4Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) shaved the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.53% (in line with consensus expectations), down 0.02 percentage point (PP) from the “advance” estimate and -0.63PP from the prior quarter.

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.

This report contains no material revisions. The largest change consisted of a 0.15PP reduction in spending on consumer goods and a corresponding increase in spending on services. Otherwise, no “tier 3” line item in the report changed by more than ±0.03PP (“tier 1” is the headline number; “tier 2” corresponds to the PCE, PDI, NetX and GCE aggregates).

Real final sales of domestic product (which exclude inventories) were revised slightly higher (+0.02PP from the previous estimate and +0.86PP from 3Q), to +3.23%. 

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“The revisions in this report are arguably nothing more than statistical noise,” Consumer Metric Institute’s Rick Davis observed. “In fact, the line-by-line revisions in this report are among the smallest ever recorded.

“Despite the current happy unemployment numbers, household disposable income and savings rates remain weak. The savings rate is at the same level last seen at the brink of the Great Recession, and disposable income has grown less than 7% in aggregate over the past 10 years.

“Presumably the stagnant household income numbers will get a boost in 1&2Q2018 as a result of the Tax Cuts and Jobs Act of 2017. The withholding changes should have been rolled out during 1Q and will be in effect for the entire 2Q.

“It will be interesting to see how soon the improved take-home pay translates into the highly anticipated boost in consumer spending,” Davis concluded. “Recent history suggests that the household savings rate will be the initial beneficiary of the higher pay checks -- at least during the quarter or more that household budgets may need to recover some breathing room.”

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 2018 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2018 were at a seasonally adjusted annual rate (SAAR) of 593,000 units (600,000 expected). This is 7.8% (±19.0%)* below the revised December rate of 643,000 (originally 625,000 units) and 1.0% (±16.4%)* below the January 2017 SAAR of 599,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -2.2%. For longer-term perspectives, not-seasonally adjusted sales were 57.3% below the “housing bubble” peak and 15.8% below the long-term, pre-2000 average.

The median sales price of new houses sold in January 2018 was $323,000 (-$13,700 or 4.1% MoM); meanwhile, the average sales price fell to $382,700 (-$11,900 or 3.0%). Starter homes (defined here as those priced below $200,000) comprised 11.4% of the total sold, up from the year-earlier 13.3%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 2.3% of those sold in January, down from the year-earlier 4.4%.

* 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 18,000 units (+2.2%). The combination of increasing completions and falling sales (50,000 units; -7.8%) caused months of inventory for sale to expand in both absolute and months-of-inventory terms (7,000 units; +0.6 month). 

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Existing home sales fell by 180,000 units (-3.2%) in January, to a SAAR of 5.380 million units (5.65 million expected). As a result, inventory of existing homes for sale expanded in both absolute (+60,000 units) and months-of-inventory (+0.2 month) terms. Because new-home sales decreased proportionally more quickly than existing-home sales, the share of total sales comprised of new homes declined, to 9.9%. The median price of previously owned homes sold in January retreated to $240,500 (-$6,000 or 2.4% MoM). 

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Housing affordability improved marginally as the median price of existing homes for sale in December slipped by $300 (-0.1%; +5.7 YoY), to $247,900. 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% (+6.3% YoY) -- marking a new all-time high for the index.

“The rise in home prices should be causing the same nervous wonder aimed at the stock market after its recent bout of volatility,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Across the 20 cities covered by S&P Corelogic Case Shiller Home Price Indices, the average increase from the financial crisis low is 62%; over the same period, inflation was 12.4%. None of the cities covered in this release saw real, inflation-adjusted prices fall in 2017. The National Index, which reached its low point in 2012, is up 38% in six years after adjusting for inflation, a real annual gain of 5.3%. The National Index’s average annual real gain from 1976 to 2017 was 1.3%. Even considering the recovery from the financial crisis, we are experiencing a boom in home prices.

“Within the last few months, there are beginning to be some signs that gains in housing may be leveling off. Sales of existing homes fell in December and January after seasonal adjustment and are now as low as any month in 2017. Pending sales of existing homes are roughly flat over the last several months. New home sales appear to be following the same trend as existing home sales. While the price increases do not suggest any weakening of demand, mortgage rates rose from 4% to 4.4% since the start of the year. It is too early to tell if the housing recovery is slowing. If it is, some moderation in price gains could be seen later this year.” 

