drop their spending a bit. It may be signs of stress on lower and middle-income people. They don’t have much savings to begin with.” Another indicator suggesting consumers are stressed is Coupons.com’s Internet Coupon Index, which follows how frequently people view and print coupons and their redemption rate. “The index tends to run in a range,” Coupons.com CEO Steven Boal said. “In September, October and November 2007, it popped out of its range for the first time… And, for the first time since then, we are seeing a tripping out of the range.”

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Although January’s retail sales remained near their all-time high in nominal terms, adjusting the data to account for inflation and population growth shows that sales have yet to recover their November 2007 high; moreover, sales are only 1.4 percent above their January 2000 level. 

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Total consumer debt outstanding (CDO) rose by a seasonally adjusted $16.2 billion (+7.0 percent annualized) in January. Revolving (mostly credit card) debt increased by $0.1 billion (+0.1 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $16.0 billion (+10.0 percent annualized)  the fifth-largest U.S. government consumer credit injection in history. Federal student loans comprised almost 89 percent of January’s increase in non-revolving debt. 

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In the past 12 months, of the $153 billion in total consumer credit increase, just $6.4 billion was in revolving credit. The balance: student and car loans.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

January 2013 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments decreased $1.0 billion or 0.2 percent to $481.8 billion in January.

Shipments of durable goods decreased $2.7 billion or 1.2 percent to $226.2 billion, led by transportation equipment. Nondurable goods shipments increased $1.6 billion or 0.6 percent to $255.6 billion, led by petroleum and coal products. Wood products shipments advanced by 3.7 percent while Paper retreated by 0.6 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 23.2 percent increase in not-seasonally adjusted rail shipments in January (relative to December), and a 6.3 percent drop from a year earlier; on a trend-line basis, total shipments were off 5.3 percent from a year earlier. Excluding coal carloads, year-over-year shipments were up 0.2 percent. Seasonal adjustments reversed the 23.2 percent December-to-January increase, changing it to a 3.9 percent decrease. Rail shipments of forest-related products were higher in January than a year earlier, thanks largely to a 14.6 percent jump in lumber and wood products shipments. The ATA’s advance index showed a 2.9 percent expansion in January, a “best-ever” for that month of the year. 

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Inventories increased $3.2 billion or 0.5 percent to $618.4 billion. The inventories-to-shipments ratio was 1.28, up from 1.27 in December.

Inventories of durable goods increased $0.9 billion or 0.2 percent to $375.0 billion, led by transportation equipment. Nondurable goods inventories increased $2.3 billion or 1.0 percent to $243.4 billion, led by chemical products. Forest products inventories rose by 1.6 (Wood) and 0.2 (Paper) percent. 

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New orders for manufactured goods decreased $9.6 billion or 2.0 percent to $472.9 billion -- the biggest drop in five months; moreover, total new orders were only 0.3 percent higher than a year earlier. Excluding transportation, new orders increased 1.3 percent in January (relative to December). New orders for durable goods decreased $11.2 billion or 4.9 percent to $217.3 billion, led by transportation equipment, while nondurable goods orders increased $1.6 billion or 0.6 percent to $255.6 billion.

While the Census Bureau’s December 2012 estimate of new orders for manufactured goods nearly bested its previous (June 2008) peak in nominal terms, converting to real, inflation-adjusted terms reveals a quite different story. On that basis, new orders recouped only about half of the loss incurred since December 2007. More worrisome for the future is the observation that new orders appear to be “rolling over” and trending lower in real terms.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2013 ISM Reports

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Manufacturing expanded modestly in February, with the Institute for Supply Management’s (ISM) PMI registering 54.2 percent, an increase of 1.1 percentage points from January's seasonally adjusted reading of 53.1 percent (50 percent is the breakpoint between contraction and expansion). “This month's reading reflects the highest PMI since June 2011, when the index registered 55.8 percent,” observed Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. Respondent quotes were generally upbeat, including one Wood Products respondent who said, "Demand indicators are robust. Supply is constrained. Pricing is escalating."

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The pace of growth in the service sector also picked up slightly in February. The non-manufacturing index (now known simply as the “NMI”) registered 56.0 percent, 0.8 percentage point higher than January’s 55.2 percent. “This month's reading also reflects the highest NMI since February 2012, when the index registered 56.1 percent,” said Anthony Nieves, chair of ISM’s Non-manufacturing Business Survey Committee. “The majority of respondents' comments reflect a growing optimism about the trend of the economy and overall business conditions.” For example, one Real Estate, Rental & Leasing respondent observed that the "construction market [is] showing some positive signs." That was confirmed by a Construction respondent who said, "Business is picking up; more projects to bid and things are improving." 

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Wood Products reported a pickup in activity, although the increase was apparently limited to the pace of production. Paper Products expanded as well, thanks to new and backlogged orders, production and employment. Real Estate expanded, although the contributing changes were limited to new and backlogged orders. Construction exhibited growth across most sub-indices, while Ag & Forestry contracted despite expansion among backlogged and new export orders, and imports.

Prices increased for a variety of commodities, including diesel and gasoline; lumber (including pine, plywood and treated); corrugated boxes/packaging; paper; natural gas; oil and caustic soda. Copy paper was the only relevant commodity down in price. No relevant commodities were in short supply.

Along with the overall upbeat note in these reports, we see a couple of items that sound a cautionary note and bear watching: First, input prices are rising too quickly (both indices are above 60). Second, employment -- while still solidly positive in both indices -- is increasing at a decreasing pace.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.