December 2013 Macro Pulse -- Farewell to 2013

As 2013 draws to a close, the debate over the U.S. economy’s true condition continues unabated. Statistics can be found to support almost any opinion. Our own position is that the “patient” is not as healthy as it could be, but we readily admit at least some of the adverse symptoms seen during the Great Recession have disappeared -- for the time being.

Click here to read about several important indicators in the December 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.

3Q2013 Gross Domestic Product: Third (Final) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) revised its estimate of 3Q2013 growth in real U.S. gross domestic product (GDP) to a seasonally adjusted and annualized rate of +4.1 percent. That rate was the fastest increase in two years, and considerably higher than the “advance” estimate of 2.8 percent posted roughly 1½ months earlier. 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 exceeded expectations of 3.7 percent; in this revision improvement in the headline growth number came principally from consumption of consumer services and goods, and fixed investment – all other categories were held essentially constant. In the previous revision, virtually all of the revised gain derived from the largest buildup of inventories since 1998. 

Click image for larger version

Among the notable details in this revision (from Consumer Metrics Institute):

·   The contribution of consumer expenditures for goods to the headline number increased to 1.03% (up from 0.93% in the prior report).

·   The contribution made by consumer services improved to 0.32% (up from 0.02% previously reported, but still down from 0.53% in the prior quarter).

·   The growth rate contribution from private fixed investments strengthened to 0.89% (up from the 0.81% previously reported, but still down slightly from 0.96% in the prior quarter).

·   Inventories were shown as about the same as previously thought, contributing +1.67% to the headline growth rate (still more than four times the +0.41% contribution during the prior quarter).

·   A very slight contraction in net governmental expenditures subtracted -0.01% from the headline number, with any reported growth occurring exclusively at state and local levels.

·   Exports contributed 0.52% to the overall growth rate, up slightly from the 0.50% previously reported -- but still down materially from the 1.04% reported for the second quarter.

·   And imports now subtracted -0.39% from the headline number (compared to -1.10% during the prior quarter).

·   The annualized growth rate for the "real final sales of domestic product" increased to 2.45% (up from the 2.07% in the previous quarter). 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.

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 Residential Permits, Starts and Completions

Click image for larger view

Click image for larger view

Total housing starts surged in November to their highest seasonally adjusted and annualized rate (SAAR) since February 2008. Total starts rose to 1.091 million units, an increase of 202,000 units (22.7 percent) relative to October. That is the largest monthly increase (on an absolute basis) since January 2006. Single-family starts contributed the lion’s share of the increase, rising by 125,000 units (22.7 percent) to 727,000 units. Multi-family starts rose by 77,000 units (26.8 percent) to 364,000 units.

Click image for larger view

Not-seasonally adjusted total starts rose by 5,500 units (7.1 percent) to 82,800 units. Although that level is lower than several earlier months in 2013, it is noteworthy that seasonally unadjusted starts rose in November (relative to October) for the first time since the Census Bureau began keeping records in 1959. It remains to be seen whether November's seasonally adjusted spike is the signal of a new wave of starts. Based on the behavior of lumber futures prices, we suspect not.

Click image for larger view

Click image for larger view

Click image for larger view

Builders’ apparently concentrated most of their activity starting new projects, as total completions waned on both seasonally adjusted (-1,000 units, or 0.1 percent, to 823,000 units) and non-adjusted (-4,200 units, or 5.6 percent, to 70,400 units) bases. Only the multi-family component saw an increase (SA: +19,000 units, or 9.1 percent, to 227,000 units; NSA: +600 units, or 3.6 percent, to 17,400 units).

Click image for larger view

Click image for larger view

Seasonal adjustments seem to have brightened the picture for permits as well, turning the largest drop in total non-seasonally adjusted permits (NSA: -19,400 units, or 21.5 percent, to 70,900 units) since November 2008 into a much less dire-looking SAAR retrenchment (SA: -32,000 units, or 3.1 percent, to 1.007 million units). Regardless, however, the trend is still pointing up for now.

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.

