2Q2013 Gross Domestic Product: Third (Final) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) estimated 2Q2013 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +2.5 percent. That headline rate was essentially unchanged from (just 0.04 percent lower than) last month’s “preliminary” estimate, and below expectations of 2.6 percent. Private domestic investment (PDI) and personal consumption expenditures (PCE) added to 2Q growth, in that order; net exports (NetX) and government consumption expenditures (GCE) exerted virtually no drag on growth.

Changes to consumer spending on goods and services were immaterial in this revision. Inventory growth was marginally lower than previously reported, and the rate of governmental-expenditure contraction was also reduced -- remaining significantly more benign than the levels typical of the past four years.

Click image for larger version

Expanding on the last point above, Consumer Metrics Institute (CMI) observed that, “Governmental expenditures are no longer contracting at a rate that significantly impacts the headline number” (emphasis in the original).

“In fact, the era of contracting governments seems to have ended. In 1Q2011 aggregate governmental belt-tightening was shaving -1.61% from the headline number, and as recently as 4Q2012 the headline number was being pulled down -1.31% by shrinking governmental expenditures….

“Changes in governmental expenditure rates generally lag the private sector economic spending by a year or so. During the Great Recession aggregate (and stimulus enhanced) real governmental expenditures didn't peak until 3Q2009 -- some 10 quarters after real governmental receipts peaked and well after the private sector had tanked. Since that 3Q2009 spending peak, aggregate real governmental spending has fallen 6.7% (5.5% at the Federal level and 7.5% at the state and local levels) -- certainly material, but measured from an unsustainable and stimulus laden peak.

“Not surprisingly, with stimulus packages in full swing the real aggregate deficit rates peaked in 2Q2009. Since then the aggregate governmental deficit rates have halved -- but they remain over twice the levels typical of 2007 and earlier” (emphasis in the original).

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.

July 2013 International Trade (Pulp, Paper & Paperboard)

Click image for larger view

Exports of pulp, paper and paperboard increased by 146,000 metric tons (6.4 percent) in July. Imports also rose, but by a more modest 35,000 tons (4.7 percent). Exports were 12,000 tons (0.5 percent) below year-earlier levels while imports were 43,000 tons (5.2 percent) lower. Net exports jumped 7.3 percent relative to July, and were 1.9 percent above July 2012. Despite July’s increase, year-to-date net exports were running 4.7 percent behind the levels seen during the comparable period in 2012. 

Click image for larger view

Year-to-date pulp exports (2,190 and 15,379 thousand tonnes for, respectively, July 2013 and YTD July 2013) are off 3.5 percent compared to the prior year’s pace. China is far and away the main destination for U.S. pulp exports, representing 57 percent so far this year. Four of the top five export destinations are lower on year-to-date basis; only India is up thus far. The Netherlands has posted the largest percentage drop (17.9 percent) among 2012’s top 10 destinations, and ranks 12^th YTD in 2013. Italy has posted the largest percentage increase (9.7 percent), but its ranking (sixth YTD in 2012) remains unchanged in 2013. 

Click image for larger view

Year-to-date paper and paper board exports (221 and 1,529 thousand tonnes for July 2013 and YTD July 2013, respectively) are up nearly 8 percent. Mexico still is the chief destination for U.S. paper and paperboard exports in 2013. In July exports to Mexico increased compared to Canada, the second ranked destination. Despite Mexico’s increase in July, the YTD 2013 difference between the two is much narrower than was the case in 2012. Exports to Mexico on a year-to-date basis are down 4 percent compared to prior year exports while exports to Canada are nearly 67 percent higher on a year-to-date basis. Three regions are key importers of U.S. paper and paperboard: North America, Asia, and Latin America. U.S. exports to North America are up nearly 21 percent, Asia up by 4 percent, and Latin America down by 5 percent. In Asia, the big change is China; July’s year-over-year paper and paperboard exports to China were down 10 percent, but on a year-to-date basis exports remain up over 20 percent compared to prior year-to-date levels. 

Click image for larger view

Year-to-date pulp imports (492 and 3,639 thousand tonnes for July 2013 and YTD July 2013, respectively) are 2.6 percent higher than the prior year’s level. Canada and Brazil account for 96 percent of total pulp imports in 2013. Brazil’s 2013 imports are 13.6 percent higher than 2012, Chile’s are 144.2 percent higher than its 2012 imports, and 2013 pulp imports from Mexico are up 52.1 percent year-to-date. Russia, which at this time last year was the ninth ranked source of pulp imports into the U.S. based on volume, has fallen to 14^th in 2013 thanks to a 91.7 percent drop. 

