4Q2016 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) made some zero-sum revisions that left the growth rate of the U.S. economy essentially unchanged at a seasonally adjusted and annualized rate (SAAR) of +1.85% (below consensus expectations of 2.1%), down 0.02 percentage point from the previous 4Q estimate and also down by nearly half (-1.68 percentage points) from 3Q2016's +3.53%.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed to 4Q growth; net exports (NetX) detracted from it.

Notable underlying revisions include: an upward revision in consumer spending, both in services and goods; a downward revision to business investment (mostly in intellectual property products and equipment); and a downward revision to state and local government spending (primarily in structures).

The reason for the headline miss was a decline in fixed investment which slid from 0.67% to 0.51% as capital expenditures appear to have been weaker than initially thought, coupled with a negative revision to both private inventories (down from +1.00% to +0.94%) and the contribution from Government, which subtracted another 0.15% point.

The net exports category was unchanged, and was the biggest detractor from 4Q growth (-1.7%) as the 3Q surge of exports to South America dissipated. 

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“This revision was material only because the source components of the ‘not great, but on the other hand not really bad’ headline were shifted in a zero-sum way from commercial investments and governmental expenditures to consumers,” wrote Consumer Metric Institute’s Rick Davis, while noting the following:

-- In 3Q (covering the pre-election economy), the BEA reported that the U.S. GDP was growing at a 3.53% annualized rate. Now that growth has been essentially halved.

-- The BEA's own “bottom line” final sales growth rate dropped over 2% and was below 1% (+0.91%) -- once growing inventories were factored out.

-- The inflation neutralizing GDP deflator used (+2.03%) was materially below the inflation rate recorded by the BEA's sister agency, the Bureau of Labor Statistics (+3.05%). Using the BLS data to deflate the numbers also results in a sub-1% growth rate (+0.87%).

“As we mentioned last month,” Davis concluded, “4Q growth was just ‘kind of, sort of’ OK. Meanwhile, the BEA’s ‘bottom line’ sub-1% growth rate is somewhat less than OK. 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.

January 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2017 were at a seasonally adjusted annual rate (SAAR) of 555,000 units (576,000 expected). This is 3.7% (±18.5 percent)* above the revised December rate of 535,000 (originally 536,000) and is 5.5% (±25.4 percent)* above the January 2016 SAAR of 526,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was 5.1%. For a longer-term perspective, January sales were 60.0% below the “bubble” peak and 21.6% below the long-term, pre-2000 average.

The median sales price of new houses sold in January was $312,900 (-$3,300 or -1.0%). The average sales price was $360,900 (-$18,000 or -4.8%). Starter homes (those priced below $200,000) comprised 14.6% of the total sold, down from January 2016’s 23.1%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 4.9% of those sold in January, a slight bump from January 2016’s record-low (for that month of the year, going back to 2002) of 2.6%

* 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 rose by 33,000 units (+4.3%). Because the increase in completions outpaced that of sales, new-home inventory expanded in absolute (+9,000 units) terms but remained stable in months-of-inventory terms. 

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Existing home sales jumped by 180,000 units (+3.3%) in January, to a decade-high 5.690 million units (SAAR), above expectations of 5.575 million. Inventory of existing homes expanded in absolute (+40,000 units), but remained stable in months-of-inventory terms. Although the rise in existing-home sales exceeded that of new homes in January, the share of total sales comprised of new homes inched up by less than 0.1%, to 8.9%. The median price of previously owned homes sold in January retreated by $4,400 (-1.9%), to $228,900. 

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Housing affordability degraded marginally despite the median price of existing homes for sale in December falling by $2.500 (-1.1%; +3.8 YoY), to $233,500. 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% (+5.9% YoY), bringing home prices to a new all-time high.

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “With all 20 cities seeing prices rise over the last year, questions about whether this is a normal housing market or if prices could be heading for a fall are natural. In comparing current home price movements to history, it is necessary to adjust for inflation. Consumer prices are higher today than 20 or 30 years ago, while the inflation rate is lower. Looking at real or inflation-adjusted home prices based on the S&P CoreLogic Case-Shiller National Index and the Consumer Price Index, the annual increase in home prices is currently 3.8%. Since 1975, the average pace is 1.3%; about two-thirds of the time, the rate is between -4% and +7%. Home prices are rising, but the speed is not alarming.

“One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990. Another indicator that home price levels are normal can be seen in the charts of Seattle and Portland OR. In the boom-bust of 2005-2009, prices of low, medium, and high-tier homes moved together, while in other periods, including now, the tiers experienced different patterns.” 

