2Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) lifted the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +3.04% (well above consensus expectations of 2.6%), up +0.48 percentage point (PP) from the “advance” estimate and +1.80 PP from the prior quarter.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and net exports (NetX) -- contributed to 1Q growth. Government consumption expenditures (GCE) detracted from it. As for details:

* Consumer spending was revised up to +2.27% (+0.34 PP from the previous 2Q estimate and +0.95 PP from 1Q); the biggest positive revisions were in motor vehicles and parts (+$5.7 billion, nominal), other (unspecified) services (+$10.9 billion), and final consumption expenditures of nonprofit institutions serving households (+$6.5 billion) – which, as we have observed in the past, have no observable market price. Partially offsetting those additions was a $19.1 billion drop (nominal) in health care expenditures.

* Inventories continued to be essentially neutral (+0.02%).

* Growth in commercial fixed investment was revised upward (to +0.58%), concentrated primarily in software (+$5.1 billion); residential construction contracted (-$0.8 billion).

* Governmental spending was trimmed back into marginal contraction (-0.05%) -- mainly at the state and local levels (-$8.0 billion).

* Growth rates for both exports (+0.45%) and imports (-0.23%) moderated. 

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“Per this report,” wrote Consumer Metric Institute’s Rick Davis, “the US economy is in a very pleasant zone -- slightly over the Goldilocks +3% number that is neither too cool nor too hot. Consumer spending has rebounded into normal ranges. It would appear that U.S. consumers have shrugged off the unrelenting domestic political drama and moved on to more normal spending patterns -- although they are dipping into savings to do so. In short, this report is certainly good enough to provide the Federal Reserve with the data needed to justify moving forward with their ‘normalization’ campaign.”

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.

July 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2017 were at a seasonally adjusted annual rate (SAAR) of 571,000 units (610,000 expected). This is 9.4% (±12.9%)* below the revised June rate of 630,000 (originally 610,000 units) and 8.9% (±15.4%)* below the July 2016 SAAR of 627,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -9.3%. For a longer-term perspective, sales were 58.9% below the “housing bubble” peak and 6.3% below the long-term, pre-2000 average.

The median sales price of new houses sold in July 2017 was $313,700 (+$2,100 or 0.7% MoM). The average sales price was $371,200 (-$1,200 or 0.3% MoM). Starter homes (defined here as those priced below $200,000) comprised 16.3% of the total sold, down from July 2016’s 18.5%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 2.0% of those sold in July, a proportion nearly half that of a year earlier (3.7%).

* 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 July, single-unit completions fell by 13,000 units (-1.6%). Because the decrease in completions was eclipsed by that of sales, new-home inventory expanded in both absolute (+4,000 units) and months-of-inventory terms (+0.6 month). 

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Existing home sales fell by 70,000 units (-1.3%) in July, to a SAAR of 5.440 million units (5.570 million expected). Inventory of existing homes shrank in absolute terms (-20,000 units) but was unchanged in months-of-inventory terms. With new-home sales decreasing at about the same rate as existing-home sales, the share of total sales comprised of new homes dropped to 9.5%. The median price of previously owned homes sold in July decreased by $5,000 (-1.9% MoM) from June’s all-time high of $263,300. 

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Housing affordability deteriorated for an eighth month as the median price of existing homes for sale in June jumped by $11,900 (+4.7%; +6.6 YoY), to $266,200. 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 +0.9% (+5.8% YoY) -- marking a new all-time high for the index.

“The trend of increasing home prices is continuing,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Price increases are supported by a tight housing market. Both the number of homes for sale and the number of days a house is on the market have declined for four to five years. Currently the months-supply of existing homes for sale is low, at 4.2 months. In addition, housing starts remain below their pre-financial crisis peak as new home sales have not recovered as fast as existing home sales.”

