February 2016 Currency Exchange Rates

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In February the monthly average value of the U.S. dollar declined against the three major currencies we track. The greenback depreciated by 2.8% against Canada’s “loonie,” 2.2% against the euro, and 3.0% against the yen. On a trade-weighted index basis, the dollar weakened by 0.9% 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.

4Q2015 Gross Domestic Product: Second (Preliminary) Estimate

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In its second (“preliminary”) estimate of 4Q2015 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) adjusted the rate at which the U.S. economy grew -- from a +0.69% seasonally adjusted and annualized rate (SAAR) posted in January, to +1.00%. That +0.31 percentage point revision was a surprise, as expectations were for a 0.3 percentage point decrease. Despite the upward revision, 4Q’s GDP growth rate was still only half that of 3Q. Moreover, 4Q2015’s year-over-year growth rate was +1.9%, slower than 3Q’s +2.1%.

Groupings of GDP components show that personal consumption expenditures (PCE) contributed to 4Q growth whereas private domestic investment (PDI) and net exports (NetX) detracted from it. Government consumption expenditures (GCE) was essentially neutral.

As MarketWatch.com put it, the upward GDP revision was the “worst kind,” as all of the net improvement could be attributed to one line item: inventories (+0.31% -- equal to change in the headline aggregate); changes in the other line items netted out to zero. Inventories grew in 3Q by $85.5 billion. Instead of the 4Q inventory increase of $68.6 billion reported in January, the BEA revised the increase by nearly one-third to $90.6 billion. So, rather than a 3Q-4Q rate of change of -$16.9 billion ($68.6 - $85.5 = -$16.9), inventories instead expanded by $5.1 billion ($90.6 - $85.5 = $5.1).

The contribution of consumer spending was revised downward (goods: -0.11%, to less than half of 3Q’s contribution; services: +0.03% from January’s report). Fixed investment growth inched down (-0.01%) to +0.02%. Government spending edged into mild contraction, removing -0.01% from the headline. Exports were even weaker than initially thought, however, clipping 0.34% from the revised headline growth rate.

In fact, other than inventories, the only “good news” (given the way the BEA computes GDP growth) was that lower spending on imports contributed +0.09% to the headline growth number. Although most of this lower spending came from falling commodity prices, some also came from weaker demand. 

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Despite this report being mostly statistical noise, some overarching patterns are apparent:

* The reported headline growth came largely from inventories and imports, both of which can be strongly influenced by rapidly changing commodity prices. Changes in the physical levels of trade and inventories are much smaller than the dollar-value changes would suggest.

* Consumer demand for goods was revised downward, as was fixed investment -- by states, local governments and commercial investors. Any lingering growth in the consumer, commercial and governmental demand for real/physical goods is softening.

* Exports fell even further into contraction.

* Any residual growth in consumer spending for services is not discretionary -- it is primarily a consequence of inexorably rising health care costs; in fact, over 22% of the YoY increase in GDP is attributable to spending on health care.

“Even at face value, a 1% growth rate is fundamentally anemic,” concluded the analysts at Consumer Metrics. “And looking deeper into the numbers, most of that 1% comes from the economic fog created by highly volatile commodity prices. So, despite an upward blip in the headline number, we see no particular reason to be cheering this report.”

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

January 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2016 were at a seasonally adjusted annual rate (SAAR) of 494,000 units (well below the 520,000 expected), a decrease of 50,000 units or 9.2 percent (±13.5%)* below the revised December rate of 544,000. January’s SAAR was also 5.2 percent (±12.6%)* below the January 2015 SAAR of 521,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -5.1%.

For a longer perspective, January’s sales were roughly 64% below the “bubble” peak and about 29% below the long-term, pre-2000 average. Although sales decreased more quickly than single-family starts, the three-month average ratio of starts to sales was stable at 1.48 -- above the average (1.41) since January 1995.

Meanwhile, the median price of new homes sold fell by $17,000 (-5.7%), to $278,800 in January. The average price of homes sold, on the other hand, jumped by $18,000 (+5.2%), to $365,700. Despite the outsized increase in the average price, the proportion of “starter” homes (those priced below $200,000) edged up (by 1.1%, to 21.6% of the total) from the record (going back to 2002) January low set in 2015; prior to the Great Recession starter homes comprised as much as a 61% share of total sales.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero. 

