December 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in December 2016 were at a seasonally adjusted annual rate (SAAR) of 536,000 units (590,000 expected). This is 10.4 percent (±12.2%)* below the revised November rate of 598,000 (originally 592,000) and is 0.4 percent (±11.7%)* below the December 2015 SAAR of 538,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was unchanged. For a longer-term perspective, December sales were 61.4% below the “bubble” peak and 27.3% below the long-term, pre-2000 average.

An estimated 563,000 new homes were sold in 2016, 12.2 percent (±3.5%) above the 2015 figure of 501,000.

The median sales price of new houses sold in December 2016 was $322,500 (+$13,300 or 4.3%) -- the second-highest median price on record; the average sales price was a record $384,000 (+$18,000 or 5.2%). Starter homes (those priced below $200,000) comprised 13.2% of the total sold, down from December 2015’s previous record-low 18.4% for that calendar month (going back to 2002); prior to the Great Recession starter homes represented as much as 61% of total sales. Homes priced below $150,000 made up 2.6% of those sold in December, a further slide from November 2015’s previous record-low share of 5.3%.

* 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 December, single-unit completions fell by 7,000 units (-0.9%). Because the decline in sales outpaced the drop in completions, new-home inventory expanded in both absolute (+10,000 units) and months-of-inventory terms (+0.8 month). 

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Existing home sales tumbled by 160,000 units (-2.8%) in December, to 5.49 million units (SAAR), below expectations of 5.538 million. Inventory of existing homes shrank in both absolute (-200,000 units) and months-of-inventory (-0.3 month) terms. Although the drop in existing-home sales exceeded that of new homes in December, the share of total sales comprised of new homes shrank to 8.9%. The median price of previously owned homes sold in December retreated by $2,200 (-0.9%), to $232,200. 

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Housing affordability degraded marginally as the median price of existing homes for sale in November edged up by $900 (+0.4%; +6.8 YoY), to $236,500. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices posted a not-seasonally adjusted monthly change of +0.2% (+5.6% YoY), bringing home prices to a new all-time high.

“With the S&P CoreLogic Case-Shiller National Home Price Index rising at about 5.5% annual rate over the last two-and-a-half years and having reached a new all-time high recently, one can argue that housing has recovered from the boom-bust cycle that began a dozen years ago,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The recovery has been supported by a few economic factors: low interest rates, falling unemployment, and consistent gains in per-capita disposable personal income. Thirty-year fixed rate mortgages dropped under 4.5% in 2011 and have only recently shown hints of rising above that level. The unemployment rate at 4.7% is close to the Fed’s full employment target. Inflation adjusted per-capita personal disposable income has risen at about a 2.5% annual rate for 30 months.

“The home prices and economic data are from late 2016. The new Administration in Washington is seeking faster economic growth, increased investment in infrastructure, and changes in tax policy which could affect housing and home prices. Mortgage rates have increased since the election and stronger economic growth could push them higher. Further gains in personal income and employment may increase the demand for housing and add to price pressures when home prices are already rising about twice as fast as inflation.” 

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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.

4Q2016 Gross Domestic Product: First Estimate

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In its first (“advance”) estimate of 4Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +1.87%, down by nearly one-half (-1.66 percentage points) from 3Q2016. On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP was up 1.91% from 4Q2015. On that basis, growth in 4Q2016 improved by 0.25 percentage point compared to 3Q.

The QoQ slowdown in 4Q’s headline growth rate came from a number of sources: growth of consumer spending on services fell by more than half (-0.68%); exports contracted (-1.69%) while imports expanded (exerting an additional drag of -0.86%). Partially offsetting those declines were upticks in consumer spending on goods (+0.34%), and increases in the growth rate for commercial fixed investment (+0.65%) and inventories (+0.51%).

Real final sales of domestic product (the BEA’s “bottom line” indicator of economic activity that excludes the influence of inventories) recorded a sub-1% growth rate (+0.87%), down over 2.17% from 3Q.

The BEA used an inflation rate of 2.12% to arrive at its 4Q real GDP estimate. Concurrent inflation recorded by the Bureau of Labor Statistics (BLS) in its CPI-U index was 3.41%. Underestimating inflation results in correspondingly over-optimistic growth rates; were the BEA’s “nominal” data deflated using the CPI-U, the headline GDP growth number would have been a much lower +0.62% annualized rate. 

