April 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in April 2016 were at a seasonally adjusted annual rate (SAAR) of 619,000 -- the highest number in eight years -- that “smashed” expectations of 523,000. The April estimate was 16.6 percent (±15.4%) above the revised March rate of 531,000 (originally 511,000 units) and is 23.8 percent (±22.8%) above the year-earlier SAAR of 500,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +27.1%. For a longer-term perspective, April’s sales were roughly 55% below the “bubble” peak but about 17% above the long-term, pre-2000 average.

Because the increase in single-family starts was less than one-third that of sales, the three-month average ratio of starts to sales dropped to 1.42 -- still above the average (1.41) since January 1995.

The median sales price of new houses sold in April jumped by $23,200 (7.8%), to a new all-time high of $321,100; the average sales price rose a corresponding $25,900 (7.3%), to $379,800. Starter homes (those priced below $200,000) made up 18.0% of the total sold in April, the lowest proportion on record for that calendar month (going back to 2002); 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 April, single-unit completions retreated by 26,000 units (-3.6%). Because completions decreased while sales increased, new-home inventory contracted in both absolute (-1,000 units) and months-of-inventory (0.8 month) terms. 

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Existing home sales rose in April (+90,000 units or 1.7%) to 5.45 million units (SAAR), slightly better than expectations of 5.40 million. Inventory of existing homes expanded in both absolute (+18,000 units) and months-of-inventory (+0.3 month) terms. Because the increase in new-home sales exceeded that of existing homes, the share of total sales comprised of new homes jumped to 10.2%. The median price of previously owned homes sold in April advanced by $11,600 (+5.0%), to $232,500. 

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Housing affordability deteriorated as the median price of existing homes for sale in March increased by another $10,700 (+5.0%; +5.8% YoY) to $224,300. 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 +0.7% (+5.2% YoY).

“Home prices are continuing to rise at a 5% annual rate, a pace that has held since the start of 2015,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates. Another factor behind rising home prices is the limited supply of homes on the market. The number of homes currently on the market is less than 2% of the number of households in the U.S., the lowest percentage seen since the mid-1980s.

“Price movements vary across the country. The Pacific Northwest and the West continue to be the strongest regions. Seattle, Portland, Oregon and Denver had the largest year-over-year price increases. These cities also saw some of the largest declines in unemployment rates among the 20 cities included in the S&P/Case-Shiller Indices. The Northeast and upper-Midwest regions were at the other end of the ranking. The four cities with the smallest year-over-year prices gains were Washington DC, Chicago, New York, and Cleveland. The unemployment rates in Chicago and Cleveland rose from March 2015 to March 2016.” 

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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.

1Q2016 Gross Domestic Product: Secondary (Preliminary) Estimate

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In its second (“preliminary”) estimate of 1Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +0.82%, up 0.28 percentage point from the initial estimate but still considerably lower 4Q2015’s +1.38%. The revised 1Q rate was below consensus expectations of +0.9%. Moreover, 1Q2016’s year-over-year growth rate was +2.03%, not significantly different from 4Q2016’s +1.98%.

Overall, groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 1Q growth. Private domestic investment (PDI) and net exports (NetX) detracted from it.

Roughly half of the upward revision came from inventory adjustments, which were reported to have contracted at a -0.20% SAAR -- an improvement of +0.13 percentage point from the previously reported -0.33% and about the same as 4Q2015's -0.22%. None of the other line items were revised by more than ±0.06% despite revisions to private domestic investment in residential and nonresidential structures (a combined +$5.5 billion) exceeding the change to inventories (+$4.5 billion).

The BEA’s Real Final Sales of Domestic Product, which strips out the impact of inventory fluctuations, improved +0.15 percentage point, to +1.02%; that was 0.58% below 4Q2015’s estimate. 

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Consumer Metrics Institute summarized the GDP report as follows:

Once again BEA's report did not show a robust economy. The minor revisions posted in this report were not statistically significant, and the past three quarters continue to show a slow-motion slide towards economic stagnation.

From our perspective the key items in this report are:

-- Private commercial investment remains in contraction.

-- Consumer spending remains weak, repeating a dip very similar to one recorded in 1Q2015 (even though the numbers are reported to be already "seasonally adjusted"). Non-discretionary spending on health care and housing provided most of the [quarter-over-quarter] growth in consumer services spending.

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.