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As mentioned in our post about housing permits, starts and completions in January, single-unit completions retreated by 10,000 units (-1.4%). Because the absolute decrease in sales exceeded that of completions, new-home inventory expanded in both absolute (+5,000 units) and months-of-inventory (+0.7 month) terms. 

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Existing home sales were relatively unchanged in January (+20,000 units or 0.4%) to 5.47 million units (SAAR); that sales pace was the second-fastest since 2007 and well above expectations of 5.32 million. Inventory of existing homes expanded in both absolute (+60,000 units) and months-of-inventory (+0.1 month) terms. Because existing home sales increased while new sales declined, the share of total sales comprised of new homes dropped to 8.3%. The median price of previously owned homes sold in January fell by $9,400 (-4.2%), to $213,800. 

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Housing affordability declined in December as the median price of existing homes for sale rose by $4,600 (+2.1%; +8.1% YoY) to $226,000. 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 +0.1% (+5.4% YoY).

“While home prices continue to rise, the pace is slowing a bit,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Seasonally adjusted, Miami had lower prices this month than last and 10 other cities saw smaller increases than last month. Year-over-year, seven cities saw the rate of price increases wane. Even with some moderation, home prices in all but one city are rising faster than the 2.2% year-over-year increase in the CPI core rate of inflation.

“Sparked by the stock market’s turmoil since the beginning of the year, some are concerned that the current economic expansion is aging quite rapidly. The recovery is six years old, but recoveries do not typically die of old age. Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength. Continued increases in prices of existing homes, as shown in the S&P/Case-Shiller Home Price Indices, should encourage further activity in new construction. Total housing starts have stayed above an annual rate of one million starts per year since last March and single family home have been higher than 700,000 units at annual rates since June. Housing investment continues its positive contribution to GDP growth.” 

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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.

January 2016 Consumer and Producer Price Indices (incl. Forest Products)

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Consumer Price Index

The seasonally adjusted consumer price index for all urban consumers (CPI-U) was unchanged in January (-0.1% expected). An increase in the index for all items less food and energy offset a decline in the energy index to lead to the seasonally adjusted all items index being unchanged. The energy index fell 2.8% as all of its major component indexes declined. The index for all items less food and energy rose 0.3% in January. The increase was broad-based, with most of the major components rising, but increases in the indexes for shelter (rent: +0.3%; owner’s equivalent rent: +0.2%) and medical care (+0.5%) were the largest contributors. 

The all items index rose 1.4% over the last 12 months, compared to the 0.7% YoY increase for the period ending December. The energy index fell 6.5% over the past year -- its smallest 12-month decrease since November 2014. The food index rose 0.8% over the last 12 months, with the food at home index declining 0.5%. The index for all items less food and energy increased 2.2% over the last 12 months, a figure that has been gradually rising over the last several months. Shelter costs (rent: +3.7%; owner’s equivalent rent: +3.2%) contributed to the YoY rise, along with medical costs (+3.3%).

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) advanced 0.1% in January (-0.2% expected). The MoM increase can be traced to a 0.5% advance in prices for final demand services. In contrast, the index for final demand goods moved down 0.7%. Meanwhile, the index for final demand less foods, energy, and trade services advanced 0.2% for the second consecutive month.

The final demand index declined 0.2% for the 12 months ended in January. Concurrently, however, prices for final demand less foods, energy, and trade services climbed 0.8%.

Final demand services: The index for final demand services advanced 0.5% in January, the third consecutive rise. Leading the broad-based increase in January, margins for final demand trade services moved up 0.9%. (Trade indexes measure changes in margins received by wholesalers and retailers.) The indexes for both final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services rose 0.4%.

Product detail: Nearly half of the January increase in prices for final demand services is attributable to a 4.0-percent advance in margins for machinery and equipment wholesaling. The indexes for services related to securities brokerage and dealing; loan services (partial); apparel, footwear, and accessories retailing; fuels and lubricants retailing; and airline passenger services also moved higher. Conversely, margins for food and alcohol retailing declined 4.1%. The indexes for health, beauty, and optical goods retailing and for physician care also decreased. (See table 4.)

