October 2013 Residential Permits, Starts and Completions

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Because the Census Bureau is delaying the release of September and October’s new housing starts and completions data until December 18 (to be combined with November’s data), we have only permits to report on at this time.

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Builders’ confidence in the future of the residential market held steady in October, with more builders viewing market conditions as good than poor. Total permits broke through the 1.0 million unit threshold (SAAR) for a second time in 2013 during October (+60,000 units, or 6.2 percent relative to September), almost entirely on the strength of multi-family permits (+55,000 units, or 15.3 percent); single-family permits were essentially flat (+5,000 units, or 0.8 percent). Total permits were 16.0 percent higher in October than a year earlier.

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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.

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

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in October. Over the last 12 months, the all items index increased 1.0 percent before seasonal adjustment. The all items index increased 1.0 percent over the last 12 months; this was the smallest 12-month increase since October 2009. The energy index has declined 4.8 percent over the last 12 months, its largest 12-month decline since July 2012. The index for all items less food and energy has risen 1.7 percent over the last year, while the food index has risen 1.3 percent.

The seasonally adjusted Producer Price Index for finished goods (PPI) declined 0.2 percent in October. Prices for finished goods fell 0.1 percent in September and rose 0.3 percent in August. At the earlier stages of processing, prices received by producers of intermediate goods declined 0.4 percent, and the crude goods index decreased 0.9 percent. On an unadjusted basis, prices for finished goods advanced 0.3 percent for the 12 months ended October 2013.

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Of the price indices we track, only one (Intermediate Materials) declined in October relative to the previous month and year. Wood Fiber and Pulp, Paper & Allied Products once again achieved new all-time highs.

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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.

November 2013 Macro Pulse -- Cognitive Dissonance

Cognitive dissonance is “the discomfort experienced when simultaneously holding two or more conflicting ideas, beliefs, values or emotional reactions.” That is an apt description of how we felt when reading many of the reports, published during the past month, describing the health of the U.S. economy. In several cases, the headline numbers were quite positive, but the underlying details were much less so. That left us scratching our heads wondering wherein lies the truth. What follows are a couple of examples:

Click here to read the entire November 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.

October 2013 Industrial Production, Capacity Utilization and Capacity

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Industrial production edged down 0.1 percent in October after having increased 0.7 percent in September. Expectations had been for no change. to Manufacturing production rose 0.3 percent in October for its third consecutive monthly gain. The index for mining fell 1.6 percent after having risen for six consecutive months, and the output of utilities dropped 1.1 percent after having jumped 4.5 percent in September. The level of the index for total industrial production in October was equal to its 2007 average and was 3.2 percent above its year-earlier level. Wood Products and Paper output both rose by 0.5 percent.  

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Capacity utilization for the industrial sector declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points (1.4 percent) above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average. Wood Products capacity utilization rose by 0.5 percent while Paper increased by 0.6 percent. 

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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.

September 2013 International Trade (Softwood Lumber)

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Softwood lumber exports rose by 4 MMBF (2.4 percent) in September while imports increased by 28 MMBF (3.1 percent). Exports were 45 MMBF (39.5 percent) above year-earlier levels; imports were 112 MMBF (18.8 percent) higher. 

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Asia (especially China and Japan) retained the “top spot” for U.S. softwood lumber exports in September. Canada was the largest single-country destination, however. Meanwhile, Canada was far-and-away the largest source of softwood lumber imports into the United States. Imports from Romania, Austria, Estonia, Sweden, Malaysia and Honduras have increased markedly on both year-over-year and year-to-date change bases. 

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Just over half of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in September. At the same time, Great Lakes customs districts (especially Duluth, MN) handled over two-thirds of the softwood lumber imports coming into the United States. 

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Douglas-fir made up just under one-quarter of all softwood lumber exports in September, followed by southern yellow pine. Hem-fir exports have jumped on a YTD basis, causing that species’ ranking to rise from 12^th to 7^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.

September 2013 International Trade (General)

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Total September exports of $188.9 billion and imports of $230.7 billion resulted in a goods and services deficit of $41.8 billion, up from $38.7 billion in August. September exports were $0.4 billion less than August exports of $189.3 billion. September imports were $2.7 billion more than August imports of $228.0 billion.

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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 0.8 percent in August 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.

3Q2013 Gross Domestic Product: First (Advance) Estimate

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The Bureau of Economic Analysis (BEA) estimated 3Q2013 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +2.8 percent. All four categories -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made at least some contribution to 3Q growth. The headline rate was considerably above expectations of 2.3 percent, but that net improvement masked weakening contributions from consumer spending (0.20 percentage point lower than in 2Q), fixed investment (-0.33 percentage point) and exports (-0.44 percentage point). Those softening sectors were more than offset by growing contributions from inventories (+0.42 percentage point), state and local government spending (+0.11 percentage point) and sharply weakening imports (which added 0.80 percentage point to the headline).

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Consumer Metrics Institute (CMI) expanded on the last item, observing that:

• Exports contributed only 0.60 percentage point to the overall growth rate, down sharply from 2Q’s +1.04 percentage point.
• Also, imports were the largest single contributor to the reported improving growth -- by virtue of now subtracting only 0.30 percentage point from the headline number (compared to -1.10 percentage point during 2Q). This resulted primarily from weakening growth in demand for imported goods.