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The euphoric pre-election view of the economy has given way to a more sober assessment post-election. “The U.S. economy was in decent, if unspectacular, shape at the end of 2016,” said Gus Faucher, senior economist at PNC Financial Services. That a 1.9% growth rate is described as “decent” indicates just how low the bar has been set in many economists’ minds.

The 3Q growth rate of 3.5% “was truly impressive,” concluded the analysts at Consumer Metrics Institute. “January’s fourth quarter 1.9% is just ‘kind of, sort of’ okay. And the BEA’s “bottom line” sub-1% growth rate is somewhat less than okay. It will be interesting to see just how this headline holds up in the upcoming revisions.”

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 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 0.3% (as expected) in December. Continuing their recent trends, the shelter (rent: +0.3%) and gasoline (+3.0) indexes increased in December and were largely responsible for the seasonally adjusted all-items increase.

Recent trends also continued in the food indexes, as the food at home index again declined, offsetting an increase in the index for food away from home and leaving the overall food index unchanged for the sixth consecutive month. The energy index continued to rise, advancing 1.5% in December, primarily due to an increase in the gasoline index.

The index for all items less food and energy rose 0.2% in December, the same increase as in November. Along with the shelter index, the indexes for motor vehicle insurance, medical care, education, airline fares, used cars and trucks, and new vehicles were among the indexes that increased. The indexes for apparel and communication declined in December.  

The all items index rose 2.1% for the 12 months ending December. This figure has been steadily rising since July, and is the largest 12-month increase since the period ending June 2014. The index for all items less food and energy rose 2.2% and the energy index increased 5.4%. In contrast, the food index declined 0.2% over the last 12 months. Rent rose by 4.0% YoY, and medical services: +3.9%.

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) increased 0.3% (as expected) in December. Final demand prices advanced 0.4% in November and were unchanged in October. On an unadjusted basis, the final demand index climbed 1.6% in 2016 after falling 1.1% in 2015.

In December, nearly 80% of the advance in the final demand index is attributable to a 0.7% increase in prices for final demand goods. The index for final demand services inched up 0.1%.

Prices for final demand less foods, energy, and trade services moved up 0.1% in December after rising 0.2% in November. In 2016, the index for final demand less foods, energy, and trade services climbed 1.7% following a 0.3% advance in 2015.

Final Demand

Final demand goods: Prices for final demand goods jumped 0.7% in December, the largest increase since a 0.7% rise in June. Sixty percent of the December broad-based advance can be traced to the index for final demand energy, which climbed 2.6%. Prices for final demand goods less foods and energy rose 0.3%, and the final demand foods index increased 0.7%.

Product detail: Accounting for almost half of the December jump in final demand goods prices, the index for gasoline climbed 7.8%. Prices for light motor trucks, jet fuel, iron and steel scrap, chicken eggs, and liquefied petroleum gas also increased. In contrast, the index for fresh fruits and melons fell 13.6%. Prices for residential electric power and for plastic resins and materials also decreased.

Final demand services: The index for final demand services inched up 0.1% in December after increasing 0.5% in November. About 70% of the December advance can be attributed to prices for final demand services less trade, transportation, and warehousing, which rose 0.2%. The index for final demand trade services also advanced 0.2%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, prices for final demand transportation and warehousing services declined 0.4%.

Product detail: Most of the December increase in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which advanced 4.4%. The indexes for machinery, equipment, parts, and supplies wholesaling; apparel, footwear, and accessories retailing; food retailing; and health, beauty, and optical goods retailing also moved higher. In contrast, prices for airline passenger services fell 2.4%. The indexes for fuels and lubricants retailing, loan services (partial), and apparel wholesaling also decreased. 

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The not-seasonally adjusted price indexes we track all rose on both MoM and YoY bases. 

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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.