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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 2017 Macro Pulse -- Carbon Taxes: 21-Century Bloodletting Therapy?

Difficult as it may be to imagine today, bloodletting was used well into the 19th century as the “go-to” treatment for hysteria, heart disease and just about every other imaginable malady. In fact, bloodletting for treatment of a still-undiagnosed ailment likely contributed to the untimely passing of the first U.S. president, George Washington.

Today, we are told, a malady is upon us – one that, unless dealt with quickly and decisively, will result in the interrelated calamities of drought, flooding, famine, rising sea levels, and world war. That malady is the crisis of anthropogenic (i.e., human-caused) climate change (ACC) – more commonly called global warming – in which the average temperature of the Earth’s climate system is increasing as the result of greenhouse gases, including carbon dioxide, being released into the atmosphere, mainly by burning fossil fuels. Debating whether or not the ACC “science is settled” – or the existence of ulterior motives associated with suggested remedies – is beyond the scope of this publication; rather, our focus here is on a method being proposed in the United States to address the crisis.

Click here to read the rest of the February 2017 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.

January 2017 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 0.6% in January (+0.3% expected) -- the largest MoM jump since February 2013. A sharp rise in the gasoline index (+7.8%) accounted for nearly half the increase, and advances in the indexes for shelter (rent: +0.3%), apparel, and new vehicles also were major contributors.

The all-items index rose 2.5% for the 12 months ending January, the largest 12-month increase since March 2012. The index for all items less food and energy rose 2.3% YoY, and the energy index increased 10.8%, its largest 12-month increase since November 2011. Rent rose by 3.9% YoY, and medical services: +3.6%.

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) increased 0.6% in January (+0.3% expected). Over 60% of the advance in the final demand index is attributable to a 1.0% increase in prices for final demand goods. The index for final demand services moved up 0.3%.

The final demand index climbed 1.6% for the 12 months ended January 2017; the index for final demand less foods, energy, and trade services climbed 1.6% YoY.

Final Demand

Final demand goods: Prices for final demand goods moved up 1.0% in January, the largest rise since a 1.0% advance in May 2015. Three-fourths of the January increase can be traced to the index for final demand energy, which jumped 4.7%. Prices for final demand goods less foods and energy climbed 0.4%. The index for final demand foods was unchanged.

Product detail: Over half of the January increase in prices for final demand goods is attributable to the gasoline index, which advanced 12.9%. The indexes for pharmaceutical preparations, iron and steel scrap, home heating oil, residential natural gas, and pork also moved higher. In contrast, prices for beef and veal fell 7.2%. The indexes for light motor trucks and for candy and nuts also decreased.

Final demand services: The index for final demand services rose 0.3% in January after edging up 0.1% in December. Over 80% of the January increase can be traced to margins for final demand trade services, which advanced 0.9%. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand transportation and warehousing services climbed 1.1%. Conversely, prices for final demand services less trade, transportation, and warehousing inched down 0.1%.

Product detail: Nearly half of the January increase in the index for final demand services can be attributed to margins for apparel, jewelry, footwear, and accessories retailing, which advanced 4.8%. The indexes for fuels and lubricants retailing, loan services (partial), airline passenger services, food and alcohol retailing, and services related to securities brokerage and dealing also moved higher. In contrast, prices for guestroom rental fell 3.3%. The indexes for apparel wholesaling and bundled wired telecommunications access services also decreased. 

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The not-seasonally adjusted price indexes we track were mixed on a MoM basis, but all rose on a YoY 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 2017 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in January at a seasonally adjusted annual rate (SAAR) of 1.246 million units (1.232 million expected). This is 2.6 percent (±11.0%)* below the revised December estimate of 1.279 million (originally 1.226 million), but 10.5 percent (±15.3%)* above the January 2016 SAAR of 1.128 million; the not-seasonally adjusted YoY change (shown in the table above) was +11.0%.

* 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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The multi-family segment led the MoM decrease: -48,000 units (-10.2%), to 423,000 units. Single-family rose by 15,000 units, or +1.9 percent (±10.8%)* to 823,000 units. 

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Total housing completions in January declined by 62,000 units, or -5.6 percent (±8.0%)* to 1.047 million units. That is 0.9 percent (±15.0%)* below the January 2016 SAAR of 1.056 million; the NSA comparison: -0.6% YoY. 

