November 2015 Currency Exchange Rates

Click image for larger view

In November the monthly average value of the U.S. dollar appreciated “across the board” against the three major currencies we track: 1.6% against Canada’s “loonie,” 4.6% against the euro and 2.1% against the yen. On a trade-weighted index basis, the dollar strengthened by 1.5% against a basket of 26 currencies. 

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 2015 Residential Sales, Inventory and Prices

Click image for larger view 

Click image for larger view

Sales of new single-family homes clawed back some of the ground lost in September (-66,000 units), rising by 48,000 units (+10.7%) in October to a seasonally adjusted and annualized rate (SAAR) of 495,000 units -- near the 499,000 expected. Year-to-date (YTD), sales were 15.0% above the same months in 2014. For perspective, October sales were roughly 64% below the “bubble” peak and about 22% below the long-term, pre-2000 average.

Meanwhile, the median price of new homes sold slumped by $26,300 (-8.5%) from September’s all-time nominal high (upwardly revised from $296,900 to $307,800), to $281,000 in October. The average price of homes sold, by contrast, slipped by just $3,600 (-1.0%) -- to $366,000 -- implying that a significant proportion of total sales were high-end homes. The proportion of “starter” homes (those priced below $200,000) is the lowest (19.5%) of any October on record (going back to 2002); in the past starter homes comprised as much as a 61% share of total sales. Because sales increased while single-family starts decreased, the three-month average ratio of starts to sales fell to 1.51 -- above the average (1.41) since January 1995. 

Click image for larger view

As mentioned in our post about housing permits, starts and completions in October, single-unit completions edged down by 3,000 units (-0.5%). Despite the divergence between completions and sales, new-home inventory expanded in absolute terms (+3,000 units) but shrank in months-of-inventory (-0.5 month) terms. 

Click image for larger view

Existing home sales retreated in October (-190,000 units or 3.4%) to 5.36 million units (SAAR); that result was below expectations of 5.40 million. Inventory of existing homes contracted in absolute (-50,000 units) terms but expanded in months-of-inventory terms (+0.1 month). Because sales of new homes rose while existing homes fell, the share of total sales comprised of new homes increased to 8.5%. The median price of previously owned homes sold in October declined for a fourth month (-$2,100 or 1.0%), to $219,600. 

Click image for larger view

Housing affordability improved again in September, as the median price of existing homes for sale retreated by $6,500 (-2.8%) to $223,500. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P/Case-Shiller Home Price indices posted a not-seasonally adjusted monthly change of +0.2% (+4.8% compared to a year earlier).

“Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at 5% and hints of higher inflation in the CPI, most analysts expect the Federal Reserve to raise its Fed Funds target range to 25 to 50 basis points, the first increase since 2006. While this will make news, it is not likely to push mortgage rates far above the recent level of 4% on 30-year conventional loans. In the last year, mortgage rates have moved in a narrow range as home prices have risen; it will take much more from the Fed to slow home price gains. 

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.

3Q2015 Gross Domestic Product: Second (Preliminary) Estimate

Click image for larger version

In its second (“preliminary”) estimate of 3Q2015 U.S. gross domestic product (GDP), the Bureau of Economic Analysis (BEA) reported that the economy was growing at a seasonally adjusted and annualized rate of 2.07%, up from the original 1.49% rate reported in October, but still significantly slower than 2Q’s 3.92%. The consensus among economists was for a growth rate of +2.1%. A better metric involves comparing growth to the same quarter one year ago. For 3Q2015, the year-over-year growth was 2.17% -- down from 2Q's 2.72% YoY growth.

Groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 3Q growth whereas private domestic investment (PDI) and net exports (NetX) detracted from it. As the graph above also indicates, this report's headline number was buoyed almost entirely by a sharp revision in inventories (part of PDI). All of the other line items were either essentially unchanged or weaker. Although inventories were reported to have contracted at a 0.59% annualized rate, that is a 0.85 percentage point improvement from the -1.44% reported in the previous (advance) estimate. Because of the general weakness in the non-inventory line items, 3Q’s real final sales of domestic product (which excludes the impact of inventory changes) was trimmed 0.27 percentage point to a +2.66% growth rate.