Click image for larger view

Year-to-date paper and paperboard imports (284 and 1,803 thousand tonnes for July 2013 and YTD July 2013, respectively) increased by 2 percent. Canada is far and away the largest source of imported paper and paperboard, representing nearly 90 percent of total imports into the U.S. Among the top 10, Sweden, South Korea, and Brazil have all posted percentage drops over 10 percent. Finland, Germany, and India, all among the top 10 for 2013, have posted percentage increases of at least 20 percent year-to-date, with Mexico, the fifth ranked source of imports, posting a 16.5 percent increase.

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.

August 2013 U.S. Home Sales, Inventory and Prices

Click image for larger view 

Click image for larger view

Sales of new single-family homes rose by 31,000 units (7.9 percent) to 421,000 (SAAR). Meanwhile, the median price of new homes sold dropped by another $1,700 (0.7 percent) to $254,600; prices are $24,700 (8.8 percent) below their April peak. With starts rising faster than sales, the three-month average starts-to-sales ratio increased to 1.44 in August. Click here for our post on August housing permits, starts and completions. 

Click image for larger view

Single-unit completions edged up by 3,000 units (0.5 percent). Because sales picked up in August, new-home inventory retreated by 0.1 month-of-sales even while the absolute number of homes rose by 5,000 units. 

Click image for larger view

Existing home sales increased at a slower pace (90,000 units or 1.7 percent) to 5.48 million units (SAAR) in August; as a result, the share of total sales comprised of new homes nudged up to 7.1 percent. The median price of previously owned homes sold in August edged lower (by $300 or 0.1 percent), to $212,100. 

Click image for larger view

Although the median price of existing homes for sale was virtually unchanged in July (just $600 lower than in June), housing affordability continued to erode because of rising mortgage interest rates. Concurrently, Standard & Poor’s reported that the 10- and 20-City Composites in the S&P/Case-Shiller Home Price indices posted not-seasonally adjusted monthly gains of, respectively, 1.9 and 1.8 percent in July (12.3 and 12.4 percent, respectively, relative to a year earlier). The seasonally adjusted 20-City Composite increased by just 0.6 percent (relative to June), well below expectations of +0.8 percent. This was the third consecutive monthly miss to expectations, and suggests that price momentum may be starting to fade. 

Click image for larger view

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.

August 2013 Residential Permits, Starts and Completions

Click image for larger view 

Click image for larger view

Total housing starts edged up by 0.9 percent in August, to 891,000 units (SAAR), but remained 11.3 percent below March’s breach of the one million unit mark. The August increase was largely the result of downward revisions to July’s estimates (from 896,000 to 883,000 units). Single-family units rose by 41,000 units (7.0 percent) while multi-family starts dropped by 33,000 units (11.1 percent). 

Click image for larger view

Changes in the not-seasonally adjusted estimates differed somewhat from their seasonally adjusted counterparts. Total August starts dropped by 1.5 percent relative to July because the multi-family decline outweighed the single-family gain. Overall, however, August starts ranged between 16 and 22 percent higher than year-earlier levels. 

Click image for larger view 

Click image for larger view

Total completions also inched higher in August (by 2,000 units or 0.3 percent) on the strength of the single-family component (+3,000 units or 0.5 percent). Multi-family completions were little changed (-1,000 units or 0.5 percent). Total completions were 11.1 percent higher than a year earlier in August thanks to the single-family component (+17.6 percent). 

Click image for larger view 

Click image for larger view

Builders’ confidence in the future of the residential market seems to be losing a bit of steam. Consequently, although single-family permits rose to 627,000 units (+18,000 or 3.0 percent), total permits fell back to 918,000 units (-36,000 or 3.8 percent) on weakness in the multi-family component (-54,000, or 15.7 percent, to 291,000 units). Total permits were 5.4 percent higher in August than a year earlier. 

Click image for larger view

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.

September 2013 Macro Pulse -- Taper Off (For Now)

The Federal Reserve finally laid to rest speculation about whether it would begin scaling back (a.k.a., “tapering”) its $85 billion in monthly purchases of Treasury bonds and mortgage-backed securities during September. On September 16, Fed Chair Bernanke said that, although the U.S. economy is growing moderately and some indicators of labor market conditions have improved, rising mortgage rates and government spending cuts are restraining growth.

If the Fed maintains its key short-term interest rate near zero until unemployment falls to 6.5 percent, the ongoing “extraordinary” monetary policy could be kept in place until late 2014. During the press conference announcing its monetary policy plans, Bernanke also revealed the Fed had once again nudged its economic forecast lower for 2013 and 2014. One can infer that the U.S. economy is weaker than what some recent economic reports might suggest. 

Some of those reports are discussed here. (Click to read the entire September 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.