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Single-family housing completions rose by 33,000 units, or +4.3 percent (±7.5%)* to 800,000 units. Multi-family completions tumbled by 95,000 units, or -27.8%, to 247,000 units. 

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Total permits rose by 57,000 units, or +4.6 percent (±2.0%) to 1.285 million units (1.233 million expected). That is 8.2 percent (±1.6%) above the January 2016 SAAR of 1.188 million; the non-seasonally adjusted YoY comparison was +16.0%.

Single-family fell by 22,000 units, or -2.7 percent (±1.9%) to 808,000 units. Multi-family permits: +79,000 units, or +19.8%, to 477,000 units. 

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Builder confidence in the market for newly-built single-family homes declined two points in February to a level of 65 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“While builders remain optimistic, we are seeing the numbers settling back into a normal range,” said NAHB Chairman Granger MacDonald. “Regulatory burdens remain a major challenge to our industry, and NAHB looks forward to working with the new Congress and administration to help alleviate some of the pressures that are holding small businesses back and making homes less affordable.”

“With much of the decline this month resulting from a decrease in buyer traffic, builders continue to struggle to minimize costs while dealing with supply side challenges such as a lack of developed lots and labor shortages,” said NAHB Chief Economist Robert Dietz. “Despite these constraints, the overall housing market fundamentals remain strong and we expect to see continued growth this year as some of these concerns are addressed.”

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 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.3% in January (+0.0% expected) following a 0.6% increase in December. In January, manufacturing output moved up 0.2% (in line with expectations), and mining output jumped 2.8%. The index for utilities fell 5.7%, largely because unseasonably warm weather reduced the demand for heating. At 104.6% of its 2012 average, total IP in January was at about the same level as it was a year earlier.

Industry Groups

The index for manufacturing output rose 0.2% in January. Although the output of motor vehicles and parts decreased 2.9%, production elsewhere in manufacturing moved up 0.5%. The production of durables edged down (wood products: -0.3%), but most of its components other than motor vehicles and parts recorded gains; machinery manufacturing registered the biggest advance. The index for nondurables rose 0.6%, as increases of 1% or more were posted by textile and product mills, by petroleum and coal products, and by chemicals; paper: +0.5%. The output of other manufacturing (publishing and logging) fell 0.7%.

The output of mining jumped 2.8% in January after declining in December, with most mining industries posting increases. The mining index in January was 0.4% higher than its year-earlier level. 

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Capacity utilization (CU) for the industrial sector fell 0.3 percentage point in January to 75.3%, a rate that is 4.6 percentage points below its long-run (1972–2016) average.

Manufacturing CU moved up 0.1 percentage point in January to 75.1%, a rate that is 3.3 percentage points below its long-run average. The operating rate for durables, at 76.2%, is 0.7 percentage point below its long-run average (wood products: -0.2%); the rates for nondurables (paper: +0.6%) and for other manufacturing (publishing and logging), at 75.0% and 59.9%, respectively, remain substantially below their long-run averages (about 80% for each). Utilization for mining moved up 2.0 percentage points, to 79.1%, but the rate for utilities fell 4.6 percentage points, to 75.1%. Capacity utilization rates for both mining and utilities are well below their long-run averages. 

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Capacity at the all-industries level nudged up 0.1% (+0.5% YoY) to 138.8% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 138.3%. Wood products retreated for the first time since November 2013 when decreasing by 0.1% (+4.0% YoY) to 170.4%. Paper edged down 0.1% (-1.2% YoY) to 116.0%.

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 2016 International Trade (Softwood Lumber)

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Softwood lumber exports decreased (13 MMBF or -9.7%) in December, while imports declined (38 MMBF or -2.9%). Exports were 2 MMBF (-1.2%) below year-earlier levels; imports were 77 MMBF (+6.5%) higher. As a result, the year-over-year (YoY) net export deficit was 79 MMBF (+7.4%) larger. The average net export deficit for the 12 months ending December 2016 was 26.1% 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 December (38.3%, of which Mexico: 20.1%; Canada: 18.2%). Asia (especially China: 19.5%) ranked second, with 35.4%. Year-to-date (YTD) exports to China were up 16.8% relative to the same months in 2015. Meanwhile, Canada was the source of nearly all (95.0%) softwood lumber imports into the United States; Imports from Canada are 22.5% higher YTD than the same months in 2015. Overall, YTD exports were down 2.8% compared to 2015, while imports were up 23.4%. 

