What is Macro Pulse?

Macro Pulse highlights recent activity and events expected to affect the U.S. economy over the next 24 months. While the review is of the entire U.S. economy its particular focus is on developments affecting the Forest Products industry. Everyone with a stake in any level of the sector can benefit from
Macro Pulse's timely yet in-depth coverage.


Wednesday, November 27, 2019

3Q2019 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) bumped the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.13%, up 0.2 percentage point (PP) from the “advance” estimate (“3Qv1”) and +0.12PP from 2Q2019.
Two of the four GDP component groupings -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed to 3Q growth; private domestic investment (PDI) and net exports (NetX) detracted from it.
The headline increase stemmed mostly from upward revisions to subcategories of PDI -- especially inventories (+0.22PP) and investment in nonresidential structures (+0.11PP). Meanwhile, consumer spending was little changed at +1.97PP. Exports rose a bit faster (+0.02PP), but were more than offset by the change in imports (-0.05PP).
The BEA's real final sales of domestic product was revised modestly downward (-0.02PP, to +1.96%), which is -0.96PP from 2Q. 
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“Except for the inventory number, most of this report's changes can be characterized as statistical noise,” wrote Consumer Metric Institute’s Rick Davis, who added the following “take-aways” from the report:
-- The improved headline growth came from growing inventories. That is not a good economic signal in and of itself, and it does not reflect improved domestic consumption.
-- The material drop from 2Q’s greater than +3% growth in consumer spending for goods and services was confirmed.
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.

October 2019 Residential Sales, Inventory and Prices

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Sales of new single-family houses in October 2019 were at a seasonally adjusted annual rate (SAAR) of 733,000 units (707,000 expected). This is 0.7% (±20.4%)* below the revised September rate of 738,000 (originally 701,000), but 31.6% (±23.7%) above the October 2018 SAAR of 557,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +32.6%. For longer-term perspectives, NSA sales were 47.2% below the “housing bubble” peak but 9.0% above the long-term, pre-2000 average.
The median sales price of new houses sold in October rose to $316,700 ($6,500 or +2.1% MoM); meanwhile, the average sales price jumped to $383,300 ($16,400 or +4.5%). Starter homes (defined here as those priced below $200,000) comprised 8.8% of the total sold, down from the year-earlier 9.3%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.8% of those sold in October, down from 4.7% a year earlier.
* 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 October, single-unit completions increased by 39,000 units (+4.5%). Because sales ticked down (-5,000 units; 0.7%) while completions rose, inventory for sale expanded in both absolute (+1,000 units) and months-of-inventory (+0.1 month) terms. 
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Existing home sales advanced in October (+100,000 units or 1.9%), to a SAAR of 5.46 million units. Inventory of existing homes for sale shrank in absolute (-50,000 units) and months-of-inventory (-0.2 month) terms. Because new-home sales fell while resales rose, the share of total sales comprised of new homes retreated to 11.8%. The median price of previously owned homes sold in October declined to $270,900 ($600 or -0.2% MoM). 
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Housing affordability improved (+4.5 percentage points) as the median price of existing homes for sale in September retreated by $6,800 (-2.4%; +6.1 YoY), to $275,100. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.1% (+3.2% YoY).
"September’s report for the U.S. housing market is reassuring,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The national composite index rose 3.2% relative to year-ago levels, with smaller increases in our 10- and 20-city composites. Of the 20 cities in the composite, only one (San Francisco) saw a year-over-year price decline in September.
“After a long period of decelerating price increases, it’s notable that in September both the national and 20-city composite indices rose at a higher rate than in August, while the 10-city index’s September rise matched its August performance. It is, of course, too soon to say whether this month marks an end to the deceleration or is merely a pause in the longer-term trend.
“At a regional level, Phoenix retains the top spot for the fourth consecutive month with September’s 6.0% year-over-year gain. The Southeast region was also strong, as Charlotte, Tampa, and Atlanta all rose at greater than a 4.0% clip.”

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.