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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 2017 International Trade (Softwood Lumber)

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Softwood lumber exports retreated (11 MMBF or -7.0%) in December, while imports fell (97 MMBF or -7.1%). Exports were 16 MMBF (+12.9%) above year-earlier levels; imports were 15 MMBF (-1.2%) lower. As a result, the year-over-year (YoY) net export deficit was 31 MMBF (2.7%) smaller. Moreover, the average net export deficit for the 12 months ending December 2017 was 10.3% 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: 26.5%) and North America (of which Canada: 16.4%; Mexico: 16.3%) were the primary destinations for U.S. softwood lumber exports in December. Not surprisingly, in light of last summer’s hurricanes, the Caribbean ranked third with a 20.1% share. Year-to-date (YTD) exports to China were +22.9% relative to the same months in 2016. Meanwhile, Canada was the source of most (90.7%) of softwood lumber imports into the United States. Imports from Canada are 11.8% lower YTD than the same months in 2016. Overall, YTD exports were up 5.8% compared to 2016, while imports were down 8.8%. 

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U.S. softwood lumber export activity through the Eastern customs region represented the largest proportion in November (40.9% of the U.S. total), followed by the West Coast (28.0%) and the Gulf (23.4%) regions. Moreover, Seattle lost its lead (16.9% of the U.S. total) to Savannah (17.2%) as the single most-active district. At the same time, Great Lakes customs region handled 60.7% of softwood lumber imports -- most notably the Duluth, MN district (25.3%) -- coming into the United States. 

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Southern yellow pine comprised 35.4% of all softwood lumber exports in December, followed by other pine (15.4%), Douglas-fir (12.6%) and treated lumber (12.2%). Southern pine exports were up 9.4% YTD relative to 2016, while other pine: +112.7%; treated: +23.4%; Doug-fir: +8.8%.

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 2018 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 1,326,000 units (1.230 million expected). This is 9.7% (±16.8%)* above the revised December estimate of 1,209,000 (originally 1.192 million units) and 7.3% (±15.0%)* above the January 2017 SAAR of 1,236,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +9.5%.

Single-family housing starts in January were at a SAAR of 877,000; this is 3.7% (±9.7%)* above the revised December figure of 846,000 (+9.2% YoY). Multi-family starts: 449,000 units (+23.7% MoM; +9.9% 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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Total completions amounted to a SAAR of 1,166,000 units. This is 1.9% (±7.8%)* below the revised December estimate of 1,188,000, but 7.7% (±11.9%)* above the January 2017 SAAR of 1,083,000 units; the NSA comparison: +6.8% YoY.

Single-family housing completions were at a SAAR of 850,000; this is 2.2% (±8.3%)* above the revised December rate of 832,000 (+6.0% YoY). Multi-family completions: 316,000 units (-11.2% MoM; +9.2% YoY). 

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Total permits were at a SAAR of 1,396,000 units (1.300 million expected). This is 7.4% (±1.2%) above the revised December rate of 1,300,000 and is 7.4% (±1.9%) above the January 2017 SAAR of 1,300,000 units; the NSA comparison: +12.4% YoY.

Single-family authorizations in January were at a SAAR of 866,000; this is 1.7% (±1.3%) below the revised December figure of 881,000 (+14.0% YoY). Multi-family: 530,000 (+26.5% MoM; +9.8% YoY). 

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Builder confidence in the market for newly-built single-family homes remained unchanged at a “healthy” 72 level in February on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Builders are excited about the pro-business political climate that will strengthen the housing market and support overall economic growth,” said NAHB Chairman Randy Noel. “However, they need to manage supply-side construction hurdles, such as shortages of labor and lots and building material price increases.”

“The HMI gauge of future sales expectations has reached a post-recession high, an indicator that consumer demand for housing should grow in the months ahead,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, increasing owner-occupied household formation, and a tight supply of existing home inventory, the single-family housing sector should continue to strengthen at a gradual but consistent pace.”

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 2018 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 0.5% in January (+0.3% expected). The increase in the all items index was broad-based, with increases in the indexes for gasoline, shelter, apparel, medical care, and food all contributing. The energy index rose 3.0% in January, with the increase in the gasoline index more than offsetting declines in other energy component indexes. The food index rose 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 increased 0.3% in January. Along with shelter, apparel, and medical care, the indexes for motor vehicle insurance, personal care, and used cars and trucks also rose in January. The indexes for airline fares and new vehicles were among those that declined over the month.   

The all items index rose 2.1% for the 12 months ending January, the same increase as for the 12 months ending December. The index for all items less food and energy rose 1.8% over the past year, while the energy index increased 5.5% and the food index advanced 1.7%. 

Producer Price Index

The seasonally adjusted producer price index for final demand (PPI) increased 0.4% in January (+0.4 expected). Final demand prices were unchanged in December and moved up 0.4% in November. On an unadjusted basis, the final demand index rose 2.7% for the 12 months ended in January.