December 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.8% in December (+0.6% expected) after falling 0.7% in November. For 4Q as a whole, the index slipped 0.6% at an annual rate. In December, manufacturing output moved up 0.2% and mining output was unchanged. The index for utilities jumped 6.6%, largely because of a return to more normal temperatures following unseasonably warm weather in November; the gain last month was the largest since December 1989. At 104.6% of its 2012 average, total industrial production in December was 0.5% above its year-earlier level.

Industry Groups

Manufacturing output moved up 0.2% in December, as an increase in durable manufacturing outweighed declines in nondurable manufacturing and other manufacturing (publishing and logging). The index for manufacturing rose at an annual rate of 0.7% in 4Q but was unchanged from its level in 4Q2015. In December, the production of durables gained 0.5%; wood products: -0.3%. Primary metals recorded a sizable increase for a second consecutive month, and motor vehicles and parts registered a jump of 1.8% to nearly reverse its drop in November. Most nondurables industries posted declines in December; the biggest decreases were recorded by textile and product mills and by chemicals, at 3.0% and 1.0%, respectively; paper: -0.2%.

The output of mining was unchanged in December. Gains posted in crude oil extraction and in oil and gas well drilling and servicing were offset by declines reported in other mining categories. After having fallen for six consecutive quarters, the index for mining advanced 3.4% at an annual rate in 3Q and jumped nearly 12% in 4Q. 

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Capacity utilization (CU) for the industrial sector increased 0.6 percentage point in December to 75.5%, a rate that is 4.5 percentage points below its long-run (1972–2015) average.

Capacity utilization for manufacturing moved up 0.1 percentage point to 74.8%, a rate that is 3.7 percentage points below its long-run average. The operating rate for durables, at 76.2%, was 0.7 percentage point below its long-run average (wood products: -0.6%); the rates for nondurables and for other manufacturing (publishing and logging), at 74.2% and 60.6%, respectively, were substantially below their long-run averages (paper: -0.1%). Utilization for mining increased 0.2 percentage point to 78.1%, and the rate for utilities jumped 4.8 percentage points to 79.1%. 

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Capacity at the all-industries level nudged up 0.1% (+0.4% YoY) to 138.6% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 138.1%. Wood products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.6% YoY) to 170.6%. Paper edged down 0.1% (-1.2% YoY) to 116.1%.

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.

December 2016 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in December at a seasonally adjusted annual rate (SAAR) of 1.226 million units (1.200 million expected). That is 11.3 percent (±10.4%) above the revised November rate of 1.102 million (originally 1.090 million).

The multi-family segment led the increase: 157,000 units (+57.3%), to 431,000 units. Single-family starts declined by 33,000 units, or -4.0 percent (±9.2%)*, to 795,000 units.

An estimated 1.166 million housing units were started in 2016. This is 4.9 percent (±2.5%) above the 2015 figure of 1,111,800.

* 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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December’s total SAAR was 5.7 percent (±12.0%)* above the December 2015 SAAR of 1.160 million; the not-seasonally adjusted YoY change (shown in the table above) was +6.4%. Single-family starts were 3.8% higher YoY, and the multi-family component was 11.1% higher. 

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Total housing completions in December retreated by 96,000 units, or -7.9 percent (±11.4%)*, to a SAAR of 1.123 million. That was 8.7 percent (±10.1%)* above the December 2015 SAAR of 1.033 million; the NSA comparison: +10.4% YoY.

Single-family housing completions fell by 7,000 units, or -0.9 percent (±9.3%)*, to 761,000; that is +8.0% YoY. Multi-family completions tumbled by 89,000 units (-19.7% MoM, and +16.5% YoY).

An estimated 1.062 million housing units were completed in 2016. This is 9.7 percent (±3.4%) above the 2015 figure of 968,200. 

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Total permits edged down by 2,000 units, or -0.2 percent (±1.8%)*, to a SAAR of 1.210 million units (1.230 million expected). That was 0.7 percent (±1.6%)* above the December 2015 SAAR of 1.201 million; the non-seasonally adjusted YoY comparison was -7.7%.

Single-family rose by 37,000 units, or +4.7 percent (±1.7%), to 817,000 units; multi-family permits fell by 39,000 (-9.0%), to 393,000. Single-family permits were 6.4% higher YoY; multi-family: -23.4%.