Tuesday, November 19, 2019

October 2019 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in October at a seasonally adjusted annual rate (SAAR) of 1,314,000 units (1.320 million expected). This is 3.8% (±8.7%)* above the revised September estimate of 1,266,000 (originally 1.256 million units) and 8.5% (±10.8%)* above the October 2018 SAAR of 1,211,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +7.0%.
Single-family starts were at a SAAR of 936,000; this is 2.0% (±6.3%)* above the revised September figure of 918,000 (+6.0% YoY). Multi-family starts: 378,000 units (+8.6% MoM; +9.4% 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 were at a SAAR of 1,256,000 units. This is 10.3% (±11.7%)* above the revised September estimate of 1,139,000 (originally 1.262 million units) and 12.4% (±11.7%) above the October 2018 SAAR of 1,117,000 units; the NSA comparison: +11.8% YoY.
Single-family completions were at a SAAR of 897,000; this is 4.5% (±10.3%)* above the revised September rate of 858,000 (+7.8% YoY). Multi-family completions: 359,000 units (+27.8% MoM; +23.9% YoY). 
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Total permits amounted to a SAAR of 1,461,000 units (1.380 million expected). This is 5.0% (±1.7%) above the revised September rate of 1,391,000 (originally 1.425 million units) and 14.1% (±2.1%) above the October 2018 SAAR of 1,281,000 units; the NSA comparison: +15.7% YoY.
Single-family permits were at a SAAR of 909,000; this is 3.2% (±1.0%) above the revised September figure of 881,000 (+7.6% YoY). Multi-family: 552,000 (+8.2% MoM; +30.8% YoY). 
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Builder confidence in the market for newly-built single-family homes edged one point lower to 70 in November, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The past two months mark the highest sentiment levels in 2019.
“Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” said NAHB Chairman Greg Ugalde. “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.”
“We have seen substantial year-over-year improvement following the housing affordability crunch of late 2018, when the HMI stood at 60,” said NAHB Chief Economist Robert Dietz. “However, lot shortages remain a serious problem, particularly among custom builders. Builders also continue to grapple with other affordability headwinds, including a lack of labor and regulatory constraints.”
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.

Friday, November 15, 2019

October 2019 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) fell 0.8 percent (-0.4% expected) in October after declining 0.3 percent in September. Manufacturing production decreased 0.6 percent in October. Much of this decline was due to a drop of 7.1 percent in the output of motor vehicles and parts that resulted from a strike at a major manufacturer of motor vehicles. The decreases for total IP, manufacturing, and motor vehicles and parts were their largest since May 2018, April 2019, and January 2019, respectively.
Excluding motor vehicles and parts, the index for total industrial production moved down 0.5 percent, and the index for manufacturing edged down 0.1 percent. Mining production decreased 0.7 percent, while utilities output fell 2.6 percent.
At 108.7 percent of its 2012 average, total industrial production was 1.1 percent lower in October than it was a year earlier. 
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Industry Groups
Manufacturing output fell 0.6 percent in October to a level 1.5 percent lower than its year-earlier reading (NAICS manufacturing: -0.6% MoM; -1.3% YoY). In October, the strike in the motor vehicle industry contributed to a drop of 1.2 percent for durables. Excluding motor vehicles and parts, the output of durables moved down 0.2 percent. The indexes for electrical equipment, appliances, and components and for miscellaneous manufacturing each moved down more than 1 percent; wood products recorded the largest gain, with an increase of 0.7 percent. The production of nondurables was unchanged, as increases in the indexes for food, beverage, and tobacco products and for printing and support were offset by declines in other indexes (paper products: -0.7%). The output of other manufacturing (publishing and logging) fell 1.0 percent.
Mining output moved down 0.7 percent in October following a similarly sized decline in September, but the index for mining was still 2.7 percent higher than its year-earlier level. The output of utilities fell 2.6 percent in October; a decrease in the output of electricity more than offset an increase in the index for natural gas utilities.
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Capacity utilization (CU) for the industrial sector decreased 0.8 percentage point (PP) in October to 76.7 percent, a rate that is 3.1PP below its long-run (1972–2018) average.
Manufacturing CU decreased 0.5PP in October to 74.7 percent, a rate that is 3.6PP below its long-run average (NAICS manufacturing: -0.7%, to 75.2%). The operating rate for durables dropped 1.0PP, while the rate for nondurables edged down 0.1PP (wood products: +0.4%; paper products: -0.7%). The utilization rate for mining fell to 88.8 percent yet was still 1.7PP higher than its long-run average. The rate for utilities declined 2.1PP and remained well below its long-run average. 
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Capacity at the all-industries level nudged up 0.2% (+2.2 % YoY) to 141.6% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.4% YoY) to 139.9%. Wood products: +0.3% (+4.1% YoY) to 168.1%; paper products: 0.0% (-0.4 % YoY) to 109.7%.
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.