“Rising prices are the principal factor driving affordability down. However, other drivers of affordability are more favorable: the national unemployment rate is down, and the number of jobs created continues to grow at a robust pace, rising to close to 200,000 per month. Wages and salaries are increasing, maintaining a growth rate a bit ahead of inflation. Mortgage rates, up slightly since the end of 2016, are under 4%. Given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely.” 

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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.

July 2017 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in July at a seasonally adjusted annual rate (SAAR) of 1,155,000 units (1.225 million expected). This is 4.8% (±10.2%)* below the revised June estimate of 1,213,000 (originally 1.215 million units) and 5.6% (±8.5%)* below the July 2016 SAAR of 1,223,000; the not-seasonally adjusted YoY change (shown in the table above) was -5.4%.

Single-family housing starts in July were at a SAAR of 856,000; this is 0.5% (±8.5%)* below the revised June figure of 860,000 and 11.7% YoY. Multi-family starts: 299,000 units (-15.3% MoM; -34.5% YoY).

* 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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Privately-owned housing completions amounted to 1,175,000 units. This is 6.2% (±14.3%)* below the revised June estimate of 1,252,000, but 8.2% (±12.6%)* above the July 2016 rate of 1,086,000; the NSA comparison: +7.6% YoY.

Single-family completions in July were at a rate of 814,000; this is 1.6% (±11.9%)* below the revised June rate of 827,000 but +9.2% YoY. Multi-family completions: 361,000 units (-15.1% MoM; +4.7% YoY). 

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Total permits were at a SAAR of 1,223,000 units (1.246 million expected). This is 4.1% (±0.9%) below the revised June rate of 1,275,000, but 4.1% (±1.8%) above the July 2016 SAAR of 1,175,000; the NSA comparison: +2.6% YoY.

Single-family authorizations were at a rate of 811,000; this is unchanged from the revised June figure of 811,000 and +12.9% YoY. Multi-family: 412,000 (-11.2% MoM; -14.7% YoY). 

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Builder confidence in the market for newly-built single-family homes rose four points in August to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Our members are encouraged by rising demand in the new-home market,” said NAHB Chairman Granger MacDonald. “This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.”

“The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” said NAHB Chief Economist Robert Dietz. “GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”

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.

July 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.2% in July (+0.3% expected) following an increase of 0.4% in June. In July, manufacturing output edged down 0.1%; the production of motor vehicles and parts fell substantially, but that decrease was mostly offset by a net gain of 0.2% for other manufacturing industries. Following a six-month string of increases beginning in September 2016, factory output was little changed, on net, between February and July. The indexes for mining and utilities in July rose 0.5% and 1.6%, respectively. At 105.5% of its 2012 average, total industrial production was 2.2% above its year-earlier level. 

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Industry Groups

Manufacturing output edged down 0.1% in July. The index for durables decreased 0.5%, but the index for nondurables increased 0.4%. Among durable manufacturing industries, the largest decrease, about 3 1/2%, was recorded by motor vehicles and parts; in addition, the indexes for primary metals and for furniture and related products each dropped more than 1% (but wood products: +0.6%). Among nondurable manufacturing industries, increases of 1% or more were posted by chemicals and by apparel and leather (paper products: +0.1%). The index for other manufacturing (publishing and logging) moved down 0.4%.

The index for mining rose 0.5% in July for its fourth consecutive monthly increase. Within mining, gains in oil and gas extraction and in metal ore mining were partially offset by declines in nonmetallic mineral mining and in drilling and support activities. The decrease of 0.5% in drilling and support services followed 10 consecutive months of increases for that index. 

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Capacity utilization (CU) for the industrial sector was unchanged in July at 76.7%, a rate that is 3.2 percentage points below its long-run (1972–2016) average.

Manufacturing CU edged down 0.1 percentage point in July to 75.4%, a rate that is 3.0 percentage points below its long-run average. The operating rate for durables declined 0.4 percentage point to 74.2%, the rate for nondurables increased 0.3 percentage point to 77.7% (wood products: +0.6%; paper products: +0.1%), and the rate for other manufacturing (publishing and logging) was unchanged. Utilization for mining moved up 0.2 percentage point to 84.6%, and the rate for utilities increased 1.2 percentage points to 78.1%. Capacity utilization rates for both mining and utilities remained well below their long-run averages. 