Final demand goods: Prices for final demand goods fell 0.7% in January for the second consecutive month. In January, the decrease in the index for final demand goods can be traced to prices for final demand energy goods, which fell 5.0%. In contrast, the index for final demand foods advanced 1.0%. Prices for final demand goods less foods and energy were unchanged.

Product detail: Over half of the January decrease in prices for final demand goods can be attributed to the gasoline index, which fell 8.8%. Prices for home heating oil, electric power, jet fuel, basic organic chemicals, and corn also moved lower. Conversely, the indexes for fresh and dry vegetables jumped 17.3%. Prices for pharmaceutical preparations and residential natural gas also increased. 

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

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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.

January 2016 Residential Permits, Starts and Completions

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Builders started 1.099 million residential units (SAAR) in January (1.175 million expected). That is 3.8% (±12.0%)* below the revised December estimate of 1.143 million (originally 1.149 million). The MoM decrease was concentrated in the single-family component. Single-family starts were at a rate of 731,000, or 3.9% (±10.5%)* below the revised December figure of 761,000. Multi-family starts were estimated to be 368,000 units (-14,000 or 3.7%).

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

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January’s SAAR was 1.8% (±13.5%)* above the year-earlier SAAR of 1.080 million units; the not-seasonally adjusted YoY change (shown in the table above) was +0.8%. Single-family starts were 3.2% higher YoY, while the multi-family component fell 3.4%. 

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Completions rose by 21,000 units in January, to a SAAR of 1.057 million. That is 2.0% (±9.3%)* above the revised December estimate of 1.036 million, and 8.4% (±13.2%)* above the year-earlier SAAR of 975,000. The NSA estimate was +10.3% YoY.

All of the MoM increase occurred in the multi-family component. Single-family housing completions fell by 10,000 units, to a SAAR of 693,000; that is 1.4% (±10.2%)* below the revised December rate of 703,000, but +3.3% YoY (NSA). Multi-family completions rose by 31,000 (9.3%), to 364,000 units (+26.3% YoY NSA). 

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Total permits in January were at a SAAR of 1.202 million units (1.224 million expected). That is 0.2% (±0.5%)* below the revised December rate of 1.204 million (originally 1.232 million), but 13.5% (±1.5%) above the year-earlier SAAR of 1.059 million. The NSA comparison shown above is +6.7% YoY.

All of the MoM decline in permits was concentrated in the single-family component: -12,000, to 720,000 units; that is 1.6% (±1.0%) below the revised December figure of 732,000 (+3.9% YoY NSA). Multi-family authorizations rose by 10,000 (+2.1%), to 482,000 units (+11.3% YoY NSA).

Builder confidence in the market for newly-built single-family homes fell three points to 58 in February from an upwardly revised January reading of 61 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). An index above 50 means builders who think the market is good outnumber those who think it as bad.

“Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market,” said NAHB Chairman Ed Brady. “Of note, they expressed optimism that sales will pick up in the coming months.”

“Builders are reflecting consumers’ concerns about recent negative economic trends,” said NAHB Chief Economist David Crowe. “However, the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and significant pent up demand all point to a gradual upward trend for housing in the year ahead.” 

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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.

January 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.9% in January (+0.4% expected). The increase was greater than expected in large part because December’s reading was revised lower (from -0.4% to -0.7%). A storm late in the month likely held down production in January by a small amount. The index for utilities jumped 5.4%; demand for heating moved up markedly after having been suppressed by unseasonably warm weather in December. Manufacturing output increased 0.5% in January and was 1.2% above its year-earlier level. Mining production was unchanged following four months with declines that averaged about 1.5% per month. At 106.8% of its 2012 average, total industrial production in January was 0.7% below its year-earlier level.

Industry Groups

As mentioned above, manufacturing output rose 0.5% in January (+0.2% expected), with increases of about 0.5% both for nondurables and durables and a small decrease for other manufacturing (publishing and logging). Within nondurables, the largest gains, about 1%, were posted by food, beverage, and tobacco products and by chemicals, while the largest decreases, about 2%, were recorded by apparel and leather and by printing and support. Paper output fell 0.5% (-2.7% YoY).