Click image for larger version

Consumer activity once again contributed the vast bulk of the headline number (2.05 percentage points), although that contribution was 0.14 percentage point less than in the previous 3Q estimate; health care was once more the single largest line item, comprising one-fifth of PCE. Fixed commercial investments and governmental spending were essentially unchanged, while exports and imports weakened materially from the previous estimate.

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 2015 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 0.2% in October -- in line with expectations. The indexes for food, energy, and all items less food and energy all increased modestly in October. The food index, which increased 0.4% in September, rose 0.1% in October, with four of the six major grocery store food group indexes rising. The energy index, which declined in August and September, advanced 0.3% in October; major energy component indexes were mixed.

The index for all items less food and energy rose 0.2% in October, the same increase as in September. Advances in the indexes for shelter (rent: +0.3%; owners’ equivalent rent: +0.2%) and medical care (+0.8%) were the largest contributors to the increase. In contrast, the indexes for apparel, new vehicles, household furnishings and operations, and used cars and trucks all declined.

The all-items index rose 0.2% over the last 12 months. The 12-month change has been between negative 0.2% and positive 0.2% since January. The food index has increased 1.6% over the past year, and the index for all items less food and energy has risen 1.9%. The rise in housing costs has also been significant (rent: +3.7%; owners’ equivalent rent: +3.1%). These advances have been mostly offset by a 17.1% decline in the energy index.

The seasonally adjusted producer price index for final demand (PPI) decreased 0.4% (-0.2% expected) in October. Final demand prices moved down 0.5% in September and were unchanged in August. Roughly 70% of the October decrease in the final demand index can be traced to prices for final demand services, which moved down 0.3%. The index for final demand goods declined 0.4%.

Final demand services: The index for final demand services moved down 0.3% in October following a 0.4-percent decline in the prior month. Over 70% of the decrease in October can be traced to margins for final demand trade services, which dropped 0.7%. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand services less trade, transportation, and warehousing edged down 0.1%. In contrast, prices for final demand transportation and warehousing services inched up 0.1%.

Product detail: Over half of the October decline in the index for final demand services is attributable to margins for fuels and lubricants retailing, which fell 15.8%. The indexes for apparel, jewelry, footwear, and accessories retailing; loan services (partial); portfolio management; wireless telecommunication services; and health, beauty, and optical goods retailing also declined. Conversely, prices for truck transportation of freight advanced 0.3%. The indexes for food retailing and deposit services (partial) also increased.

Final demand goods: The index for final demand goods moved down 0.4% in October, the fourth consecutive decrease. Leading the decline in October, the index for final demand goods less foods and energy fell 0.3%. Prices for final demand foods decreased 0.8%. The index for final demand energy was unchanged.

Product detail: Over one-third of the October decline in the final demand goods index is attributable to prices for light motor trucks, which fell 1.8%. The indexes for chicken eggs, iron and steel scrap, beef and veal, boxed meat, and electric power also moved lower. In contrast, gasoline prices rose 3.8%. The indexes for pharmaceutical preparations and corn also advanced. 

Click image for larger version

Month-over-month changes in the not-seasonally adjusted price indexes we track were mixed in October, but all fell on a year-over-year basis. 

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 2015 Residential Permits, Starts and Completions

Click image for larger view 

Click image for larger view

Total housing starts retreated in October to a seasonally adjusted and annualized rate (SAAR) of 1.060 million units (1.162 million expected), 131,000 units below (-11.0% ±13.5%*) September’s 1.191 million units (revised from 1.206 million). The decrease in total starts was split as follows -- single-family: -18,000 units (-2.4% ±9.9%*); the notoriously volatile multi-family component: -113,000 units (-25.1%).

* 90% confidence interval (CI) is not statistically different from zero. The Census Bureau does not publish CIs for the entire multi-unit category. 

Click image for larger view

Total starts were 2.0% below their not-seasonally adjusted year-earlier level (single-family: +2.9%; multi-family: -10.4%); the reported seasonally adjusted YoY change in total starts was -1.8% ±11.2%*). Year-to-date (YTD) comparisons to 2014 were all in the +10% range. Despite the drop in starts, October marks the fifth consecutive month in which there were more than 500,000 multi-family units under construction in structures with five or more units, the longest streak since the mid-1970s. 