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U.S. softwood lumber export activity through West Coast customs districts represented the largest proportion in December (35.0% of the U.S. total), the Eastern and Gulf districts lagged (30.1% and 27.6%, respectively); Seattle maintained its dominance as the most active export district (20.3% of the U.S. total). At the same time, Great Lakes customs districts handled 65.4% of softwood lumber imports -- most notably Duluth, MN (28.3%) -- coming into the United States. 

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Southern yellow pine comprised 33.9% of all softwood lumber exports in December, followed by Douglas-fir with 12.8%. Southern pine exports were up 12.9% YTD relative to 2015, while Doug-fir exports were down 20.2%.

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.

December 2016 International Trade (General)

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The goods and services deficit was $44.3 billion in December, down $1.5 billion from $45.7 billion in November. December exports were $190.7 billion, $5.0 billion more than November exports. December imports were $235.0 billion, $3.6 billion more than November imports.

The December decrease in the goods and services deficit reflected a decrease in the goods deficit of $1.2 billion to $65.7 billion and an increase in the services surplus of $0.3 billion to $21.4 billion.

For 2016, the goods and services deficit increased $1.9 billion, or 0.4%, from 2015. Exports decreased $51.7 billion or 2.3%. Imports decreased $49.9 billion or 1.8%.

Goods by Selected Countries and Areas

The December figures show surpluses, in billions of dollars, with Hong Kong ($2.1), South and Central America ($1.0), Singapore ($0.9), Saudi Arabia ($0.4), and Brazil ($0.2). Deficits were recorded, in billions of dollars, with China ($30.2), European Union ($12.9), Japan ($6.8), Germany ($5.2), Mexico ($4.6), Italy ($2.8), India ($2.0), South Korea ($1.8), Canada ($1.5), Taiwan ($1.0), OPEC ($1.0), France ($0.7), and United Kingdom ($0.2).

* The deficit with Canada decreased $1.7 billion to $1.5 billion in December. Exports increased $1.0 billion to $22.4 billion and imports decreased $0.7 billion to $23.8 billion.

* The deficit with Mexico decreased $1.2 billion to $4.6 billion in December. Exports increased $1.6 billion to $20.7 billion and imports increased $0.5 billion to $25.2 billion. 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume expanded by 2.8% in October (+2.7% year-over-year) while prices fell by 0.7% (-0.4% YoY). October’s price index was 21.8% 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.

January 2017 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil begun 2017 essentially where it left 2016 -- gaining just $0.53 (1.0%) in January, to $52.50 per barrel. The increase coincided with a marginally weaker U.S. dollar, the lagged impacts of a 33,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded in November (to 19.7 million BPD), and an uptick in accumulated oil stocks. 

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OPEC appears to be making good on its promise to cut output. A Reuters survey found that OPEC cut output by over 1 million BPD in January, achieving an 82% compliance rate with the promised cuts. "This is very high, a good number," an OPEC source said. Several prominent oil market analysts expect inventories to draw down in the first half of this year because of OPEC production cuts. Barclays, for example, estimates oil inventories will fall by 900,000 bpd in the first quarter, helping to tighten the market. But the Energy Information Administration has a much more bearish view of the situation, expecting inventories to increase throughout this year by 300,000 bpd, only starting to draw down in the second half of 2018. As such, the agency expects oil prices to remain below $60 per barrel over the next two years. Because oil futures prices exhibit a mix of contango and backwardation, it appears traders tend to favor the EIA’s opinion and thus do not expect much upside potential for prices.

Claims that there are twice the volume of oil and gas reserves than the world will need through 2050 raises the possibility the oil industry could race to produce as much as possible to monetize the value, which would keep prices low for the foreseeable future.

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 2017 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 January. The PMI registered 56.0%, or +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 input prices -- the most widespread increase since January 2005. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- slowed fractionally, to 56.6%. Price increases were the most widespread since July 2014. 

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Paper Products and Construction expanded, while Wood Products and Real Estate contracted.

Relevant commodities --
* Priced higher: Diesel; natural gas; paper; corrugate and corrugated boxes.
* Priced lower: None.
* 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 ticked lower, while Markit’s services PMI showed the fastest rise in business activity since November.

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

Manufacturing -- “The US manufacturing sector has started 2017 with strong momentum. Despite exports being subdued by the strong dollar, order books are growing at the fastest pace for over two years on the back of improved domestic demand.

“With optimism about the year ahead at the highest since last March, the outlook has also brightened.

“Production is consequently growing at the strongest rate for almost two years and inventories are rising at a rate not seen for nearly a decade as firms respond to higher demand, suggesting the goods-producing sector will make a decent contribution to first quarter GDP.