Results for the major durable goods industries were spread between a drop of 1.3% for electrical equipment, appliances, and components and a gain of 2.8% for motor vehicles and parts. Wood products IP rose 1.2% (+4.6% YoY). Within mining, substantial decreases for oil and gas well drilling and servicing, for coal mining, and for nonmetallic mineral mining were offset by increases for oil and gas extraction and for metal ore mining. 

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Capacity utilization (CU) for the industrial sector increased 0.7 percentage point in January to 77.1% (76.7% expected), a rate that is 2.9 percentage points below its long-run (1972-2015) average. Manufacturing CU increased 0.3 percentage point in January to 76.1%, a rate that is 2.4 percentage points below its long-run average. CU of industries defined as manufacturing under the NAICS system rose 0.4% (-0.1% YoY).

The operating rates for durables and nondurables each rose 0.3 percentage point, while the utilization rate for other manufacturing (publishing and logging) fell 0.1 percentage point. Wood Products CU rose 0.9% (+2.0% YoY) to 72.1%; Paper fell 0.4% (-2.5% YoY) to 81.3%. The operating rate for mining moved up about 1/2 percentage point, and the rate for utilities rose nearly 4 percentage points; the rates for both sectors were nearly 9 percentage points below their long-run averages. 

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Capacity at the all-industries level was unchanged (+1.4% YoY) at 138.6% of 2012 output. Manufacturing edged up +0.1% (+1.4% YoY) to 139.4%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+2.6% YoY) to 161.3%. Paper ticked down 0.1% (-0.2% YoY) to 116.8%.

The Federal Reserve included preliminary forecasts of industrial capacity for 2016 in the January report. Measured from fourth quarter to fourth quarter, total industrial capacity is projected to rise 0.5% this year after increasing 1.5% in 2015. Manufacturing capacity is expected to advance 1.1% in 2016, about the same pace as in 2015. Capacity in the mining sector is estimated to fall 3.2% in 2016 after rising 4.2% in 2015. Capacity at electric and natural gas utilities is projected to increase 0.8% for a second consecutive year.

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.

December 2015 International Trade (Pulp, Paper & Paperboard)

Month-over-Month (MoM), Year-over-Year (YoY), and Year-to-Date (YTD):

On a month-to-month basis, December's net exports increased for the first time since August 2015, rising by 57.6 thousand tonnes (3.7%) -- from 1,557 to 1,614 thousand tonnes.  December's net exports were the eighth highest level of the year.  Details for December, the prior six months, year-over-year, and year-to-date performance are presented in the table below.

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Both exports and imports increased between November and December: exports by 72.2 thousand tonnes (3.1%) and imports by 14.6 thousand tonnes (2.0%).  Net exports increased because the increase in exports was greater than the increase in imports.

December YoY exports were down 103 thousand tonnes and imports down 83 thousand tonnes, resulting in a YoY decrease in net exports of 19 thousand tonnes (-1.2%). 

YTD exports are up 493 thousand tonnes while imports are down 507 thousand tonnes, yielding an increase in net exports of 1,001 thousand tonnes (5.3%).  2015 net exports achieved the third highest level since 2005. 

This year's decline in imports and increase in exports is counterintuitive with reported stronger 2015 U.S. growth compared to global growth and a strengthening U.S. dollar.  The graph below shows monthly, including a YTD monthly average (first data point of each line in graph below), from 2010 to 2015. 

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While the West Coast port slowdown may explain some of the early 2015 results, and 2Q results reflect some degree of "catch-up" from the port slowdown, the annual results suggest other factors are responsible.

Six-month Cumulative Activity and Trends:

Cumulative activity over the six months ending December 2015 shows net exports are 6.1% above the pace seen over the six months ending in December 2014.  Cumulative six-month net exports are principally higher due to higher exports, up 228 thousand tonnes (1.6%), compared to imports which are down 339 thousand tonnes (6.9%). 

Six-month trend-lines were fit to the data to study recent trends beyond simple cumulative activity.   All three trend lines remained negative for the six-month period ending in December. 

Apart from trend lines, in 2015 May was the export peak, June the import peak, and May the net export peak.  December's exports were 10.3% below May's export peak; December's imports were 11.1% below June's import peak; and December's net exports were 14.5% below May's net export peak. 