Click image for larger view 

Click image for larger view

Completions fell by 62,000 units (-6.0% ±15.8%*) in October, to 965,000 units SAAR. The decrease was overwhelmingly skewed to the multi-family component (-59,000 units or 15.4%); single-family completions edged down 3,000 units (-0.5% ±13.3%*). YTD, multi-unit completions in particular were still running well ahead relative to 2014. 

Click image for larger view 

Click image for larger view

Total permits proved to be the silver lining in the October report, rising by 45,000 units (+4.1% ±1.5%) to 1.150 million SAAR. The multi-family component dominated the absolute increase: +28,000 units (+6.8%); single-family: +17,000 units (2.4% ±1.5%). YTD total permits were 9.8% above the same months in 2014, driven by the multi-family component (+15.3%).

The latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) slipped 3 percentage points (to 62) in November. (An HMI value above 50 means more builders feel the market is good than feel it is poor.) “Even with this month’s drop, builder confidence has remained in the 60s for six straight months -- a sign that the single-family housing market is making long-term headway,” said NAHB Chairman Tom Woods. “However, our members continue to voice concerns about the availability of lots and labor.”

“The November report is pullback from an unusually high October, and is more in line with the consistent, modest growth that we have seen throughout the year,” said NAHB Chief Economist David Crowe. “A firming economy, continued job creation and affordable mortgage rates should keep housing on an upward trajectory as we approach 2016.” 

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 2015 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Total industrial production (IP) declined 0.2% in October (+0.1% expected) after decreasing the same amount in September. In October, the index for manufacturing moved up 0.4%, while the index for mining fell 1.5% and the index for utilities dropped 2.5%. For 3Q as a whole, total IP is now estimated to have increased at an annual rate of 2.6% instead of the previously reported +1.8%. At 107.2% of its 2012 average, total IP in October was 0.3% above its year-earlier level. Wood Products output jumped 1.9% (-0.4% YoY) while Paper edged up 0.1% (-0.9% YoY).

Manufacturing output increased 0.4% (+0.3% expected), as the output of durable goods advanced 0.5% and the production of nondurable goods rose 0.3%. Nearly all major categories of durable goods industries moved up, and gains of 1.0% or more were recorded by nonmetallic mineral products; electrical equipment, appliances, and components; and primary metals. Among nondurable goods industries, the index for textile and product mills gained 1.9% and the index for petroleum and coal products rose 1.3%, but the index for apparel and leather fell 2.6%. The output of other manufacturing (publishing and logging) fell 0.6% after having dropped a similar amount in each of the previous two months.

The decline of 1.5% in mining output in October reflected sizable reductions both in the indexes for crude oil extraction and for oil and gas well drilling and servicing. Mining output was 6.9% below its level of a year earlier. The index for utilities dropped 2.5%; a decrease for electric utilities was partly offset by an increase for natural gas utilities. 

Click image for larger version 

Click image for larger version 

Click image for larger version

Capacity utilization (CU) for the industrial sector declined 0.2 percentage point (-0.3%) in October to 77.5%, a rate that is 2.6 percentage points below its long-run (1972–2014) average. Wood Products CU rose 1.7% (-2.8% YoY) to 69.9%; Paper nudged up 0.1% (-0.5% YoY) to 82.6%.

The capacity utilization rate for manufacturing rose 0.2 percentage point to 76.4%, a rate 2.1 percentage points below its long-run average. The capacity utilization rate for durable goods industries, at 76.2%, was 0.7 percentage point below its long-run average; the rate for nondurable goods industries, at 77.9%, was 2.5 percentage points below its long-run average. The operating rate for other manufacturing (publishing and logging) decreased 0.3 percentage point in October, to 60.2%. The utilization rate for mines fell 1.4 percentage points to 80.5%, and the rate for utilities decreased 2.1 percentage points to 77.8%. 

Click image for larger version

Capacity at the all-industries and manufacturing levels moved higher -- All-industries: +0.1% (+1.5% YoY) to 138.3% of 2012 output; Manufacturing: +0.1% (+1.3% YoY) to 138.9%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.2% (+2.5% YoY) to 160.1%. Paper was unchanged (-0.4% YoY) at 116.9%.