In January, the rise in the index for final demand is attributable to a 0.3-percent increase in prices for final demand services and a 0.7-percent advance in the index for final demand goods.

The index for final demand less foods, energy, and trade services rose 0.4% in January, the largest advance since increasing 0.5% in April 2017. For the 12 months ended in January, prices for final demand less foods, energy, and trade services moved up 2.5%, the largest rise since 12-month percent change data were available in August 2014.

Final Demand

Final demand services: Prices for final demand services advanced 0.3% in January following a 0.1-percent decline a month earlier. Nearly two-thirds of the broad-based increase is attributable to the index for final demand services less trade, transportation, and warehousing, which moved up 0.4%. Margins for final demand trade services rose 0.3%, and prices for final demand transportation and warehousing services advanced 0.4%. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: A major factor in the January increase in prices for final demand services was the index for hospital outpatient care, which rose 1.0%. The indexes for apparel, footwear, and accessories retailing; health, beauty, and optical goods retailing; residential real estate services (partial); long-distance motor carrying; and hospital inpatient care also moved higher. In contrast, margins for chemicals and allied products wholesaling declined 2.3%. Prices for wireless telecommunication services and airline passenger services also fell.

Final demand goods: The index for final demand goods jumped 0.7% in January, the sixth consecutive increase. Over 80% of the January advance can be traced to prices for final demand energy, which climbed 3.4%. The index for final demand goods less foods and energy rose 0.2%. Conversely, prices for final demand foods fell 0.2%.

Product detail: Nearly half of the January increase in the index for final demand goods is attributable to prices for gasoline, which climbed 7.1%. The indexes for residential electric power, iron and steel scrap, diesel fuel, jet fuel, and fresh and dry vegetables also moved higher. In contrast, prices for chicken eggs fell 38.9%. The indexes for residential natural gas and for power cranes, draglines, and shovels also declined. 

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The not-seasonally adjusted price indexes we track all increased 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.

January 2018 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) edged down 0.1% in January (+0.2% expected) following four consecutive monthly increases. Manufacturing production was unchanged in January (+0.2% expected). Mining output fell 1.0%, with all of its major component industries recording declines, while the index for utilities moved up 0.6%. At 107.2% of its 2012 average, total industrial production was 3.7% higher in January than it was a year earlier. 

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Industry Groups

Manufacturing output was unchanged in January for a second consecutive month; the index has increased 1.8% over the past 12 months. Major manufacturing industries recorded a broad mix of gains and losses in January. The production of durables moved up 0.2% (wood products: -1.4%), and the index for nondurables was unchanged (paper products: -0.4%). The output of other manufacturing (publishing and logging) fell 1.4%.

In January, the output of mining declined 1.0% for a second consecutive monthly loss. Even so, the mining index for January was 8.8% higher than its year-earlier level because of strength in the oil and natural gas sector. 

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Capacity utilization (CU) for the industrial sector fell 0.2 percentage point in January to 77.5%, a rate that is 2.3 percentage points below its long-run (1972–2017) average.

Manufacturing CU was unchanged in January at 76.2%, a rate that is 2.1 percentage points below its long-run average. The operating rate for durables, at 76.1%, was less than 1 percentage point below its long-run average, whereas the rates for nondurables and for other manufacturing (publishing and logging), at 77.4% and 60.1%, respectively, were further below their long-run averages of about 80% for each (wood products: -1.7%; paper products: -0.4%). Utilization for mining fell 1.4 percentage points to 84.2%, but the rate for utilities rose 0.3 percentage point to 81.1%. Capacity utilization rates for both mining and utilities remained below their long-run averages. 

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Capacity at the all-industries level nudged up 0.2% (+1.2% YoY) to 138.3% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +0.9% YoY) to 138.0%. Wood products: +0.3% (+0.6% YoY) to 156.8%; paper products: 0.0% (-0.1% 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.

January 2018 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved higher for a seventh consecutive month in January, increasing by $5.82 (+10.1%), to $63.70 per barrel. The advance coincided with a dramatically weaker U.S. dollar, the lagged impacts of a 472,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded during November (to nearly 19.9 million BPD), and a leveling-off of accumulated oil stocks (at 420 million barrels). 

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From ASPO-USA’s February 5, 2018 Peak Oil Review:

“After the best January in 12 years, the oil markets declined slightly last week as a stronger dollar and crashing equity markets offset surging US shale oil production, and steadily increasing US rig counts. According to EIA estimates, US crude production broke through 10 million b/d last week and is on its way toward setting an all-time US production record. Major US banks have accepted that the OPEC production cut is working and that the global oil glut is being cleared. Goldman's is talking about oil prices reaching $80 a barrel in the next six months while others are talking about prices exceeding $100 a barrel again.