The Census Bureau reports an estimated 1.187 million building permits were issued in 2016 -- a 0.4 percent (±0.8%)* increase from 2015. Interestingly, the raw data yields an estimate of 1.172 million permits in 2016, a 0.9% decrease. 

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Builder confidence in the market for newly built, single-family homes in January declined two points, to a level of 67, from a downwardly revised December reading of 69 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Builders begin the year optimistic that a new Congress and administration will help create a better business climate for small businesses, particularly as it relates to streamlining and reforming the regulatory process,” said NAHB Chairman Granger MacDonald.

“NAHB expects solid 10% growth in single-family construction in 2017, adding to the gains of 2016,” said NAHB Chief Economist Robert Dietz. “Concerns going into the year include rising mortgage interest rates as well as a lack of lots and access to labor.”

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 2016 International Trade (Softwood Lumber)

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Softwood lumber exports decreased (3 MMBF or -2.3%) in November, while imports declined (96 MMBF or -6.9%). Exports were 12 MMBF (+9.9%) above year-earlier levels; imports were 33 MMBF (-2.5%) lower. As a result, the year-over-year (YoY) net export deficit was 46 MMBF (-3.8%) smaller. The average net export deficit for the 12 months ending November 2016 was 26.7% higher than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above). 

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North America was the primary destination for U.S. softwood lumber exports in November (39.5%, of which Canada: 20.7%; Mexico: 18.8%). Asia (especially China: 20.8%) ranked second, with 36.8%. Year-to-date (YTD) exports to China were up 19.4% relative to the same months in 2015. Meanwhile, Canada was the source of nearly all (95.3%) softwood lumber imports into the United States; Imports from Canada are 24.1% higher YTD than the same months in 2015. Overall, YTD exports were down 21.5% compared to 2015, while imports were up 25.0%. 

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U.S. softwood lumber export activity through West Coast customs districts represented the largest proportion in September (35.9% of the U.S. total), the Eastern and Gulf districts lagged (33.3% and 22.2%, respectively); Seattle maintained its dominance as the most active export district (22.4% of the U.S. total). At the same time, Great Lakes customs districts handled 66.2% of softwood lumber imports -- most notably Duluth, MN (29.6%) -- coming into the United States. 

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Southern yellow pine comprised 30.8% of all softwood lumber exports in November, followed by Douglas-fir with 14.6%. Southern pine exports were up 11.4% YTD relative to 2015, while Doug-fir exports were down 18.0%.

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.

November 2016 International Trade (General)

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The goods and services deficit was $45.2 billion in November, up $2.9 billion from $42.4 billion in October. November exports were $185.8 billion, $0.4 billion less than October. Imports were $231.1 billion, $2.4 billion more than October.

The November increase in the goods and services deficit reflected an increase in the goods deficit of $3.4 billion to $66.6 billion and an increase in the services surplus of $0.5 billion to $21.4 billion.

Year-to-date, the goods and services deficit decreased $4.9 billion, or 1.1 percent, from the same period in 2015. Exports decreased $56.6 billion or 2.7 percent. Imports decreased $61.4 billion or 2.4 percent.

Goods by Selected Countries and Areas

The November figures show surpluses, in billions of dollars, with Hong Kong ($2.5), South and Central America ($2.4), Singapore ($1.0), Brazil ($0.8), and United Kingdom ($0.1). Deficits were recorded, in billions of dollars, with China ($28.4), European Union ($13.8), Japan ($5.7), Mexico ($5.7), Germany ($5.3), Canada ($3.2), Italy ($2.2), South Korea ($2.2), OPEC ($1.9), India ($1.8), Taiwan ($1.3), France ($1.3), and Saudi Arabia ($0.2).

* The deficit with Canada increased $1.5 billion to $3.2 billion in November. Exports decreased $0.7 billion to $21.3 billion and imports increased $0.9 billion to $24.5 billion.

* The deficit with the European Union increased $0.9 billion to $13.8 billion in November. Exports decreased $1.3 billion to $21.0 billion and imports decreased $0.4 billion to $34.8 billion.