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 2015 Macro Pulse -- Pushing on a String?

“Will they, won’t they? Should they, shouldn’t they?” are questions endlessly being bandied about on financial TV and radio shows, referring to a possible increase in the federal funds rate during the Federal Reserve Open Market Committee (FOMC) meeting in December. Because the FOMC left the rate unchanged in October, the talking heads have spun themselves into a tizzy speculating whether the next meeting will finally be “the one” in which the target rate is raised for the first time since July 2006.

So, what is our prognostication for the December FOMC meeting outcome? Click here to find out and to read the rest of the November 2015 Macro Pulse recap.

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

October 2015 Employment Report

Click image for larger view

According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment jumped by 271,000 jobs in October -- “blowing out” consensus expectations of 190,000 and even the upper end of the range of predictions (240,000). Moreover, combined August and September employment gains were nudged up by 12,000 (July: +17,000; August: -5,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 5.0% (the lowest since April 2008) as the 320,000 people who found work more than offset the 97,000-person expansion of the labor force. 

Click image for larger view

Observations from the employment report include:

* The disparity in job gains between the establishment (+271,000) and household (+320,000) surveys was less noticeable; the changes were at least directionally consistent.

* Workers aged 55 and over accounted for 84% of “gross” jobs gained. By contrast, workers aged 25 to 54 actually declined by 35,000, with males in this age group tumbling by 119,000; note that age-cohort-based estimates are not additive, as each cohort is assigned a different seasonal adjustment.

* Manufacturing employment was unchanged in October. Year-to-date, manufacturing has gained a net 16,000 jobs; during August and September, however, manufacturing surrendered 28,000 of the 44,000 jobs gained earlier in 2015. Wood Products added 1,100 jobs in October; Paper and Paper Products was unchanged.

* Construction added 31,000 jobs, bringing YTD gains to 118,000. Oil and gas extraction lost 2,700 jobs.

* Over 82% (219,800) of October’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +43,800; Professional & Business Services: +78,000; Education & Health Services: +57,000; and Leisure & Hospitality: +41,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.429 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.531 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. 

Click image for larger view

* The employment-population ratio inched up to 59.3%; roughly speaking, for every five people added to the population, fewer than three are employed. One oddity in the employment report that analyst Karl Denninger highlighted is that October’s population-adjusted employment gain appears to uncharacteristically large; if his observation is correct, future revisions likely will be negative. Meanwhile, the number of employment-age persons not in the labor force retreated by 97,000 to just over 94.5 million. 

Click image for larger view

* The labor force participation rate (LFPR) was unchanged at 62.4%, comparable to October 1977. Average hourly earnings of all private employees jumped by $0.09 (to $25.20), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages also rose by $0.09, to $21.18 (+2.2% YoY). With the CPI running at an official rate of 0.0% YoY, wages are technically rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours. 

Click image for larger view

* Finally, full-time jobs increased by 185,000 while part-time jobs rose by 214,000. Full-time jobs have been trending higher since December 2009, and are now 149,000 above the pre-recession high (even while the non-institutional, working-age civilian population has risen by an estimated 18.4 million). Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million.

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 2015 International Trade (Softwood Lumber)

Click image for larger view

Softwood lumber exports edged down by less than 1 MMBF (-0.1%) in September while imports rose by 57 MMBF (+4.7%). Exports were 13 MMBF (9.3%) below year-earlier levels; imports were 167 MMBF (15.4%) higher. The year-over-year (YoY) net export deficit was 180 MMBF (18.9%) larger. 

Click image for larger view

North America (Mexico: 23.6%; Canada: 18.4%) was the primary destination for U.S. softwood lumber exports in September (42.0%). Asia (especially China: 17.8%) placed second (32.9%). Year-to-date (YTD) exports to China were down 36.3% relative to the same months in 2014. Meanwhile, Canada was the source of nearly all (96.1%) softwood lumber imports into the United States. Overall, YTD exports were down 12.9% compared to 2014, while imports were up 7.3%. 

Click image for larger view 

Click image for larger view

U.S. softwood lumber export activity through West Coast customs districts declined in relation to the other districts during September: 36.9% of the U.S. total; Seattle retained the title of most-active district, with 19.7% of the total, although Mobile is catching up (13.8%). At the same time, Great Lakes customs districts handled 67.7% of the softwood lumber imports (especially Duluth, MN with 31.9%) coming into the United States. 