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Capacity at the all-industries level nudged up 0.1% (+1.1% YoY) to 137.5% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.9% YoY) to 137.3%. Wood products: +0.0% (+0.6% YoY) to 156.2%; paper products: 0.0% (-1.1% YoY) to 110.4%.

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.

July 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) rose 0.1% in July (+0.2% expected). The indexes for shelter, medical care, and food all rose in July, leading to the seasonally adjusted increase in the all items index. The energy index declined slightly in July, with its major component indexes mixed. The index for natural gas declined, while the electricity index rose and the gasoline index was unchanged. The food index increased 0.2%, with the indexes for food at home and food away from home both rising.

The index for all items less food and energy rose 0.1%, the fourth month in a row it increased by that amount. The indexes for shelter, medical care, recreation, apparel, motor vehicle insurance, and airline fares all rose in July. These increases more than offset declines in the indexes for new vehicles, communication, used cars and trucks, and household furnishings and operations.   

The all items index rose 1.7% for the 12 months ending July, a slightly larger increase than for the 12 months ending June. The index for all items less food and energy also rose 1.7% for the 12 month period, the same increase as for the 12 months ending May and June. The energy index rose 3.4% over the last year, while the food index increased 1.1%. Rent rose by 3.8%; health insurance: +1.2%.

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) declined 0.1% in July (+0.1 expected). Final demand prices inched up 0.1% in June and were unchanged in May. Over 80% of the July decrease in final demand prices is attributable to the index for final demand services, which fell 0.2%. Prices for final demand goods edged down 0.1%.

On an unadjusted basis, the final demand index increased 1.9% for the 12 months ended in July. The index for final demand less foods, energy, and trade services was unchanged in July following a 0.2-percent advance in June. For the 12 months ended in July, prices for final demand less foods, energy, and trade services rose 1.9%.

Final Demand

Final demand services: The index for final demand services moved down 0.2% in July, the first decline since a 0.3-percent drop in February. Most of the July decrease can be traced to margins for final demand trade services, which fell 0.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Additionally, prices for final demand transportation and warehousing services declined 0.8%. In contrast, the index for final demand services less trade, transportation, and warehousing advanced 0.2%.

Product detail: About 60% of the July decrease in prices for final demand services is attributable to a 5.8-percent drop in margins for chemicals and allied products wholesaling. The indexes for machinery and equipment wholesaling; portfolio management; apparel, footwear, and accessories retailing; airline passenger services; and fuels and lubricants retailing also moved lower. Conversely, prices for traveler accommodation services rose 2.2%. The indexes for apparel wholesaling and hospital outpatient care also increased.

Final demand goods: Prices for final demand goods edged down 0.1% in July after inching up 0.1% in June. In July, the index for final demand energy fell 0.3%, and prices for final demand goods less foods and energy declined 0.1%. The index for final demand foods was unchanged.

Product detail: A major factor in the July decrease in prices for final demand goods was the index for gasoline, which moved down 1.4%. Prices for beef and veal, utility natural gas, motor vehicles, and basic organic chemicals also fell. In contrast, the index for grains jumped 17.1%. Prices for diesel fuel; pork; and consumer, institutional, and commercial plastic products also moved higher. 

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The not-seasonally adjusted price indexes we track were mixed 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.

June 2017 International Trade (Softwood Lumber)

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Softwood lumber exports increased (23 MMBF or +17.7%) in June, while imports fell (73 MMBF or -5.9%). Exports were 11 MMBF (+7.8%) above year-earlier levels; imports were 245 MMBF (-17.3%) lower. As a result, the year-over-year (YoY) net export deficit was 259 MMBF (-20.1%) smaller. Moreover, the average net export deficit for the 12 months ending June 2017 was 2.5% smaller 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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Asia (especially China: 18.5%) and North America (of which Canada: 18.2%; Mexico: 17.6%) were the primary destinations for U.S. softwood lumber exports in June. Year-to-date (YTD) exports to China were +10.0% relative to the same months in 2016. Meanwhile, Canada was the source of most (94.1%) of softwood lumber imports into the United States. Interestingly, imports from Canada are 14.4% lower YTD than the same months in 2016. Overall, YTD exports were up 1.7% compared to 2016, while imports were down 11.8%. 