“With input costs also rising at the steepest rate for over two years, and hiring sustained at an encouragingly solid pace as firms expand capacity, all of the survey indicators point to the Fed hiking interest rates again soon.”

Services -- “The US economy has started 2017 on the front foot. Business activity across the economy is growing at the fastest rate for over a year and optimism about the business outlook has risen to the highest for a year and a half.

“The January surveys signal annualized GDP growth of approximately 2.5%, setting the scene for a solid first quarter. With January seeing the largest inflow of new business for 18 months, there’s good reason to believe that firms will be even busier in coming months.

“Even more encouraging is the ongoing impressive rate of job creation, with the January PMI numbers comparable to around 200,000 jobs being added.

"A waning of price pressures takes some heat off the Fed, though the sustained strong output and jobs growth signaled by the surveys will fuel speculation that the next rate hike will be sooner rather than later, with June looking most likely.”

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 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 277,000 jobs in January -- considerably above expectations of +175,000. Combined November and December employment gains were revised down by 39,000 (November: -40,000; November: +1,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 4.8%. 

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The BLS cautioned against making too many inferences from the January jobs report -- especially making MoM comparisons. The establishment survey data was revised as a result of the annual benchmarking process and the updating of seasonal adjustment factors. Also, the household survey data for January 2017 reflect updated population estimates.

Despite its own warning, the BLS provided the following MoM comparisons: 

* Manufacturing added 5,000 jobs in January. That result is consistent with the Institute for Supply Management’s manufacturing employment sub-index, which expanded at a faster pace in January. Wood Products employment was unchanged, while Paper and Paper Products added 500 jobs. Construction employment jumped by 36,000 -- which seems consistent with recent residential building activity; interestingly, however, ISM’s services report indicated no rise in construction employment. 

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* The number of employment-age persons not in the labor force (NILF) dropped by 736,000 -- to 94.3 million -- although much of that change resulted from the updated population estimates mentioned above. Nonetheless, January’s NILF estimate is within 0.8% of December’s record high. Meanwhile, the employment-population ratio (EPR) was increased to 59.9 %; roughly speaking, for every five people being added to the population, only three are employed. 

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* Like the EPR, the labor force participation rate (LFPR) also rose fractionally to 62.9%, still comparable to levels seen in the late-1970s. Average hourly earnings of all private employees inched higher ($0.03), to $26.00, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $21.84 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours, average weekly earnings increased by $1.03, to $894.40 (+1.9% YoY). 

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* Full-time jobs jumped by 457,000. That good news was partially offset by the observation that those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 242,000; so-called “voluntary” part-time employment, by contrast, tumbled by 764,000. There are now over 2.8 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by 20.9 million). Those holding multiple jobs edged up to 7.6 million (+8,000), 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 January rose by $1.9 billion, to $217.9 billion (+0.9% MoM and +14.0% 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 January was 5.0% 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 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 $10.4 billion or 2.2% to $475.8 billion in December. Shipments of durable goods increased $3.3 billion or 1.4% to $238.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $7.2 billion or 3.1% to $237.8 billion, led by petroleum and coal products. Shipments of Wood and Paper rose, respectively, 1.7% and 0.7%. 

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Inventories increased $0.6 billion or 0.1% to $625.6 billion. The inventories-to-shipments ratio was 1.31, down from 1.34 in November. Inventories of durable goods decreased $0.3 billion or 0.1% to $383.9 billion, led by transportation equipment. Nondurable goods inventories increased $0.9 billion or 0.4% to $241.7 billion, led by petroleum and coal products. Inventories of Wood expanded by 1.1%, while Paper shrank 0.4%. 

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New orders increased $6.1 billion or 1.3% to $464.9 billion. Excluding transportation, new orders rose 2.1% (and +3.8% YoY -- the third month of year-over-year increases out of the past 24). Durable goods orders decreased $1.1 billion or 0.5% to $227.1 billion, led by transportation equipment. New orders for nondurable goods increased $7.2 billion or 3.1% to $237.8 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by 0.7% (and +1.4% YoY). Business investment spending contracted on a YoY basis during all but three months since January 2015 (inclusive).

As can be seen in the graph above, real (inflation-adjusted) new orders were essentially flat between early 2012 and mid-2014, recouping on average 70% of the losses incurred since the beginning of the Great Recession. With July 2014’s transportation-led spike an increasingly distant memory, 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 $7.1 billion or 0.6% to $1,119.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.62, down from 6.75 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; 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.