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In terms of notable shifts in country-level details:

Pulp exports (26,898 thousand tonnes 2015) are higher (2.0%) compared to last year's levels.  China remained the chief destination of U.S. pulp by a wide margin in 2015, representing 58% of 2015 shipments; December 2014 figures pegged exports to China at 56% of the U.S. total, indicating China's share of U.S. pulp exports has grown in 2015 relative to 2014.  China's 2015 exports have increased by 5.3% compared to the same period in 2014.  Mexico leapfrogged India as the second-ranked destination for U.S. pulp exports, representing 6.7% of 2015 exports compared to India's 6.4% share.  Pulp exports to both countries are down YTD: Mexico's receipt of U.S. pulp export have fallen by over 4% and India's are down by nearly 9%.  In addition to Mexico and India swapping spots in 2015, among 2014's top 10 destinations Japan and Indonesia also swapped, Japan moving up from number 7 to number 6 by purchasing 6.4% more pulp while Indonesia has purchased 7.3% less pulp.  

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2015 pulp imports (6,036 thousand tonnes YTD) decreased -4.9% compared to 2014's levels.  Canada and Brazil, the 1st and 2nd ranked pulp import sources, respectively, account for nearly 94% of the pulp imported.  Despite their top ranking, Canada has logged a decline (-6.6%) in pulp imported while Brazil has decreased (-0.3%) its imports compared to 2014's levels.  Chile, the number three ranked source of pulp imports into the U.S., has increased imports by 1.3%.  Norway has climbed from a 10th ranked place in 2014 to 8th in 2015 with an over 114% increase in pulp imports to the U.S., the Philippines from 12th ranked in 2014 to 6th ranked in 2015 with an increase over 300%, and Germany from 13th ranked to 10th ranked.  For the year China (9th in 2014, 12th in 2015) and Finland (8th in 2014, 11th in 2015) have fallen out of the top 10 importers of pulp into the US.  As a region Asia shows the largest percentage increase in imports into the U.S. at 59.7% while Caribbean nations collectively posted the largest percentage decline at 86.6%. 

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2015 Paper and paperboard imports (3,197 thousand tonnes ) dropped by 5.8% compared to 2014's activity.  Once again Canada led the way, accounting for nearly 86% of the total import volume and 114.2% of the YTD decrease (223 of 196 thousand tonnes).  Finland and China held onto their number 2 and 3 rankings despite posting respective 5.5% and 2.3% decreases in 2015 compared to 2014.  One notable development on a percentage basis is Australia, which has vaulted from being the 7th ranked supplier during the first ten months of 2014 to the 4th ranked supplier during 2015, posting an increase of 136.3%.  Mexico slipped from the 4th to 5th place ranking despite importing 15.8% more into the U.S.  In other top 10 changes from 2014, Sweden has dropped from 5th in 2014 to 6th in 2015 with a 12.5% drop in paper and paperboard imports into the U.S and South Korea slipped from 6th to 8th with pulp and paperboard imports declining by over 46.9%.   Meanwhile Taiwan vaulted to the 9th ranked spot from 12th ranked in 2014 with an increase of 105.5% in imports shipped to the U.S. 

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Paper and paperboard exports (2,375 thousand tonnes) dropped by 1.5% during 2015.  Canada, the top-ranked destination for U.S. paper and paperboard exports, holds a slim lead over Mexico, the number 2 ranked destination, despite exports to Canada dropping by 0.3% in 2015 compared to 2014 while Mexico has grown by 16.1 percent from 2014 to 2015.  Among 2014's top 10 destinations, the "loss leader" in 2015 is India (-31 thousand tonnes, -23.6%) from 2014, followed by Costa Rica (-25 thousand, -31.9%) and Japan (-13 thousand tonnes, -7.9%).  Bucking the general decline in paper and paperboard exports, as already noted, Mexico's receipts of U.S. paper and paperboard exports is up.  South Korea (+10.2%), Guatemala (+3.9%), and China (+9.1%) are receiving more U.S. exports of paper and paperboard as well.  

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

February 2016 Macro Pulse -- Snow-blind?