April 2016 Residential Permits, Starts and Completions

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Privately owned housing starts in April were at a seasonally adjusted annual rate (SAAR) of 1.172 million (1.135 million expected). That was 6.6 percent (±10.2%)* above the revised March estimate of 1,099 million (originally 1.089 million). Most of the increase was in the multi-family category: +48,000 units (13.9%); single-family rose by 25,000 units, to a rate of 778,000; that was 3.3 percent (±12.1%)* above the revised March figure of 753,000.

* 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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April’s total SAAR was 1.7 percent (±10.1%)* below the April 2015 rate of 1.192 million; the not-seasonally adjusted YoY change (shown in the table above) was -0.5%. Single-family starts were 6.2% higher YoY, while multi-family component was 12.3% lower. Equally noteworthy, multi-family starts YTD through April were 1.8% below the same months in 2015. 

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Total completions fell by 115,000 units, or 11.0 percent (±12.3%)* to 933,000 units. That was 7.4 percent (±10.6%)* below the April 2015 SAAR of 1.008 million; the NSA comparison: -5.8% YoY.

The MoM decline was concentrated in the multi-family component (-89,000 units, or -26.9%). Single-family housing completions fell by 26,000 units, or 3.6 percent (±12.6%)* to a SAAR of 691,000. Single-family completions were 2.1% above their year-earlier NSA level, while the multi-family component was 23.5% lower. 

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Total permits increased by 39,000 units or 3.6 percent (±1.3%) to 1.116 million units. That SAAR was 5.3 percent (±1.3%) below the April 2015 level; the NSA comparison was -7.2% YoY.

The MoM rise was concentrated in the multi-family component (+28,000 units or 8.0%). Single-family permits increased by 11,000 units or 1.5 percent (±0.8%) to 736,000 units. On a YoY basis, single-family permits were 3.5% higher, but multi-family units were 24.3% lower; multi-family permits were also 10.6% lower YTD through April than the same months in 2015. 

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Builder confidence in the market for newly-built single-family homes was unchanged at 58 in May on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Builder confidence has held steady at 58 for four straight months, which indicates that the single-family housing sector remains in positive territory,” said NAHB Chairman Ed Brady.  “However, builders are facing an increasing number of regulations and lot supply constraints.”

The HMI components measuring sales expectations in the next six months increased three points to 65, while the component charting current sales conditions and the index gauging buyer traffic both held steady at 63 and 44, respectively.

“The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen,” said NAHB Chief Economist Robert Dietz. “Job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward.”

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.

April 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) increased 0.4% in April (+0.3% expected). Over the last 12 months, the all items index rose 1.1%.

April’s month-over-month (MoM) all-items increase was broad-based, with the indexes for food, energy, and all items less food and energy all rising. The food index rose 0.2% after declining in March, with the food at home index increasing slightly. The index for energy increased 3.4%, with the gasoline index rising 8.1%, and the indexes for fuel oil and natural gas also advancing.

The index for all items less food and energy increased 0.2% in April. The shelter index rose 0.3%, as did the index for medical care, and the indexes for motor vehicle insurance, airline fares, recreation, and education increased as well. Several other component indexes increased slightly, including those for alcoholic beverages, tobacco, and personal care. In contrast, the indexes for household furnishings and operations, apparel, new vehicles, used cars and trucks, and communication all declined.

The all items index rose 1.1% for the 12 months ending April, a larger increase than the 0.9% increase for the 12 months ending March. The index for all items less food and energy rose 2.1% over the last 12 months, compared to a 2.2% rise for the 12 months ending March. The food index has risen 0.9% over the last 12 months, and the energy index has declined 8.9%. Housing rent has increased 3.7% YoY; medical care costs: +3.1%.

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) rose 0.2% in April (+0.3% expected). Prices for final demand services edged up 0.1%, and the index for final demand goods advanced 0.2%. The index for final demand less foods, energy, and trade services moved up 0.3% in April following no change in March.

The final demand index was unchanged for the 12 months ended in April; prices for final demand less foods, energy, and trade services rose 0.9%.

Final demand services: The index for final demand services edged up 0.1% in April following a 0.2% decline in March. The increase can be traced to prices for final demand services less trade, transportation, and warehousing, which climbed 0.3%. In contrast, the indexes for final demand transportation and warehousing services and for final demand trade services decreased 0.4% and 0.1%, respectively.