October 2013 International Trade (Pulp, Paper & Paperboard)

Click image for larger view

Exports of pulp, paper and paperboard increased by 129,000 metric tons (5.6 percent) in October. Imports also rose, but by a more modest 12,000 tons (1.5 percent). Exports were 156,000 tons (6.0 percent) below year-earlier levels while imports were 40,000 tons (5.3 percent) higher. Net exports jumped 7.7 percent relative to September, but were 10.7 percent below October 2012. Despite October’s increased exports, year-to-date (YTD) net exports were running 6.0 percent behind the levels seen during the comparable period in 2012. 

Click image for larger view

YTD pulp exports (21.904 million metric tons) are off 3.6 percent compared to the prior year's pace. China is far and away the main destination for U.S. pulp exports, representing 58 percent of 2013's U.S. pulp exports. Four of the top five export destinations are lower on a YTD basis; only India is up thus far by just over 1 percent. Among the top 10 destinations in 2012, the Netherlands has posted the largest YTD percentage drop (18.1 percent), and ranks 11th in 2013 (compared to 10th in 2012). Indonesia, by contrast, has posted the largest YTD percentage increase (9.7 percent), but fell from being ranked 9th destination of U.S. pulp exports in 2012 to the 10th ranked destination in 2013. 

Click image for larger view

YTD paper and paperboard exports (2.169 million tonnes) are up nearly 7 percent. Mexico is the chief destination of U.S. paper and paperboard exports in 2013. However, Canada, the second ranked destination, has been closing in on Mexico. Canada YTD increase is 52.5 percent while Mexico's YTD change is essentially flat. On a regional basis there are three key regions for U.S. paper and paperboard exports: North America, Asia, and Latin America. North America exports are up over 20 percent, Asia up by nearly 3 percent, and Latin America down by over six percent. Canada is the change driver in North America's increase. In Asia, the big change is China where YTD levels in 2013 are up over 20 percent compared to prior YTD levels. Latin America's drop is spread between reduced purchases of U.S. paper and paperboard in Brazil, Costa Rica, Venezuela, and El Salvador. 

Click image for larger view

YTD pulp imports (5.314 million tonnes) are 5.0 percent higher than the prior year's level. Canada and Brazil account for 97 percent of total pulp imports in 2013. Brazil's 2013 imports are 17.2 percent higher than 2012, Chile's are 146.2 percent higher than its 2012 imports, and 2013 pulp imports from Mexico are up 41.1 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 14th in 2013 on a 92.2 percent drop. 

Click image for larger view

YTD paper and paperboard imports (2.653 million tonnes) increased by 3.8 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. Country rankings of the top 11 are identical between 2012 and 2013. Among the top 10 in 2013, 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 YTD, with Indonesia, the eighth ranked source of imports, posting a 9.6 percent increase. Other noteworthy moves below the top 10 are Japan, ranked 12th in 2013 with an over 300 percent increase in imports compared to 2012's YTD level, Austria, ranked 14th in 2013 with an 779 percent increase in imports compared to 2012's YTD level, and Thailand, ranked 18th in 2013 with an over 1,100 percent increase in imports compared to 2012's YTD 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.

November 2013 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Industrial production increased 1.1 percent in November after having edged up 0.1 percent in October (instead of the previously reported -0.1 percent). The gain in November was the largest since November 2012. Manufacturing output increased 0.6 percent in November, its fourth consecutive monthly gain. Much of the increase in the headline index originated with utilities; output from that sector was up 3.9 percent in November, as colder-than-average temperatures boosted demand for heating. At 101.3 percent of its 2007 average, total industrial production was 3.2 percent above its year-earlier level. In November, industrial production finally surpassed its pre-recession peak of December 2007 and was 21 percent above its trough of June 2009. Wood Products output jumped by 3.1 percent while Paper rose by 0.2 percent.

Click image for larger version

Click image for larger version

Click image for larger version

Capacity utilization for the industrial sector increased 0.8 percentage point in November to 79.0 percent, a rate 1.2 percentage points below its long-run (1972-2012) average. Wood Products capacity utilization leaped by 3.1 percent while Paper increased by 0.3 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.