Click image for larger view 

Click image for larger view

Southern yellow pine comprised 30.1% of all softwood lumber exports in September, followed by Douglas-fir with 16.4%. Southern pine exports were up 8.4% YTD relative to 2014, while Douglas-fir exports were down 31.1%.

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 2015 International Trade (General)

Click image for larger view

The goods and services deficit was $40.8 billion in September, down $7.2 billion from $48.0 billion in August. September exports were $187.9 billion, $3.0 billion more than August exports. September imports were $228.7 billion, $4.2 billion less than August imports.

The September decrease in the goods and services deficit reflected a decrease in the goods deficit of $7.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $19.5 billion.

Year-to-date, the goods and services deficit increased $14.9 billion (+3.9%) from the same period in 2014. Exports decreased $66.3 billion (-3.8%). Imports decreased $51.3 billion (-2.4%).

The September figures show surpluses, in billions of dollars, with South and Central America ($3.6), OPEC ($1.7), Brazil ($0.2), and Saudi Arabia ($0.2). Deficits were recorded, in billions of dollars, with China ($30.7), European Union ($13.1), Germany ($5.7), Japan ($5.5), Mexico ($5.4), Italy ($2.3), India ($2.0), South Korea ($1.8), Canada ($1.7), France ($1.3), and United Kingdom ($1.2).

* The deficit with China decreased $2.2 billion to $30.7 billion in September. Exports increased $0.4 billion to $10.2 billion and imports decreased $1.8 billion to $41.0 billion.

* The deficit with the European Union decreased $1.4 billion to $13.1 billion in September. Exports increased $1.1 billion to $22.7 billion and imports decreased $0.3 billion to $35.9 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 contracted by 0.5% in August (+0.(% year-over-year) while prices fell by 0.9% (-13.5% YoY).

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 2015 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil ticked higher for a second month in October (+$0.74), to $46.22 per barrel. The price increase coincided with a slightly weaker U.S. dollar, the lagged impacts of a 165,000 barrel-per-day (BPD) decrease in the amount of oil supplied/demanded in August (to 19.8 million BPD), and an advance in oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI widened by $0.07 in October, to $2.21 per barrel. 

Click image for larger view 

Click image for larger view

The increases in spot and futures prices were attributed mainly to investors covering short positions. For the week ended October 23, the U.S. Energy Information Administration reported an increase of 3.4 million barrels in crude supplies, well above the increase of 1.6 million barrels forecast by analysts polled by Platts, but short of the 3.7 million-barrel rise analysts surveyed by The Wall Street Journal had expected. “It looks like the majority of shorts got ahead of themselves and were looking for another high single-digit build that didn’t pan out, so they all ran for the door at once to unwind,” said analyst Tyler Richey. Greater refinery activity (utilization in late October was pegged at 87.6% of capacity, compared with 86.4% in mid-October) also pushed prices higher by increasing the amount of crude used for refining. Finally, crude-oil imports were also down about 439,000 barrels a day for the week and petroleum-product stockpiles fell. 

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 2015 ISM and Markit Reports

Click image for larger version

The Institute for Supply Management’s (ISM) monthly opinion survey showed that the U.S. manufacturing “remained stuck in neutral” in October. The PMI registered 50.1% (50.0% expected), 0.1 percentage point below the September reading of 50.2%, and the lowest reading since May 2013. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The key internal new orders sub-index improved and remains in expansion; also, the contraction in backlogged orders improved relative to September. 

Click image for larger version

Wood Products contracted in October, as a drop in new domestic orders more than offset a rise in export orders. Paper Products expanded as usual, with only imports declining. "Demand remains steady with 3% top-line unit growth. Sales are flat [on a U.S. dollar basis] due to currency and cost changes," wrote one Paper Products respondent. "Wood products market is sluggish with prices varying up/down depending on size and grade," added a Wood Products respondent.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- picked up in October. The NMI registered 59.1% (56.7% expected), 2.2 percentage points higher than the September reading of 56.9%. Important internals improved and remain in expansion. 