Crude oil prices are at decadal lows, the unemployment rate is at/below 5%, median home prices are near all-time highs, annual consumer inflation is below 1%. Sounds like “good times rolling,” right? Yet, U.S. corporations are on track to release a third consecutive quarter of year-over-year (YoY) declines in earnings and profits; U.S. gross domestic product (GDP) has grown at an average annualized rate of only 1.9% over the last five quarters, and major U.S. stock market indices have “tanked” (e.g., Nasdaq: -14.5%) since the beginning of 2016. Who saw that coming?

Snow blindness is a condition in which a person temporarily cannot see due to exposure to intense UV light. Such exposure can occur when sunlight reflects off snow (hence its name), or if proper eye protection is not worn when welding. By analogy it can also occur when individuals are inundated with incomplete information spun to sound positive (“snow”), temporarily blinding them to the realities on the ground. We interpret the year-over-year corporate earnings declines, sluggish U.S. GDP growth, and the recent stock market declines as emerging realities. In addition...

Click here to read the rest of the February 2016 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.

December 2015 International Trade (Softwood Lumber)

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Softwood lumber exports inched up (+1 MMBF or 0.4%) in December while imports fell by 148 MMBF (-11.1%). Exports were 9 MMBF (7.5%) above year-earlier levels; imports were 130 MMBF (12.3%) higher. The year-over-year (YoY) net export deficit was 121 MMBF (12.9%) larger. 

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North America was the primary destination for U.S. softwood lumber exports in December (41.1%, of which Canada: 20.9%; Mexico: 20.1%). Asia (especially China: 20.5%) placed a close second, with 39.2%. Year-to-date (YTD) exports to China were down 26.3% 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 10.2% compared to 2014, while imports were up 10.1%. 

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U.S. softwood lumber export activity through West Coast customs districts bounced back in relation to the other districts during December (to 42.4% of the U.S. total, from 33.3% in October); Seattle maintained its dominance as the most active export district (22.6% of the U.S. total), dominating second-place Mobile, AL (10.6%). At the same time, Great Lakes customs districts handled 68.7% of the softwood lumber imports (especially Duluth, MN with 30.4%) coming into the United States. 

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Southern yellow pine comprised 25.3% of all softwood lumber exports in December, followed by Douglas-fir with 21.3%. Southern pine exports were up 9.4% YTD relative to 2014, while Douglas-fir exports were down 23.0%.

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.

December 2015 International Trade (General)

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The goods and services deficit was $43.4 billion in December, up $1.1 billion from $42.2 billion in November. December exports were $181.5 billion, $0.5 billion less than November exports. December imports were $224.9 billion, up $0.6 billion from November.

The December increase in the goods and services deficit reflected an increase in the goods deficit of $1.3 billion to $62.5 billion and an increase in the services surplus of $0.1 billion to $19.2 billion.

The December figures show surpluses, in billions of dollars, with South and Central America ($2.8), United Kingdom ($0.6), and Brazil ($0.2).  Deficits were recorded, in billions of dollars, with China ($29.7), European Union ($13.3), Germany ($6.4), Japan ($6.3), Mexico ($4.8), South Korea ($2.5), Italy ($2.2), India ($2.0), France ($1.4), Canada ($1.4), Saudi Arabia ($0.5), and OPEC ($0.2).

* The balance with members of OPEC shifted from a surplus of $1.1 billion to a deficit of $0.2 billion in December. Exports decreased $1.2 billion to $5.2 billion and imports increased $0.1 billion to $5.4 billion.

* The deficit with Germany increased $0.8 billion to $6.4 billion in December. Exports decreased less than $0.1 billion to $4.1 billion and imports increased $0.8 billion to $10.5 billion.

For 2015, the goods and services deficit was $531.5 billion, up $23.2 billion (+4.6%) from $508.3 billion in 2014. Exports were $2,230.3 billion in 2015, down $112.9 billion (-4.8%) from 2014. Imports were $2,761.8 billion in 2015, down $89.7 billion (-3.1%) from 2014.

The 2015 increase in the goods and services deficit reflected an increase in the goods deficit of $17.5 billion or 2.4% to $758.9 billion and a decrease in the services surplus of $5.7 billion or 2.4% to $227.4 billion.