…

“The future path of oil prices still has much to do with how well US shale oil production does in the next few years. In the long run - 20 or 30 years - the world is still using more oil than it is finding so that someday shortages will develop along with significantly higher prices.

“The OPEC Production Cut: There now is general agreement that the OPEC production cut was a success.  Oil prices are moving steadily higher, and excess stocks are being eliminated. Most of the thanks for this success goes to the Saudis who did more than their fair share in cutting production and Venezuela, whose crude production is collapsing of its own accord. Although Moscow made a major contribution to the success of the effort, it waited until its production could be pushed up to a recent high before declaring the base from which its production would be cut. Adherence to the deal rose to 138 percent from 137 percent in December.

“When the price of Brent climbed to about $70 a barrel recently, there was talk of ending the production freeze this summer rather than waiting until the end of the year. It did not take long to figure out that any announcement of an early end to the agreement would instantly send oil prices lower, probably hurting OPEC more than US shale oil drillers.” 

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From Oilprice.com’s February 2, 2018 Oil & Energy Insider:

“Oil prices seesawed over the past few days, but look poised to close out the week flat compared to last week. High OPEC compliance and falling Venezuelan production more or less offset surging output from U.S. shale and an uptick in inventories.

“U.S. oil production tops 10 mb/d. The EIA said this week that U.S. oil production surpassed 10 mb/d in November, just shy of the all-time high set decades ago. There was a huge increase from October, a monthly increase of over 380,000 bpd. The surging output is clear evidence that the shale industry is ramping up production at an amazing pace, and could spoil OPEC's plans to balance the market. Meanwhile, U.S. crude inventories also jumped last week, the first time that has occurred in several months.

“Goldman: Brent to $82 in 6 months. Goldman Sachs dramatically overhauled its forecast for oil prices this year, stating in a research note that the market is tightening much faster than expected. Moreover, the investment bank said that OPEC's objective of bringing down inventories to the five-year average has probably already occurred. "The rebalancing of the oil market has likely been achieved, six months sooner than we had expected." The bank predicts that OPEC will stick with the cuts for the first half of the year, which could tighten the market more than the group intends, and push prices up above $80 per barrel by the summer. From there, OPEC might gradually ratchet up output.

“OPEC compliance rate at 138 percent. OPEC maintained high levels of compliance with the production cuts in January, with its compliance rate at 138 percent according to Reuters. However, that is largely the result of the meltdown from Venezuela, which offset the gains from Saudi Arabia and Nigeria.

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 2018 Currency Exchange Rates

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In January the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-2.7%), and the euro (-3.0%) and yen (-1.8%). On a trade-weighted index basis, the USD weakened by 2.3% versus 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.

January 2018 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 decelerated slightly in January. The PMI registered 59.1%, down 0.2 percentage point from the rebenchmarked and revised reading for December 2017. (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. New orders, production and employment exhibited lower values in January than in December. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated markedly (+3.9 percentage points) to 59.9%. Only inventories and inventory sentiment had lower sub-index values in January. 

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Of the industries we track, Wood Products and Ag & Forestry contracted; Paper Products, Real Estate and Construction expanded. Respondent comments included the following:
* "Month-over-month steady growth, on average, [is] 3% on project volume and 1% on total revenue" (Construction).
* "Business continues to strengthen" (Paper Products).

Relevant commodities --
* Priced higher: Fuel (diesel and gasoline); construction labor; lumber (incl. hardwood); natural gas; pulp; paper; caustic soda; sulfuric acid; corrugate; and crude oil.
* Priced lower: None.
* Prices mixed: None.
* In short supply: Coated freesheet; construction subcontractors; labor (general, construction and temporary).

IHS Markit’s January surveys diverged from ISM’s.

Manufacturing -- January PMI signals strongest manufacturing growth since March 2015.
Key findings:
* Output and new orders expand at quickest rates for a year;
* Purchasing activity rises at steepest pace since September 2014;
* Input price inflation eases but remains sharp.

Services -- U.S. business activity growth eases to nine-month low.
Key findings:
* Upturn in output softens but remains solid;
* New business expands at fastest pace since September 2017;
* Backlogs increase at joint-strongest rate since March 2015.

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

Manufacturing: “U.S. manufacturing started 2018 in fine fettle, with the PMI up to its highest for over two-and-a-half years. Output growth accelerated in response to fuller order books, the latter buoyed by the twin drivers of robust domestic demand and rising exports.