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

Click image for larger version

The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in August. The energy index declined 0.3 percent, due mostly to a sharp decline in the index for natural gas. The gasoline and electricity indexes also declined slightly, while the index for fuel oil rose.

The all items index increased 1.5 percent over the last 12 months. The index for all items less food and energy has risen 1.8 percent over the last year; the 12-month change has remained in the range of 1.6 percent to 2.3 percent since June of 2011. The energy index declined 0.1 percent over the last 12 months.

The seasonally adjusted Producer Price Index for finished goods (PPI) rose 0.3 percent in August. Prices for finished goods were unchanged in July and increased 0.8 percent in June. At the earlier stages of processing, prices received by producers of intermediate goods were unchanged in August, and the crude goods index fell 2.7 percent. On an unadjusted basis, prices for finished goods moved up 1.4 percent for the 12 months ended in August, the smallest advance since a 0.5 percent rise in April 2013. 

Click image for larger version

All of the price indices we track rose in August (especially Softwood Lumber), with Wood Fiber and Pulp, Paper & Allied Products achieving new all-time highs. 

Click image for larger version

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.

August 2013 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Industrial production (IP) advanced 0.4 percent in August (expectations were for a 0.5 percent increase) after having been unchanged in July. Manufacturing production rose 0.7 percent in August on the heels of a 0.4 percent decrease (downwardly revised from -0.1 percent) in July. At 99.4 percent of its 2007 average, total industrial production in August was 2.7 percent above its year-earlier level. Activity in the Wood Products industry expanded by 1.7 percent while Paper rose by 1.1 percent.

Click image for larger version 

Click image for larger version

Click image for larger version

Capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent in July, a rate 0.3 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972--2012) average. Wood Products capacity utilization fell by 0.7 percent while Paper nudged 0.1 percent lower.

Capacity utilization for the industrial sector increased 0.2 percentage point in August to 77.8 percent, a rate 0.6 percentage point above its level of a year earlier and 2.4 percentage points below its long-run (1972-2012) average. Wood Products capacity utilization jumped by 1.7 percent while Paper increased by 1.1 percent.

Click image for larger version

Capacity at the all-industries and manufacturing levels moved, respectively, 0.2 and 0.1 percent higher. By contrast, Wood Products remained unchanged while Paper contracted by 0.1 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.

July 2013 International Trade (Softwood Lumber)

Click image for larger view

Softwood lumber exports rose by 8 MMBF (5.7 percent) in July while imports increased by 116 MMBF (also 12.6 percent). Exports were 23 MMBF (17.6 percent) above year-earlier levels; imports were 73 MMBF (7.5 percent) higher. 

Click image for larger view

Asia (especially China and Japan) reclaimed the “top spot” for U.S. softwood lumber exports in July, although North America (i.e., Canada and Mexico) ran a close second; as usual, Canada was the largest single-country destination. Meanwhile, Canada was far-and-away the largest source of softwood lumber imports into the United States. Imports from Romania, Austria, Estonia, Lithuania, Sweden and Malaysia have increased markedly on both year-over-year and year-to-date change bases. 

Click image for larger view

Click image for larger view

Just over half of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in July. Volume appears to have fallen off in the Columbia-Snake district; its ranking has fallen from 4^th to 8^th on a YTD basis despite an order-of-magnitude increase in July relative to the same month in 2012. At the same time, Great Lakes customs districts (especially Duluth, MN) handled most of the softwood lumber imports coming into the United States. The Charlotte district has seen traffic pick up this year (its ranking has improved from 24^th to 11^th); its ranking could be in jeopardy, however, given the almost complete collapse of imports through that port in July. 

Click image for larger view 

Click image for larger view

Douglas-fir made up just under one-quarter of all softwood lumber exports in July, followed by southern yellow pine. Hem-fir exports have jumped on a YTD basis, causing that species’ ranking to rise from 12^th to 8^th.

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.

July 2013 Manufacturers’ Shipments, Inventories and New & Unfilled 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 $5.3 billion or 1.1 percent to $487.6 billion in July. Durable goods shipments decreased $0.8 billion or 0.3 percent to $228.8 billion, led by computers and electronic products.

Shipments of nondurable goods increased $6.1 billion or 2.4 percent to $258.8 billion, led by petroleum and coal products. Wood and Paper shipments both advanced, by 0.4 and 0.1 percent, respectively.

Click image for larger view

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 21.8 percent increase in not-seasonally adjusted rail shipments in July (relative to June), but a 0.5 percent drop from a year earlier; on a trend-line basis, total shipments were off 0.5 percent from a year earlier. Excluding coal carloads, year-over-year shipments were up 2.1 percent. Seasonal adjustments reduced the 21.8 percent June-to-July increase to just 0.4 percent. Rail shipments of forest-related products were higher in July than a year earlier, thanks largely to a 5.7 percent rise in pulp and paper products shipments. The ATA’s advance index showed a 0.4 percent drop in July.