As a percentage of U.S. gross domestic product, the goods and services deficit was 3.0% in 2015, up from 2.9% in 2014. 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume contracted by 0.1% in November (+2.0% year-over-year) while prices fell by 1.3% (-12.8% 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.

January 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 151,000 jobs in January -- well below even the lower end of the range of expectations of +170,000 (consensus: +188,000). In addition, combined November and December employment gains were trimmed by 2,000 (November: +28,000; December: -30,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down to 4.9% as the change in the number of people employed (+615,000) more than matched the increase in the civilian labor force (+502,000).

As is customary when reporting on January employment numbers, we caution against taking December 2015 to January 2016 comparisons -- especially in the household survey -- too seriously. The numbers are in considerable flux as a result of seasonal (i.e., post-holiday) employment patterns and adjustments to underlying population estimates. 

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Observations from the employment reports include:

* Revisions to historical establishment data resulted in 105,000 fewer jobs having been created by the end of 2015 than previously estimated.

* Manufacturing added 29,000 jobs in January, and 45,000 during the 12 months ending in January. We find those results somewhat at odds with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which declined in nine of those 12 months and has been either at the breakeven level or in outright contraction during three of the months since September 2015. Wood Products lost 1,500 jobs in December; Paper and Paper Products declined by 500.

* Mining and logging shed 7,000 jobs, with 5,500 coming from support activities for mining and another 800 from oil and gas extraction. Construction added 18,000 jobs.

* Nearly 74% (116,700) of January’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +57,700; Professional & Business Services: +9,000 (although temp-help lost 25,200 jobs); Education & Health Services: +6,000; and Leisure & Hospitality: +44,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.390 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.595 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. If 2015 trends continue, in three years there will be as many wait staff and bartender jobs as manufacturing jobs in the United States. 

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* The employment-population ratio edged up to 59.6%; roughly speaking, for every five people added to the population, fewer than three are employed. Meanwhile, the number of employment-age persons not in the labor force retreated by 41,000 to nearly 94.1 million. 

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* The labor force participation rate (LFPR) also inched up to 62.7%, comparable to October 1977. Average hourly earnings of all private employees jumped by $0.12 (to $25.39), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), however, hourly wages rose by $0.06, to $21.33 (+2.5% YoY). With the CPI running at an official rate of +0.7% YoY, wages are technically rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls nudged up to 34.6 hours. 

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* Finally, full-time jobs increased by 538,000 while part-time jobs rose by 5,000. Full-time jobs have been trending higher since December 2009, and are now 1.266 million above the pre-recession high (although, for perspective, the non-institutional, working-age civilian population has risen by an estimated 19.2 million during that time period). 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.

December 2015 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments decreased $6.8 billion or 1.4% to $467.0 billion in December. Shipments of durable goods decreased $5.1 billion or 2.1% to $236.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.7 billion or 0.8% to $230.9 billion, led by petroleum and coal products. Shipments of Wood jumped 3.0% while Paper edged down by 0.1%. 

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Inventories increased $1.0 billion or 0.2% to $642.3 billion. The inventories-to-shipments ratio was 1.38, up from 1.35 in November. Inventories of durable goods increased $1.9 billion or 0.5% to $397.6 billion, led by transportation equipment. Nondurable goods inventories decreased $1.0 billion or 0.4% to $244.7 billion, led by petroleum and coal products. Inventories of both Wood and Paper expanded by 0.1%. 

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New orders decreased $13.5 billion or 2.9% to $456.5 billion. Excluding transportation, new orders decreased 0.8% (and -5.4% YoY -- the 14^th consecutive month of year-over-year contractions). Durable goods orders decreased $11.8 billion or 5.0% to $225.6 billion, led by transportation equipment. New orders for nondurable goods decreased $1.7 billion or 0.8% to $230.9 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- tumbled by 4.3% in December (-7.4% YoY). Business investment contracted on a YoY basis during every month of 2015.

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 on average 70% of the losses incurred since the beginning of the Great Recession. With July 2014’s transportation-led spike gradually receding in the rearview mirror, the recovery in new orders is back to just 50% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders decreased $5.8 billion or 0.5% to $1,187.4 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 7.11, up from 6.94 in November. 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. Since then, however, real unfilled orders have moved mostly sideways and, in December, fell 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.