Product detail: A major factor in the April advance in the index for final demand services was prices for portfolio management, which climbed 4.5%. The indexes for fuels and lubricants retailing, residential real estate loans (partial), chemicals and allied products wholesaling, and truck transportation of freight also increased. Conversely, prices for airline passenger services fell 1.7%. The indexes for health, beauty, and optical goods retailing; machinery and equipment wholesaling; and services related to securities brokerage and dealing also moved lower.

Final demand goods: The index for final demand goods advanced 0.2% in April, the same as in March. Most of the April rise can be traced to prices for final demand goods less foods and energy, which climbed 0.3%. The index for final demand energy moved up 0.2%. In contrast, prices for final demand foods declined 0.3%.

Product detail: A contributor to the April increase in prices for final demand goods was the index for carbon steel scrap, which jumped 22.1%. Prices for gasoline, electric power, pharmaceutical preparations, beef and veal, and prepared poultry also advanced. Conversely, prices for chicken eggs dropped 33.9%. The indexes for home heating oil and jet fuel also fell. 

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Of the not-seasonally adjusted price indexes we track, only Wood Fiber declined MoM; only Softwood Lumber rose on a YoY basis, however. 

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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.

April 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.7% in April (+0.2% expected) after decreasing in the previous two months. Manufacturing output rose 0.3% after declining the same amount in March. The index for utilities jumped 5.8% in April, as the demand for electricity and natural gas returned to a more normal level after being suppressed by warmer-than-usual weather in March. Mining production fell 2.3% in April, and it has decreased more than 1.5% per month, on average, over the past eight months. At 104.1% of its 2012 average, total IP in April was 1.1% below its year-earlier level.

Industry Groups

Manufacturing output increased 0.3% in April. The production of durables rose 0.6% (Wood Products: +0.6%); the largest gains were recorded by machinery and by motor vehicles and parts, with increases of about 2.5% and 1.25%, respectively. Only a few durable goods industries posted declines, with the largest, about 1.25%, for primary metals. The output of nondurable manufacturing was unchanged in April (Paper: unchanged), as gains in the indexes for food, beverage, and tobacco products and for plastics and rubber products offset declines for nearly all of the other industries. The output of other manufacturing (publishing and logging) declined 0.4%.

The drop of 2.3% for mining in April reflected substantial cutbacks in oil and natural gas extraction as well as reductions in coal mining and in oil and gas well drilling and servicing. The index for coal mining has fallen nearly 40% over the past 12 months. The increase of 5.8% in the output of utilities was its largest since February 2007, when it leapt 6.2%. In April, electric utilities and natural gas utilities expanded 5.4% and 9.3%, respectively. 

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Capacity utilization (CU) for the industrial sector increased 0.5 percentage point in April to 75.4%, a rate that is 4.6 percentage points below its long-run (1972–2015) average.

Manufacturing CU increased 0.2 percentage point in April to 75.3%, a rate that is 3.2 percentage points below its long-run average; using the NAICS definition, manufacturing increased 0.3%. The operating rate for durables increased 0.4 percentage point (Wood Products: +0.3%), while the rates for nondurables (Paper: unchanged) and other manufacturing (publishing and logging) edged down. The operating rate for mining dropped to 72.5%, the lowest rate over the history of this series, while capacity utilization for utilities jumped 4.2 percentage points to 78.6%. 

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Capacity at the all-industries level was unchanged (+1.0% YoY) at 138.2% of 2012 output. Manufacturing edged up +0.1% (+1.0% YoY) to 137.5%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+4.5% YoY) to 165.2%. Paper edged down 0.1% (-0.5% YoY) to 117.2%.

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.

April 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 160,000 jobs in April -- well below expectations of +200,000. Among revisions stretching back beyond 2000, combined February and March employment gains were trimmed by 19,000 (February: -12,000; March: -7,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) remained stable at 5.0% as the drop in the number of employed persons (-316,000) was only slightly exceeded by the contraction in the civilian labor force (-362,000). 

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Observations from the employment reports include:

* After tumbling by nearly 30,000 in March, Manufacturing gained 4,000 jobs. Those results are generally consistent with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which -- despite remaining in contraction -- rose slightly in April. Wood Products employment was unchanged; Paper and Paper Products: -600.

* Mining and logging shed 8,000 jobs, with 5,200 coming from support activities for mining and another 1,600 from oil and gas extraction. Construction added 1,000 jobs.