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U.S. softwood lumber export activity through Eastern customs region represented the largest proportion in June (34.7% of the U.S. total), followed by the West Coast (31.3%) and the Gulf (28.4%) regions. However, Seattle maintained a small lead (20.3% of the U.S. total) over Mobile (19.0%) as the single most-active district. At the same time, Great Lakes customs region handled 65.4% of softwood lumber imports -- most notably the Duluth, MN district (30.5%) -- coming into the United States. 

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Southern yellow pine comprised 36.1% of all softwood lumber exports in June, followed by treated lumber (13.7%) and Douglas-fir (13.7%). Southern pine exports were up 4.2% YTD relative to 2016, while treated: +36.0%; Doug-fir: +3.5%.

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.

July 2017 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment added 209,000 jobs in July -- well above expectations of +180,000. In addition, combined May and June employment gains were revised up by 2,000 (May: -7,000; June: +9,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) rounded down to 4.3% as expansion of the labor force (+349,000) was nearly matched by growth in the number of persons employed (+345,000). 

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Observations from the employment reports include:

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; July may be such a case. Imputed jobs from the CES (business birth/death model) adjustment were the highest for any month of July since 2000, but the BLS also applied one of the least-negative (12^th percentile) seasonal adjustments to the base data. Had average adjustments been used, July’s job gains might have been closer to +140,000. Another indication July’s job gains may be more statistical than tangible comes from new seasonal adjustments, which created a significant discrepancy between the adjusted and unadjusted data; unadjusted data backward revisions were down while the adjusted data were up.

* As for industry details, Manufacturing gained 16,000 jobs in July. That result runs somewhat counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded at a slower pace in July. Wood Products employment rose by 300 jobs; Paper and Paper Products: +100. Construction employment advanced by 6,000 -- which mirrors construction employment trends in ISM’s services report.

* Nearly 41% (83,200) of July's private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +900; Temporary Help Services: +14,700; Social Assistance: +5,600; and Leisure & Hospitality: +62,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.32 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 2.09 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. In fact, Manufacturing has gained 82,000 jobs YTD2017 while FS&D jobs have expanded by 210,000. 

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* The number of employment-age persons not in the labor force (NILF) retreated by 156,000 -- to 94.7 million. July’s NILF estimate remains within 0.5% of December 2016’s record high, however. Meanwhile, the employment-population ratio (EPR) increased fractionally to 60.2%; thus, for every five people being added to the population, only three are employed. 

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* Given the number of people (re)entering the labor force, the labor force participation rate (LFPR) ticked up to 62.9% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees increased by $0.09, to $26.36, resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.06, to $22.10 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings increased by $3.10, to $909.42 (+2.8% YoY). With the consumer price index running at an annual rate of 1.6% in June, workers are -- officially, at least -- holding steady in terms of purchasing power. 

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* Full-time jobs retreated by 54,000; there are now roughly 4.0 million more full-time jobs than the pre-recession high; for perspective, however, the non-institutional, working-age civilian population has risen by nearly 22.0 million. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- fell by 44,000. Those holding multiple jobs edged down by 50,000. 

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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 July fell by $0.8 billion, to $194.8 billion (-0.4% MoM, but +9.7% 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 July was 8.1% 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.

June 2017 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 $0.9 billion or 0.2% to $471.5 billion in June. Shipments of durable goods decreased $0.1 billion or virtually unchanged to $236.2 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $0.8 billion or 0.3% to $235.3 billion, led by petroleum and coal products. Shipments of both wood products and paper rose by 0.3%. 