Click image for larger view

Inventories increased $1.5 billion or 0.2 percent to $629.7 billion, the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.29.

Durable goods inventories increased $1.3 billion or 0.3 percent to $378.9 billion (also the highest level since the series was first published on a NAICS basis), led by transportation equipment. Inventories of nondurable goods increased $0.3 billion or 0.1 percent to $250.8 billion, led by petroleum and coal products.

Wood and Paper inventories rose by, respectively, 0.3 and 0.2 percent.

Click image for larger view

New orders decreased $12.0 billion or 2.4 percent to $485.0 billion; excluding transportation, new orders increased 1.2 percent. Durable goods orders decreased $18.1 billion or 7.4 percent to $226.3 billion, led by transportation equipment. New orders for nondurable goods increased $6.1 billion or 2.4 percent to $258.8 billion. As can be seen in the graph above, real (inflation-adjusted) new orders have been essentially flat since early 2011, and have recouped only about half the losses incurred since the beginning of the Great Recession.

Click image for larger view

Unfilled durable-goods orders increased $4.0 billion or 0.4 percent to a new nominal high of $1,033.9 billion, led by computers and electronic products. The unfilled orders-to-shipments ratio 6.44, up from 6.38 in June. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained roughly only half the ground given up since the Great Recession began.

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.

August 2013 ISM Reports

Click image for larger version

The most-closely followed nationwide manufacturing diffusion index showed that the manufacturing sector expanded to the fastest rate in two years during August. The Institute for Supply Management’s (ISM) PMI rose to 55.7 percent, an increase of 0.3 percentage point from July's reading of 55.4 percent (50 percent is the breakpoint between contraction and expansion). “Comments from the [respondent] panel range from slow to improving business conditions depending upon the industry,” said Bradley Holcomb, chair ISM’s Manufacturing Business Survey Committee.

Click image for larger version

The PMI’s advance paralleled the change in the Chicago Business Barometer’s (CBB) headline number; the CBB is usually a fairly reliable indicator of how the PMI will behave. Underlying details of the two reports diverged materially, however. E.g., production, employment and supplier deliveries all rose in the ISM report but slipped lower in the CBB.

Details in the ISM report were generally favorable for the two manufacturing industries we track. Domestic Wood Products manufacturers face some headwinds from higher input prices and expanded imports, though, while Paper Products manufacturers are experiencing declining export orders and order backlogs. Nonetheless, one Paper Products respondent opined that "material prices continue to be favorable; business is steady."

The service sector grew at the fastest pace on record in August. The non-manufacturing index (now known simply as the “NMI”) registered 58.6 percent, 2.6 percentage points higher than July’s 56.0 percent. “The majority of respondents' comments continue to be mostly positive about business conditions and the direction of the overall economy," said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

Click image for larger version

Overall activity expanded among the service industries we track. One Construction respondent observed that "we seem to have a flurry of activity in our pipeline." The positives and negatives appear reasonably well balanced. E.g., although new (including export) and backlogged orders generally picked up, so too did inventories.

Relevant commodities up in price included oil, fuel, lumber (pine, spruce and treated), corrugated boxes and packaging, and paper. Natural gas was down in price.

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.

July 2013 International Trade (General)

Click image for larger view

Total July exports of $189.4 billion and imports of $228.6 billion resulted in a goods and services deficit of $39.1 billion, up from $34.5 billion in June. July exports were $1.1 billion less than June exports of $190.5 billion. July imports were $3.5 billion more than June imports of $225.1 billion. While providing a number of useful tables and graphs, ZeroHedge noted that “in July, the U.S. trade deficit with China and the EU rose to a record of $30.1 billion (from $26.6bn last month) and $13.9 billion (from $7.1bn) respectively.”

Click image for larger view

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 June while prices rose by 0.7 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.

August 2013 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged higher in August, rising by $1.60 (1.5 percent) to $106.21 per barrel. That price increase coincided with a negligible weakening of the dollar and the lagged impacts of a rise in consumption of 173,000 barrels per day (BPD) to 18.7 million BPD in June, but occurred despite a modest increase in crude stocks. Tensions in the Middle East also contributed to the price rise.

The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI collapsed in July by nearly two-thirds, to $3.32 per barrel; explanations for the narrowing vary, but it is possible that impacts of the Fed’s quantitative easing are finally showing up in the WTI price.

Click image for larger view

Click image for larger view

Given that futures prices are in backwardation, it appears traders are discounting any extended supply disruptions from potential U.S. action in Syria.

Click image for larger view

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.