* Over 82% (141,000) of April’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: -3,100; Professional & Business Services: +65,000; Education & Health Services: +54,000; and Leisure & Hospitality: +22,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.449 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.635 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has added essentially no jobs since 2014 while FS&D jobs have expanded by nearly 450,000. 

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* The employment-population ratio edged down to 59.7%; roughly speaking, for every five people added to the population, three are employed. Meanwhile, the number of employment-age persons not in the labor force jumped by 562,000 to 94.0 million. 

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* The labor force participation rate (LFPR) also retreated to 62.8%, comparable to levels seen in 1978. Average hourly earnings of all private employees increased by $0.08 (to $25.53), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages were rose by $0.05, to $21.47 (also +2.5% YoY). With the CPI running at an official rate of +0.9% YoY, in theory wages are rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls lengthened by 0.1 hour, to 34.5 hours. 

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* Full-time jobs dropped by 253,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- fell by 161,000. There are now 1.319 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by 19.8 million). PTER employment, by contrast, stopped declining in October 2015 and has been hovering around 6 million since. 

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For a “sanity check” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although highly seasonal, the data show the amount withheld in April decreased (as usual) by $34.3 billion, to $182.4 billion -- the highest amount on record for that calendar month. To reduce some of the volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending April were 4.3% above the year-earlier average, well off the peak of +13.8% set back in September 2013.

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.

April 2016 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended its gain in April, rising by $3.21 (+8.6%), to $40.76 per barrel. The price increase coincided with a weaker U.S. dollar, the lagged impacts of a 625,000 barrel-per-day (BPD) increase in the amount of oil supplied/demanded in February (to 19.4 million BPD), and a modest increase in accumulated oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI widened slightly to $0.82 per barrel. 

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Commentary from ASPO-USA’s Peak Oil Review editor Tom Whipple:

Analysts are starting to wonder as whether 2016 could turn out to be similar to 2015 when oil prices rose sharply in the first five months of the year on hopes that the oil surplus would soon be over, and then collapsed in May when it became apparent that there was going to be more oil around than necessary. Last week the price surge which began in February continued through Thursday and then slowed on Friday leaving London futures at $48.13 at the close and New York at $45.92. The impetus for the surge is that that hedge funds and other speculators are convinced that the two-year price slump is over and that higher prices are ahead. This forecast is supported by the steady decline in the US rig count, which continued last week; a continuing drop in US crude production which the EIA projects will continue into next year; a weaker dollar due to the Federal Reserve's failure to increase interest rates; increased consumption of gasoline in the US due to low prices; market technical analysis showing prices breaking various "ceilings;" and news of a string of production outages across the globe due to insurgencies and unsettled economic conditions.

Most analysts and financial institutions are saying that the recent price increase of more than 70 percent since January has been too much too soon and that the fundamentals do not support such a rapid increase. They cite the increasing global crude stockpiles, both on shore and at sea, and the recent increases in oil production by Iran and the Saudis which is offsetting the drop in US shale oil production. While there are several geopolitical situations around the world which have reduced oil exports in recent months, most of these are of a temporary nature and are likely to be reversed shortly.

The US economy and that of the EU are growing rather slowly which is keeping the demand for distillates low.   The price of gasoline in the US has been rising in the last few weeks which will make it less attractive for discretionary travel. Chinese refiners are producing more diesel and gasoline than their country can consume, so the surplus is being dumped on the world market. Some see a gasoline glut currently developing.  While the massive cutbacks of capital expenditures on exploring for and drilling new oil wells will eventually have a major impact on the supply and price of oil, it is likely to be another year or two before the full impact is felt.

There are, however, at least three geopolitical developments that could drive prices sharply higher in the near term. These are the political/economic upheavals going on in Venezuela, Nigeria, and Iraq. Evidence is mounting that one or more of these countries could be engulfed by so much political turmoil in next few weeks or months that their combined oil production of nearly 7 million b/d would be affected. Oil stoppages on the order of millions of barrels a day would almost certainly drive oil prices much higher. As with most efforts to forecast oil prices, there are simply too many forces at work to come to a conclusion as to which just which forces will prevail, even in the short run. Over the next two years or so, oil prices will almost certainly be higher due the drop in investment and contraction of the industry. It is the timing of this increase where the uncertainty lies.