November 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) was unchanged in November. The energy index declined in November, offsetting increases in other indexes to result in the seasonally adjusted all items index being unchanged. The indexes for gasoline and for natural gas fell significantly, more than offsetting increases in the electricity and fuel oil indexes. Over the last 12 months, the all items index increased 1.2 percent before seasonal adjustment. The 12-month increase in the index for all items less food and energy remained at 1.7 percent for the third month in a row. The food index increased 1.2 percent over the last 12 months, while the energy index declined 2.4 percent.

The seasonally adjusted Producer Price Index for finished goods (PPI) edged down 0.1 percent in November. Prices for finished goods decreased 0.2 percent in October and 0.1 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods declined 0.5 percent, and the crude goods index fell 2.6 percent. On an unadjusted basis, prices for finished goods advanced 0.7 percent for the 12 months ended November 2013. 

Click image for larger version

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

October 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 $0.3 billion or 0.1 percent to $489.3 billion in October. Shipments of durable goods increased $0.9 billion or 0.4 percent to $233.7 billion (the highest level since the series was first published on a NAICS basis), led by transportation equipment. Meanwhile, nondurable goods shipments decreased $0.6 billion or 0.2 percent to $255.6 billion, led by petroleum and coal products.

Wood shipments were up 0.2 percent while Paper shipments declined by 0.2 percent.

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 24.5 percent increase in not-seasonally adjusted rail shipments in October (relative to September), and a 1.5 percent rise from a year earlier; on a trend-line basis, total shipments were up 2.2 percent from a year earlier. Excluding coal carloads, year-over-year shipments were up 6.0 percent. Seasonal adjustments cut the 24.5 percent September-to-October rise to a 1.0 percent drop. Rail shipments of forest-related products were higher in September than a year earlier, thanks largely to a 10.1 percent rise in primary forest products shipments. The ATA’s advance index showed a seasonally adjusted 2.8 percent decrease in October, the first decrease since July.

Click image for larger view

Inventories increased $0.4 billion or 0.1 percent to $633.5 billion (also the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was unchanged at 1.29 in October.

Inventories of durable goods increased $1.0 billion or 0.3 percent to $383.3 billion, again led by transportation equipment. Nondurable goods inventories decreased $0.6 billion or 0.2 percent to $250.1 billion, led by chemical products. Wood inventories rose by 0.6 percent, and Paper inventories declined by 0.6 percent.

Click image for larger view

New orders decreased $4.4 billion or 0.9 percent to $486.9 billion; excluding transportation, new orders increased slightly. Durable goods orders decreased $3.8 billion or 1.6 percent to $231.4 billion, led by transportation equipment. New orders for nondurable goods decreased $0.6 billion or 0.2 percent to $255.6 billion. Non-defense capital goods dropped by 3.4 percent, the largest drop since July; also, defense capital goods orders tumbled 15.8 percent (almost completely reversing a 19.1 percent rise in September).

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 $4.1 billion or 0.4 percent to a new nominal high of $1,046.2 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.39, up from 6.38 in September. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained a little over 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. 

3Q2013 Gross Domestic Product: Second (Preliminary) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) revised its estimate of 3Q2013 growth in real U.S. gross domestic product (GDP) to a seasonally adjusted and annualized rate of +3.6 percent. That rate was the fastest increase in 1½ years, and considerably higher than the “advance” estimate of 2.8 percent posted a month earlier. 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 exceeded expectations of 3.2 percent, but virtually all of the revised gain derived from the largest buildup of inventories since 1998. 

Click image for larger version

The contribution from consumer expenditures for goods and services weakened in this revision. That consumers are not doing well was also confirmed by Consumer Metrics Institute (CMI) which pointed out that “the annualized growth rate for the real final sales of domestic product decreased again to 1.92% (down from 2.07% in the previous quarter). 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.”

Inventory stockpiling is a zero-sum game, meaning the economy could slow (some analysts peg the 4Q growth rate at 1.6 percent) as those inventories are drawn down. “Businesses likely will cut back on investment in inventories in late 2013 and early 2014, weighing on near-term growth,” said Gus Faucher, senior economist at PNC Financial Services.

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 ISM Reports

Click image for larger version

For a second month in November, more manufacturing businesses surveyed by the Institute for Supply Management (ISM) indicated that their activity expanded than any time since April 2011. The PMI rose to 57.3 percent, an increase of 0.9 percentage point from October's reading of 56.4 percent (50 percent is the breakpoint between contraction and expansion). “With 15 of 18 manufacturing industries reporting growth in November relative to October,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “the positive growth trend characterizing the second half of 2013 is continuing.”