“Factory payroll growth remained among the highest seen over the past three years, underscoring the bullish mood evident across the manufacturing sector.

“Pricing power is also returning as a result of strengthening demand, which should help bolster profit margins, but is likely to also feed through to higher consumer prices.

“The acceleration of manufacturing growth and upward price trends are grist to the mill for Fed hawks, adding to the likelihood of interest rates rising in March.”

Services: “A slowdown in the service sector comes as a disappointment, though was partially offset by faster manufacturing growth during the month. Combined, the two PMI surveys point to the economy expanding at a reasonably solid, albeit not exciting, 2-2.5% annualized rate at the start of the first quarter.

“Beneath the headline numbers, the survey findings are more encouraging, and suggest the pace of economic growth could accelerate in coming months. Most importantly, growth of new orders jumped higher in both sectors in January, registering the largest upturn in new work since last August and one of the biggest gains seen over the past three years.

“Backorders also showed the biggest rise for almost three years as firms struggled to cope with rising demand.

“This upturn in client demand was a key factor behind another month of strong hiring, but also encouraged firms to hike prices. Selling price inflation accelerated in both manufacturing and services as pricing power continued to return.”

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 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 increased $2.9 billion or 0.6% to $495.4 billion in December. Durable goods shipments increased $1.2 billion or 0.5% to $246.5 billion led by primary metals. Meanwhile, nondurable goods shipments increased $1.7 billion or 0.7% to $248.9 billion, led by petroleum and coal products. Shipments of wood products rose by 1.1%; paper: -0.1%. 

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Inventories increased $3.3 billion or 0.5% to $669.2 billion. The inventories-to-shipments ratio was 1.35, unchanged from November. Inventories of durable goods increased $1.4 billion or 0.3% to $406.8 billion, led by machinery. Nondurable goods inventories increased $1.9 billion or 0.7% to $262.4 billion, led by petroleum and coal products. Inventories of wood products rose by 0.8%; paper: +0.0%. 

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New orders increased $8.5 billion or 1.7% to $498.2 billion. Excluding transportation, new orders rose (+0.7% MoM; +5.7% YoY). Durable goods orders increased $6.8 billion or 2.8% to $249.3 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- declined (-0.6% MoM; +6.5% YoY). New orders for nondurable goods increased $1.7 billion or 0.7% to $248.9 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 63% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders increased $7.1 billion or 0.6% to $1,144.4 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.59, up from 6.58 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 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.

January 2018 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 200,000 jobs in January -- above expectations of +176,000. However, November and December employment gains were revised down by 24,000 (November: -36,000; December: +12,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 4.1%; benchmark and population adjustments applied to January’s household data rendered MoM comparisons meaningless. 

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Observations from the employment reports include:

* Correspondence between the establishment and household survey results could not be determined in January because of the confounding introduced by updated population controls.

* We have often been critical of the BLS’s seeming to “plump” the headline numbers with favorable adjustment factors; that appears to have been true again in January. Imputed jobs from by the CES (business birth/death model) adjustment were less negative than average for the month of January (since 2000); moreover, the BLS applied the largest seasonal adjustment for a January to the base data. Had average January adjustments been used, employment changes might have been roughly -199,000 instead of the reported +200,000.

* As for industry details, Manufacturing expanded by 15,000 jobs. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in January at a marginally slower pace than December. Wood Products employment gained 1,300 jobs (ISM was unchanged); Paper and Paper Products: -2,200 (ISM was unchanged). Construction employment jumped by 36,000 (ISM’s services report was unavailable at the time of this writing). 

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* The number of employment-age persons not in the labor force (NILF) rose by 153,000 -- to a new record of 95.6 million. Meanwhile, the employment-population ratio was unchanged at 60.1%; thus, for every five people being added to the population, only three are employed. 

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* Like the unemployment rate, the labor force participation rate (LFPR) was unchanged at 62.7% -- comparable to levels seen in the late-1970s. Average hourly earnings of all private employees rose by $0.09, to $26.74, resulting in a 2.9% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages advanced by $0.03, to $22.34 (+2.4% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours, average weekly earnings decreased by $2.25, to $917.18 (+2.6% YoY). With the consumer price index running at an annual rate of 2.1% in December, workers appear -- officially, at least -- to be holding steady in terms of purchasing power. 

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* Full-time jobs jumped by 293,000. Those employed part time for economic reasons (PTER) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 74,000. Those holding multiple jobs advanced by 198,000. 

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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 increased in January, by $7.0 billion (+3.0% MoM; +8.9% YoY), to $237.4 billion -- a record for that month of the year. 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 7.5% 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.