Last week saw much bad news from across the oil industry with profits plunging, credit ratings being reduced and workers let go. Particularly hard hit has been the oil services industry that makes its money supporting exploring and drilling operations which have been sharply curtailed. The economies of those states that have been benefiting from the shale oil bonanza are reporting souring economic conditions with loan delinquencies and bank losses on the rise. Offshore drillers are being hit particularly hard as the cost of producing deepwater oil in now well over $100 a barrel making the economics of starting new projects prohibitive. Last week, however, a new well was started off Uruguay in 11,000 feet of water setting a new record, but it is unlikely that many new deepwater wells will be started until prices recover back into the $100s. The IMF reports that Middle Eastern oil exporters are on track to receive some $500 billion less for their oil this year as compared to 2014. 

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News items from OilPrice Intelligence Report editor Evan Kelly:

There are early signs that the three-month rally in oil prices, up from a low of $26 per barrel in February, might be reaching its limits for the time being. Oil prices retreated at the start of the week as OPEC reported higher production levels. Iraq saw oil exports rise slightly, and there are rumors that Saudi Arabia is ramping up production in the wake of the failed Doha agreement. "There are enough supply stories out there to slow or temper any gains," Energy Aspects analyst Richard Mallinson told Reuters.

Also, from a technical trading standpoint, oil is facing fierce resistance at $48 to $50 per barrel. The sharp run up in prices is now staring down a “textbook retracement,” Todd Gordon of TradingAnalysis.com said on CNBC. Backing that up is the fact that hedge funds and other money managers have amassed a huge pile of net-long bets on crude prices. Whenever positions increase by such a large amount, the chances that the pendulum swings back in the other direction rises. In other words, because oil prices have rallied so quickly, there is a good chance that they will correct and fall back again.

Oil companies step up hedging. E&P companies are also not sure that the oil price rally is here to stay. When oil prices rose to $45 per barrel, a “flurry of dealing kicked off” according to Reuters, as companies scrambled to lock in prices for the rest of this year and next. 

IEA sees oil prices past the bottom. For its part, the Paris-based International Energy Agency believes that the worst is over for oil prices. Provided that the global economy fares well, oil prices should continue their upward trajectory, although in fits and starts. "It may well be the case, but it will depend on how the global economy looks like. In a normal economic environment, we will see the price direction is rather upwards than downwards,” the IEA’s Executive Director Fatih Birol told reporters on the sidelines of the G7 energy ministers’ meeting. "We believe under normal conditions towards the end of this year, second half of this year but latest 2017, markets will rebalance." At the same time, the IEA has consistently warned that today’s cutbacks in investment could set the markets up for a shortage several years from now. Birol and the IEA have cautioned the industry not to slash investment too much. "What we would like to see is, after a big decline in 2015 and 2016, there will be a rebound in investments (in 2017), and bringing (investments) to the level of $600 billion once again," Birol said.

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.

April 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that U.S. manufacturing’s pace of expansion slowed slightly during April. The PMI registered 50.8%, a decrease of 1.0 percentage point from the March reading of 51.8%. (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. Perhaps the most dramatic change was a substantial jump in input prices. Otherwise, except for exports and imports, sub-index values either remained in contraction or were lower than in March. 

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Wood Products and Paper Products both expanded, thanks to new orders, exports and (Paper only) imports, production and employment. "Market is starting to pick up as expected," wrote one Wood Products respondent.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated again in April. The NMI registered 55.7%, 1.2 percentage points higher than the March reading. Key sub-indexes were mixed, with new orders and input prices exhibiting the largest increases. 

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All three service sectors we track reported expansion. The most consistent change in a key sub-index was an increase in new orders. “Severe non-skilled labor shortage is hurting the construction industry," observed one Construction respondent.

Relevant commodities --
* Priced higher: Diesel (all grades), gasoline, lumber products, and paper.
* Priced lower: Natural gas.
* Prices mixed: None.
* In short supply: Construction labor.

ISM’s and Markit’s surveys were in general agreement during April insofar as the headline numbers of each pair of reports moved roughly in parallel; however, commentary in Markit’s manufacturing survey painted a somewhat darker outlook than was the case for ISM.

Commenting on the data, Markit’s chief economist Chris Williamson said:

Manufacturing -- “The April PMI data suggest there’s no end in sight to the current downturn in manufacturing activity. The survey indicates that factory output is dropping at an annualized rate of approximately 3%, and factory headcounts are being culled at a rate of around 10,000 per month.