Click image for larger version

Most general manufacturing sub-indices were positive in November: Orders, production and employment were up; inventories were either essentially unchanged or decreasing; and input prices rose more slowly. Performance of the two manufacturing industries we track diverged, however, with Wood Products contracting but Paper Products expanding. Wood Products orders and production fell, and input prices rose. For Paper Products, orders and production rose while input prices fell.

Growth in the service sector slowed again in November. The non-manufacturing index (now known simply as the “NMI”) registered 53.9 percent, 1.5 percentage points lower than October’s 55.4 percent. New order, business activity and employment sub-indices all declined relative to October (the employment index to its lowest point since May). Nonetheless, “respondents' comments for the most part indicate the non-manufacturing sector is maintaining a steady course of incremental growth and a positive outlook for the upcoming months.” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

Click image for larger version

Among the individual service industries we track, only Ag & Forestry expanded (thanks to new orders, higher inventories and imports). The drop in Construction employment was enough to offset increases in inventories and backlogged and new export orders. Real Estate was unchanged.

Commodities up in price included corrugated boxes. Caustic soda, gasoline, diesel and natural gas were 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.

October 2013 U.S. Home Sales, Inventories and Prices

Click image for larger view

Click image for larger view

Sales of new single-family homes rose by 90,000 units (25.4 percent) to 444,000 (SAAR) in October. Meanwhile, the median price of new homes sold dropped by $11,600 (4.5 percent) to $245,800; prices are $33,500 (12.0 percent) below their April peak. Because of Census Bureau reporting delays, the graph above contains data through August. The revised data show the three-month average starts-to-sales ratio increased to 1.52 in August -- near the top end of the historical range. 

Click image for larger view

Data for single-unit completions is also delayed until mid-December, so the graph above shows results through August. Because sales rocketed higher in October, new-home inventory retreated by 1.5 months-of-sales (to 4.9 months) despite the absolute number of homes shrinking by only 7,000 units.

Click image for larger view

Existing home sales decreased at a faster pace (-170,000 units or 3.2 percent) to 5.12 million units (SAAR) in October; as a result, the share of total sales comprised of new homes jumped up to 8.0 percent. The median price of previously owned homes sold in October edged higher (by $1,000 or 0.5 percent), to $199,500.

Click image for larger view

Although the median price of existing homes for sale continued to retreat in September (by $10,400 or 5.0 percent), housing affordability has not experienced a commensurate rebound. Concurrently, Standard & Poor’s reported that both the 10- and 20-City Composites in the S&P/Case-Shiller Home Price indices posted not-seasonally adjusted monthly gains of 0.7 percent in September (13.3 percent relative to a year earlier). This small month-over-month gain (the smallest since February) suggests that price momentum is 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.

October 2013 International Trade (Softwood Lumber)

Click image for larger view

Softwood lumber exports rose by 23 MMBF (14.6 percent) in October while imports increased by 34 MMBF (3.7 percent). Exports were 39 MMBF (27.7 percent) above year-earlier levels; imports were 21 MMBF (2.3 percent) higher. 

Click image for larger view

Asia (especially China and Japan) retained the “top spot” for U.S. softwood lumber exports in September. China was also the largest single-country destination by a wide margin; year to date (YTD), exports to China were up 67.2 percent relative to the same period in 2012. 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 YTD 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 October. 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.

Click image for larger view 

Click image for larger view

Douglas-fir made up one-quarter of all softwood lumber exports in October, followed by southern yellow pine. Hem-fir exports have jumped on a YTD basis, causing that species’ ranking to rise from 10^th to 6^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.

October 2013 International Trade (General)

Click image for larger view

Total October exports of $192.7 billion and imports of $233.3 billion resulted in a goods and services deficit of $40.6 billion, down from $43.0 billion in September. October exports were $3.4 billion more than September exports of $189.3 billion. October imports were $1.0 billion more than September imports of $232.3 billion.

Click image for larger view

On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume increased by 0.8 percent in September while prices were essentially unchanged.

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.