* The surplus with Brazil increased $0.7 billion to $0.8 billion in November. Exports increased $0.7 billion to $3.2 billion and imports decreased less than $0.1 billion to $2.4 billion. 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume shrank 1.1% in October (-0.7% year-over-year) while prices rose by 0.4% (-1.8% YoY). October’s price index was 21.1% below the August 2011 peak; price index changes are almost perfectly (but inversely) correlated with changes in the value of the U.S. dollar.

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 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 decreased $0.3 billion or 0.1 percent to $463.8 billion in November. Shipments of durable goods increased $0.2 billion or 0.1 percent to $234.2 billion, led by primary metals. Meanwhile, nondurable goods shipments decreased $0.5 billion or 0.2 percent to $229.6 billion, led by petroleum and coal products. Shipments of Wood and Paper rose, respectively, 1.6% and 1.0%. 

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Inventories increased $1.4 billion or 0.2 percent to $623.1 billion. The inventories-to-shipments ratio was 1.34, unchanged from October. Inventories of durable goods increased $0.7 billion or 0.2 percent to $384.1 billion, led by transportation equipment. Nondurable goods inventories increased $0.7 billion or 0.3 percent to $239.0 billion, led by petroleum and coal products. Inventories of Wood expanded by 0.9%, while Paper shrank 0.1%. 

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New orders decreased $11.3 billion or 2.4 percent to $458.3 billion. Excluding transportation, new orders edged up 0.1% (and +3.0% YoY -- the second month of year-over-year increases out of the past 24). Durable goods orders decreased $10.8 billion or 4.5 percent to $228.8 billion, led by transportation equipment. New orders for nondurable goods decreased $0.5 billion or 0.2 percent to $229.6 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by 0.9% (but -1.5% YoY). Business investment spending has contracted on a YoY basis during all but two months since January 2015 (inclusive).

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 47% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders decreased $1.7 billion or 0.1 percent to $1,127.8 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.78, down from 6.79 in October. 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; not only are they back below the December 2008 peak, but they are also diverging further below the January 2010-to-June 2014 trend-growth 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.

December 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 156,000 jobs in December -- considerably below expectations of +175,000. Combined October and November employment gains were revised up by 19,000 (October: -7,000; November: +26,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 4.7% -- pushed higher as only about one-third (63,000) of those (re)entering the labor force (184,000) found jobs. 

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Observations from the employment reports include:

* Employment gains in December were once again heavily influenced by -- albeit somewhat compensating -- adjustment factors. Imputed jobs from the CES (business birth/death model) adjustment was the most negative for the month of December since 2000. However, the BLS also applied the largest seasonal adjustment to the base data of any December since 2000; had average adjustments been applied, headline jobs gains would have been roughly 90,000.

* Manufacturing added 17,000 jobs in December -- the first gain since July. That result is consistent with the Institute for Supply Management’s manufacturing employment sub-index, which expanded at a faster pace in December. Wood Products gained 2,100 jobs, but Paper and Paper Products employment fell by 900. Construction employment also declined by 3,000 -- which is contrary to ISM’s employment change for Construction.

* Essentially 80% (115,300) of December’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +6,300; Professional & Business Services: +15,000 (although the harbinger of labor demand, Temporary Help Services, dropped by 15,500); Education & Health Services: +43,200; and Leisure & Hospitality: +24,000. This is a persistent issue, as we have repeatedly highlighted: There are nearly 1.5 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but almost 1.8 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing lost 45,000 jobs in 2016 while FS&D jobs have expanded by 246,600. 

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* The number of employment-age persons not in the labor force rose by 18,000 -- to a new record high above 95.1 million. Nonetheless, the employment-population ratio (EPR) was stable at 59.7 %; roughly speaking, for every five people added to the population, only three are employed. 

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* Although the EPR was unchanged, the labor force participation rate (LFPR) rose fractionally to 62.7%, comparable to levels seen in the late-1970s. Average hourly earnings of all private employees turned positive ($0.10), to $26.00, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.07, to $21.80 (+2.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours, average weekly earnings increased by $3.43, to $891.80 (+2.3% YoY). 