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Inventories increased $1.0 billion or 0.2% to $649.1 billion. The inventories-to-shipments ratio was 1.38, up from 1.37 in May. Inventories of durable goods increased $1.8 billion or 0.5% to $397.4 billion, led by machinery. Nondurable goods inventories decreased $0.8 billion or 0.3% to $251.7 billion, led by petroleum and coal products. Inventories of wood products contracted by 0.2%; paper: +0.6%. 

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New orders increased $14.0 billion or 3.0% to $481.1 billion. Excluding transportation, new orders fell (-0.2% MoM; +4.6% YoY). Durable goods orders increased $14.8 billion or 6.4% to $245.8 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- declined by less than 0.1% (but +4.7% YoY) after five consecutive months of expansion. New orders for nondurable goods decreased $0.8 billion or 0.3% to $235.3 billion.

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. Even with June 2017’s transportation-led jump, the recovery in real new orders is back to just 56% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders increased $14.2 billion or 1.3% to $1,135.7 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.83, up from 6.74 in May. 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 then jumped to 102% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Since then, however, real unfilled orders have gradually declined; not only are they back below the December 2008 peak, but they are also generally diverging from 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.

July 2017 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that the expansion in U.S. manufacturing slowed in July. The PMI registered 56.3%, down 1.5 percentage points from June. (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. Index/sub-index values were generally lower in July -- the most notable exception being 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 -- decelerated more noticeably (-3.5 percentage points) to 53.9%. As with manufacturing, the service index/sub-indexes generally exhibited lower values. 

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Of the industries we track, only Ag & Forestry contracted. "Export orders are continuing to strengthen,” observed one Wood Products respondent, adding, “The understatement is how stable domestic business is as well.”

Relevant commodities --
* Priced higher: Corrugate; corrugated boxes; diesel; labor (general and construction); paper products.
* Priced lower: Gasoline.
* Prices mixed: Lumber.
* In short supply: Labor (construction, services, and temporary).

ISM’s and IHS Markit’s July surveys moved in opposite directions, with ISM signaling deceleration but Markit acceleration.

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

Manufacturing -- “The second half of the year got off to a good start for U.S. manufacturers, with the health of the sector improving at the fastest rate for four months. Output, new orders, employment and buying activity all grew at increased rates. The only real blot on the copybook was a decline in exports for the first time since last September.

“However, although rising, the survey indices remain consistent with only very modest increases in comparable official data such as manufacturing output, durable goods orders and payroll numbers. Clearly the manufacturing sector remains stuck in a low gear, though is at least gaining momentum and will hopefully shift up a gear as we move through the second half of the year if demand continues to improve. IHS Markit expects GDP growth to accelerate to a near 3% annualized rate in the third quarter, fueled by gains in consumer spending and business investment, which should benefit manufacturing.”

Services -- “The PMI surveys have now shown growth accelerating for four consecutive months, meaning the economy started the third quarter with the strongest momentum since January. This is also a broad-based improvement, with the upturn in service sector activity coming on the heels of news of faster manufacturing growth.

“With inflows of new business into the vast service sector rising at the fastest rate for two years, the survey data support the view that the economy is on course for solid growth in the third quarter. At current levels, the surveys are indicative of GDP rising at an annualized rate of approximately 2%, but if growth accelerates further in line with the upturn in new business, the third quarter could be even stronger.

“Hiring meanwhile remains encouragingly buoyant, with the July PMI surveys indicating a payroll rise in the region of 200,000. Firms retained a strong hiring appetite in response to widespread optimism of future growth and the need to deal with rising backlogs of existing orders, underscoring the current positive mood in the business sector.”

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.

July 2017 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged higher in July, increasing by $1.45 (+3.2%), to $46.63 per barrel. The advance occurred despite a weaker U.S. dollar, the lagged impacts of a 494,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded during May (to 20.0 million BPD), and a continued decline in accumulated oil stocks (to 482 million barrels). 