“Destocking is also very much in evidence as companies often reported weaker than expected demand and exports are slumping at the fastest rate for one and a half years.

“Rather than reviving after a disappointingly weak first quarter, the data flow therefore appears to be worsening in the second quarter, raising question marks over whether GDP growth will improve on the near-stalling seen in the first three months of the year.”

Services -- “The PMI surveys show the economy continuing to pick itself up after the stagnation seen in February, with growth accelerating for a second successive month in April. However, the rate of expansion remains tepid, reliant on sluggish growth in services as manufacturers report a stalling of production.

“The surveys are consistent with economic growth picking up from the 0.5% seen in the first quarter to a mere 1.0% at the start of the second quarter, suggesting the bounce-back from the weak start to the year is far from impressive.

“The fragility of growth is highlighted by inflows of new business rising at a rate only marginally above the post-recession low seen in March, and optimism about the year ahead also remains close to a post-recession low.

“The drop in confidence seen so far this year is beginning to hit the labour market, with the survey signalling 160,000 extra jobs being created in April, down from an average of 200,000 in the first three months of the 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.

March 2016 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $2.2 billion or 0.5% to $464.7 billion in March. Shipments of durable goods decreased $1.1 billion or 0.5% to $236.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.3 billion or 1.5% to $227.8 billion, led by petroleum and coal products. Shipments of both Wood (1.4%) and Paper (0.5%) rose. 

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Inventories increased $1.1 billion or 0.2% to $635.1 billion. The inventories-to-shipments ratio was 1.37, unchanged from February. Inventories of durable goods increased $0.1 billion or virtually unchanged to $394.2 billion, led by fabricated metal products. Nondurable goods inventories increased $1.0 billion or 0.4% to $240.8 billion, led by petroleum and coal products. Inventories of both Wood (-0.8%) and Paper (-0.1%) declined. 

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New orders increased $5.0 billion or 1.1% to $458.4 billion. Excluding transportation, new orders increased 0.8% (but -1.2% YoY -- the 17^th consecutive month of year-over-year contractions). Durable goods orders increased $1.7 billion or 0.8% to $230.6 billion, led by transportation equipment. New orders for nondurable goods increased $3.3 billion or 1.5% to $227.8 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- inched up by 0.1% (but -1.2% YoY). Business investment spending contracted on a YoY basis during every month of 2015, and two of the three months in 2016.

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 51% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders decreased $1.2 billion or 0.1% to $1,182.6 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 7.01, down from 7.02 in February. 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 are penetrating further 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.

April 2016 Currency Exchange Rates

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In April the monthly average value of the U.S. dollar once again declined against the three major currencies we track. The greenback depreciated by 3.1% against Canada’s “loonie,” 1.9% against the euro, and 3.0% against the yen. On a trade-weighted index basis, the dollar weakened by 1.6% 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.

March 2016 Construction Spending

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Construction spending during March 2016 was estimated at a seasonally adjusted annual rate (SAAR) of $1,137.5 billion (the highest nominal level since October 2007), 0.3 percent (±1.0%)* above the revised February estimate of $1,133.6 billion; expectations were for a 0.5% increase. The March figure is 8.0 percent (±1.6%) above the March 2015 SAAR of $1,052.9 billion. The not-seasonally adjusted YoY change (shown in the above table), was 8.6%.

During 1Q2016, construction spending amounted to $240.4 billion, 9.1 percent (±1.5%) above the $220.3 billion for the same period in 2015.

PRIVATE CONSTRUCTION

Spending on private construction was at a seasonally adjusted annual rate of $842.3 billion, 1.1 percent (±0.8%) above the revised February estimate of $832.8 billion.
- Residential construction: $435.5 billion, +1.6 percent (±1.3%)
- Nonresidential construction: $406.8 billion, +0.7 percent (±0.8%)*.

PUBLIC CONSTRUCTION

Public construction spending was $295.2 billion, 1.9 percent (±2.0%)* below the revised February estimate of $300.8 billion.
- Educational construction: $69.6 billion, +0.4 percent (±2.8%)*
- Highway construction: $97.3 billion, 0.4 percent (±6.6%)*.

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

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Click here for a discussion of March’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories and prices.

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.