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* Full-time jobs rose by 35,000 while those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- dipped by 61,000; so-called “voluntary” part-time employment, by contrast, jumped by 192,000. There are now almost 2.4 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 21.6 million). PTER employment, by contrast, has resumed falling only in the last few months after oscillating around 6 million since October 2015. Those holding multiple jobs tumbled (-258,000), and is now well below September’s post-recession peak of 7.9 million. 

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For a “sanity check” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in December jumped by $37.3 billion, to $216.0 billion (but -0.1% YoY). 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 December was 3.1% 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.

December 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the pace of expansion in U.S. manufacturing continued accelerating during December. The PMI registered 54.7%, an increase of 1.5 percentage points. (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 most noteworthy change in the sub-indexes was the jump in input prices. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- was unchanged at 57.2%. Only order backlogs fell below the breakpoint. 

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Paper Products and Construction expanded, while Ag & Forestry contracted; Wood Products and Real Estate were not mentioned at all. "New business slowed a little bit, but we are still growing,” observed one Construction respondent. “The key headwinds are holiday season and [capital expenditures] tightening due to end of year budgets.” A Public Administration respondent mentioned another headwind for construction: “Labor, especially construction labor and construction subcontractors, continues to be in short supply.”

Relevant commodities --
* Priced higher: Diesel; natural gas; corrugate; corrugated boxes; and labor
* Priced lower: Lumber products.
* Prices mixed: Gasoline.
* In short supply: Labor (both construction and temporary).

Consistency between ISM’s and IHS Markit’s surveys was fairly strong: Manufacturing PMIs accelerated in both surveys; ISM’s NMI was unchanged, while Markit’s services PMI -- although still expanding -- ticked lower.

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

Manufacturing -- “The manufacturing sector ended 2016 on a buoyant note, with promising signs that growth could pick up further in 2017.

“The pace of growth signaled by the PMI in December was the strongest for almost two years, and the combination of improving current demand and optimism for a further upturn in 2017 prompted companies to build inventory and boost capacity. The latter was reflected in the largest rise in factory payroll numbers for one and a half years.

“The upturn is being driven almost entirely by rising demand from domestic customers, with exports stymied by the dollar’s recent surge.

“The improvement in the survey data raises hopes that the official data will soon likewise show signs of the manufacturing sector’s recent malaise lifting. The latest official data showed manufacturing output stagnant compared to the start of the year, but the December PMI is consistent with production growing at an annualized rate approaching 4%.”

Services -- “The U.S. economy ended 2016 on a solid footing on which sustained growth looks set to be achieved in the coming year.

“Although losing a little momentum in December, the pace of business activity growth in the services and manufacturing sectors combined remained one of the strongest seen over the past year.

“The surveys signal GDP annualized growth of approximately 2.0% in the fourth quarter, a pace which we expect to be met -- if not slightly exceeded -- through 2017.

“The upturn also continues to deliver an impressive rate of job creation, especially given the current high level of employment -- largely reflecting improved confidence about the economic outlook.

“The only real blot on the copybook was that prices charged showed the steepest rise in one and a half years, which could feed through to reduced consumption.

“The upturn in price pressures alongside the robust economic growth signaled will also add conviction to the belief that, unlike 2015 and 2016, this year will see that Fed deliver more than one rate hike, with three quarter-point interest rate rises looking the most likely scenario.”

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 2016 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil ended 2016 with a $6.00 (13.1%) gain in December, to $51.66 per barrel. The increase occurred despite a much stronger U.S. dollar, the lagged impacts of a 242,000 barrel-per-day (BPD) drop in the amount of oil supplied/demanded in October (to 19.6 million BPD), and relative stability in accumulated oil stocks. 

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Where oil prices go from here depends upon the outcomes of two major issues: First is the degree to which Trump administration policies translate into increased U.S. energy production. The second involves how all the myriad factors surrounding the 1.8 million BPD OPEC/Russia oil production cut net out. The OPEC deal is now in effect, but several weeks or months will be required to assess how closely cartel members are adhering to their quotas. A related question is how much U.S. shale oil producers will increase production in response to the OPEC cut. The U.S. shale oil rig count continues to climb as oil prices make their way into the $50s. Analysts are estimating that prices will average about $58 a barrel in 2017 -- very close to what some claim is now the breakeven point of $60 a barrel in many shale oil locations.

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.