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Comments from ASPO-USA’s Peak Oil Review Editor Tom Whipple:

“Oil prices were strong [during the last full week of July] with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in U.S. stockpiles of 7.2 million barrels. This decline was brought about by a high level of U.S. refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016.  A reduction in Saudi shipments to the U.S. was also seen as responsible for the unusually large decline in inventories.

“U.S. exports of crude and oil products remain strong. Exports of the lighter shale oils from the Gulf ports are doing well, and there are plans to increase U.S. oil-export capacity by allowing exports from Louisiana's offshore LOOP terminal which can handle larger tankers. The higher demand for U.S. oil products has been caused by refining problems in Mexico and Venezuela that has led to higher imports of finished products. The spread between Brent and WTI crude prices is making U.S. exports more competitive, and U.S. crude has started to be shipped to distant refineries.

“Goldman Sachs said last week that the oil markets are rebalancing more quickly than it had expected a few weeks ago. The firm cited higher demand, the OPEC production cut, strong withdrawals from U.S. inventories, and a declining rate of increases of rigs in the U.S. rig count. If the trend in U.S. stocks continues, Goldman expects the oil markets to be rebalanced by early 2018.

“The OPEC Production Cut: The St. Petersburg OPEC meeting to discuss the OPEC production seems to have resulted in little change. There was no discussion of further output cuts and the pressure to include Libya and Nigeria that was being called for by several members remains under study. A cutback in Saudi exports to the U.S. is taking place, but it is unclear whether this is being forced by higher summer domestic demand or a deliberate decision to push down U.S. crude stocks.

“U.S. Shale Oil Production: The U.S. oil rig count increased by only two rigs last week suggesting caution on the part of drillers, or perhaps problems in obtaining enough experienced personnel, fracking sand, or the investment capital needed to expand production.  It takes several weeks to reactivate a rig after the decision to activate is made. In mid-June oil was trading at around $43 a barrel which is well below the breakeven point for many drillers. With the increase in prices in the last month, we could see increasing rig reactivations later next month.

“The backlog of drilled but uncompleted shale oil wells has increased by nearly 1,000 this year to over 6,000. Some of this may be due to drillers holding back while waiting for higher oil prices, but many are saying that there simply are not enough qualified fracking crews left after the severe cutbacks in the last few years. Prices for fracking services have doubled in the last year which has created considerable pressure on drillers with U.S. oil still under $50 a barrel.” 

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Selected July 28 news items from Oilprice.com Editor Tom Kool include the following:

“Shell's CEO: Oil prices ‘lower forever.’ Royal Dutch Shell's CEO Ben van Beurden said this week that oil prices will likely remain ‘lower forever,’ not just because of too much supply, but also because the coming wave of electric vehicle adoption will lead to peak demand, possibly as soon as the late-2020s. His company now produces more natural gas than oil and will continue to diversify. Meanwhile, the company posted better-than-expected profits for the second quarter at $3.6 billion, or more than three times larger than the year before.

“JBC Energy: Oil to drop below $40 in 2018. Unless OPEC makes deeper production cuts, oil prices are in danger of falling below $40 per barrel in the first quarter of next year, according to JBC Energy GmbH. The consultancy sees oil prices trading between $45 and $47 later this year, but then it gets ‘very tricky,’ as demand slows. ‘If OPEC stays the same and we have the same output restrictions even in the first quarter [of 2018], we're looking at a lot of surplus in the market,’ Richard Gorry, managing director at JBC Asia, told Bloomberg. ‘To really tighten the market, OPEC will have to cut more, and I don't know if they want to do that.’”

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.

July 2017 Currency Exchange Rates

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In July the monthly average value of the U.S. dollar (USD) depreciated against two of the three major currencies we track: Canada’s “loonie” (-4.5%) and euro (-2.4%); the USD appreciated against the yen (+1.5%), however. On a trade-weighted index basis, the USD weakened by 1.3% 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.