Click image for larger version

Only Construction reported an increase in activity among the service industries we track; Real Estate and Ag & Forestry went completely without mention in this report.

Some respondents indicated fuel prices (both gasoline and diesel) went up, others down. Oil and lumber prices were lower. No relevant commodity was in short supply.

ISM’s and Markit’s surveys diverged rather markedly as ISM’s PMI decreased while Markit’s Manufacturing PMI increased; similarly ISM’s NMI accelerated while Markit’s Services PMI decelerated to a four-month low.

Comments from Markit Chief Economist Chris Williamson are presented below:

Manufacturing -- “Stronger manufacturing growth in October brings encouraging news after the sector saw the pace of expansion slump to a two-year low in the third quarter.

“Factory output growth accelerated, equivalent to around a 4% annualized rate of increase, as firms saw the largest monthly jump in new order inflows since March. Export growth has also revived, suggesting firms are managing to adapt to the stronger dollar, as job creation picked up after slowing in September.

“With the Fed eagerly watching the data flow to see whether the 3Q economic slowdown will intensify, the improvement in the manufacturing sector increases the odds of policymakers voting to hike rates at the FOMC’s December meeting.

“However, with inflationary pressures remaining very subdued and signs of the slowdown persisting into the 4Q in the larger service sector, the policy outlook is by no means certain and debate about whether the economy yet needs higher interest rates will no doubt remain intense.”

Services -- “The PMI surveys indicated that the pace of economic growth held steady in October, but remains weaker than the rate seen throughout much of the year so far. Job creation also slipped to the lowest seen for eight months, as service sector firms in particular have become increasingly nervous about committing to additional headcounts.

“The surveys nevertheless signal ongoing moderate growth of business activity and employment in the manufacturing and service sectors, which will keep alive the possibility that policymakers could be persuaded into raising interest rates before the year is over. However, the survey data also reinforce strong arguments -- notably a continued absence of inflationary pressures -- that there is no rush to tighten policy.

“Much will now depend on the November survey data, which will provide a reliable guide to business conditions in 4Q.”

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 2015 Currency Exchange Rates

Click image for larger view

In October the monthly average value of the U.S. dollar depreciated against two of the three major currencies we track: 1.5% against Canada’s “loonie” and 0.1% against the yen. The greenback was unchanged relative to the euro. On a trade-weighted index basis, the dollar weakened by 0.9% against a basket of 26 currencies. 

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 2015 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 decreased $1.8 billion or 0.4% to $477.3 billion in September. Shipments of durable goods increased $0.2 billion or 0.1% to $242.2 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $2.0 billion or 0.8% to $235.1 billion, led by petroleum and coal products. Shipments of Wood rose 1.4% while Paper fell 0.4%. 

Click image for larger view

Inventories decreased $2.4 billion or 0.4% to $645.1 billion. The inventories-to-shipments ratio was 1.35, unchanged from August. Inventories of durable goods decreased $1.5 billion or 0.4% to $399.1 billion, led by transportation equipment. Nondurable goods inventories decreased $0.9 billion or 0.4% to $246.1 billion, led by petroleum and coal products. Inventories of Wood expanded by 0.3% while Paper was unchanged. 

Click image for larger view

New orders decreased $4.7 billion or 1.0% to $466.3 billion. Excluding transportation, new orders decreased 0.6% (-8.6% YoY -- the eleventh consecutive month of year-over-year contractions). Durable goods orders decreased $2.8 billion or 1.2% to $231.2 billion, led by transportation equipment. New orders for nondurable goods decreased $2.0 billion or 0.8% to $235.1 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- fell by 0.1% in September (-7.5% YoY).

Prior to July 2014, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012, recouping roughly 78% of the losses incurred since the beginning of the Great Recession. With July 2014’s transportation-led spike gradually receding in the rearview mirror, new orders are back to 55% of their December 2007 high. 

Click image for larger view

Unfilled durable-goods orders decreased $6.2 billion or 0.5% to $1,187.9 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.88, down from 6.89 in August. Real unfilled orders, which had been a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders in June 2014 were back to 97% of their December 2008 peak. Real unfilled orders jumped to 122% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders, but have since moved sideways and are now on the cusp of falling below the January 2010-to-June 2014 trend line.

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.