In addition, CMI noted that “the annualized growth rate for real final sales of domestic product decreased slightly to 2.01 percent (down from 2Q’s 2.07 percent). This is the BEA's ‘bottom line’ measurement of the economy -- which remains substantially weaker than the headline number because of the ongoing buildup of inventories.”

CMI concluded that “Given the anemic growth rates in real per capita disposable income [just 0.4 percent annualized], household savings rates well below recent comfort levels and the budgetary uncertainties resulting from the new healthcare mandates, it seems unlikely that those consumers [whose spending still represents over 68 percent of the U.S. economy] will go on any kind of spending spree anytime soon.”

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.

October 2013 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil dropped in October, falling by $5.24 (4.9 percent) to $101.05 per barrel. That price decrease occurred despite a weakening of the dollar and the lagged impacts of a modest increase in consumption of 45,000 barrels per day (BPD) to 19.1 million BPD in August; the price rise also coincided with a noticeable increase in crude stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI expanded by $2.88 in October, to $8.19 per barrel. 

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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.

October 2013 ISM Reports

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More manufacturing businesses surveyed by the Institute for Supply Management (ISM) indicated their activity expanded in October than any month since April 2011. The PMI rose to 56.4 percent, an increase of 0.2 percentage point from September's reading of 56.2 percent (50 percent is the breakpoint between contraction and expansion); expectations had been for a drop to 55.0 percent. “The panel's comments are generally positive about the current business climate,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. “However, there are mixed responses on whether the government shutdown and potential default have had any effect on October's results.”

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Most general manufacturing sub-indices were more positive than in September; the most notable exceptions were production and employment. Both Wood and Paper Products reported overall expansion. Supporting evidence was rather sparse (just employment and new export orders) in the case of Wood Products, however. For Paper Products, much of the higher current activity could result in slower future expansion, especially when coupled with observations that growth in new domestic and export orders slowed in October.

The service sector recouped some of September’s dramatic slowdown in growth, although most of the extra business activity apparently originated in employment and imports. The non-manufacturing index (now known simply as the “NMI”) registered 55.4 percent, 1.0 percentage point higher than September’s 54.4 percent; this increase bucked expectations of a drop to 54.0 percent. “Respondents' comments are mixed with the majority reflecting an uptick in business,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “A number of respondents indicate that they are negatively impacted by the government shutdown.” Forward-looking indicators seem to lean toward the possibility of slower future growth, as new domestic and export orders dipped while imports rose; also, more respondents consider current inventory levels to be too high.

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Among the individual service industries we track, only real estate expanded -- and that was only because new orders grew. For Construction and Ag & Forestry, new orders were either unchanged or slowing while imports were either stable or increasing. Employment shrank in the latter two industries.

Commodities up in price included corrugated boxes. Caustic soda was down in price. Some respondents indicated paying more for gasoline and diesel, while others reported paying less.

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.

October 2013 Currency Exchange Rates

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In October the monthly average value of the U.S. dollar depreciated against two of the three major currencies we track: 2.1 percent against the euro and 1.5 percent relative to the yen. However, the dollar appreciated by 0.6 percent against Canada’s loonie. On a trade-weighted index basis, the dollar weakened by 1.0 percent against a basket of 26 currencies. 

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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.

September 2013 Manufacturers’ Shipments, Inventories and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $0.3 billion or 0.1 percent to $488.9 billion in September. Durable goods shipments increased $0.8 billion or 0.4 percent to $232.4 billion (the highest level since the series was first published on a NAICS basis), led by computers and electronic products.

Shipments of nondurable goods decreased $0.5 billion or 0.2 percent to $256.5 billion, led by petroleum and coal products. Wood and Paper shipments both advanced, by 0.3 and 0.1 percent, respectively.

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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 1.6 percent decrease in not-seasonally adjusted rail shipments in September (relative to August), but a 0.7 percent rise from a year earlier; on a trend-line basis, total shipments were up 1.4 percent from a year earlier. Excluding coal carloads, year-over-year shipments were up 3.0 percent. Seasonal adjustments cut the 1.6 percent August-to-September drop in half (to -0.8 percent). Rail shipments of forest-related products were higher in September than a year earlier, thanks largely to a 9.8 percent rise in lumber & wood products shipments. The ATA’s advance index showed a 1.4 percent jump in September.

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Inventories increased $2.7 billion or 0.4 percent to $634.0 billion (also the highest level since the series was first published on a NAICS). The inventories-to-shipments ratio was 1.30, up from 1.29 in August.

Durable goods inventories increased $3.1 billion or 0.8 percent to $382.3 billion, led by transportation equipment. Inventories of nondurable goods decreased $0.4 billion or 0.2 percent to $251.7 billion, led by petroleum and coal products.

Wood and Paper inventories decreased by, respectively, 0.5 and 0.1 percent.

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New orders increased $8.1 billion or 1.7 percent to $490.8 billion; excluding transportation, new orders decreased 0.2 percent. Durable goods orders increased $8.6 billion or 3.8 percent to $234.3 billion, led by transportation equipment. New orders for nondurable goods decreased $0.5 billion or 0.2 percent to $256.5 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.

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Unfilled durable-goods orders increased $8.8 billion or 0.9 percent to a new nominal high of $1,041.7 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.39, up from 6.36 in August. 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.