October 2019 Consumer and Producer Price Indices (incl. Forest Products)

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The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in October (+0.3% expected). The energy index (especially gasoline: +3.7%) increased 2.7% in October after recent monthly declines and accounted for more than half of the increase in the seasonally adjusted all items index; increases in the indexes for medical care (+0.9%), for recreation (+0.4%), and for food (+0.2%) also contributed.
The index for all items less food and energy rose 0.2% in October after increasing 0.1% in September. Along with the indexes for medical care and for recreation, the indexes for used cars and trucks, for shelter, and for personal care all rose in October, though the increase in the shelter index was the smallest since October 2013. The apparel index fell in October, as did the indexes for household furnishings and operations, for new vehicles, and for airline fares.
The all items index increased 1.8% for the 12 months ending October, a slightly larger rise than the 1.7% increase for the period ending September. The index for all items less food and energy rose 2.3% over the last 12 months. The food index rose 2.1% over the last 12 months, while the energy index declined 4.2% over the last year despite increasing in October.
The Producer Price Index for final demand (PPI-FD) increased 0.4% in October (+0.3% expected). Final demand prices fell 0.3% in September and edged up 0.1% in August. In October, the index for final demand services rose 0.3%, and prices for final demand goods increased 0.7%.
The final demand index advanced 1.1% for the 12 months ended in October, the smallest annual rise since a 1.1% increase in the 12 months ended October 2016. The index for final demand less foods, energy, and trade services inched up 0.1% after no change in September. For the 12 months ended in October, prices for final demand less foods, energy, and trade services advanced 1.5%.
Final Demand
Final demand services: The index for final demand services moved up 0.3% in October following a 0.2% decline in September. Over 70% of the broad-based increase can be traced to a 0.8% advance in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing edged up 0.1%, and the index for final demand transportation and warehousing services increased 0.3%.
Product detail: A major factor in the advance in the index for final demand services were margins for apparel, jewelry, footwear, and accessories retailing, which rose 2.6%. The indexes for outpatient care (partial), inpatient care, food wholesaling, food and alcohol retailing, and truck transportation of freight also moved higher. In contrast, prices for securities brokerage, dealing, investment advice, and related services dropped 8.4%. The indexes for machinery and vehicle wholesaling and for loan services (partial) also moved lower. (See table 4.)
Final demand goods: The index for final demand goods advanced 0.7% in October, the largest increase since a 1.0% jump in March. Seventy percent of the October rise is attributable to prices for final demand energy, which moved up 2.8%. The index for final demand foods advanced 1.3%, while prices for final demand goods less foods and energy were unchanged.
Product detail: Almost half of the October advance in the index for final demand goods can be traced to prices for gasoline, which moved up 7.3%. The indexes for fresh and dry vegetables, residential electric power, basic organic chemicals, corn, and diesel fuel also increased. Conversely, prices for iron and steel scrap fell 15.7%. The indexes for chicken eggs and passenger cars also declined. (In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October. 
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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.

Thursday, November 7, 2019

September 2019 International Trade (Softwood Lumber)

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Softwood lumber exports decreased (6 MMBF or -5.7%) in September; imports rose (29 MMBF or +2.4%). Exports were 17 MMBF (-14.0%) below year-earlier levels; imports were 70 MMBF (-5.3%) lower. As a result, the year-over-year (YoY) net export deficit was 44 MMBF (-4.5%) smaller. Also, the average net export deficit for the 12 months ending September 2019 was 4.5% 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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North America (45.1%; of which Canada: 20.9%; Mexico: 24.2%) and Asia (24.9%; especially China: 6.3%; and Japan: 6.3%) were the primary destinations for U.S. softwood lumber exports; the Caribbean ranked third with a 20.8% share. Year-to-date (YTD) exports to China were -61.8% relative to the same months in 2018. Meanwhile, Canada was the source of most (92.4%) of softwood lumber imports into the United States. Imports from Canada were 4.8% lower YTD than the same months in 2018. Overall, YTD exports were down 22.8% compared to 2018; imports: -4.7%. 
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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (37.4% of the U.S. total), followed by the Gulf (32.1%) and Eastern (22.0%) regions. Seattle (22.5% of the U.S. total) maintained the lead over Mobile (18.7%) as the single most-active district. At the same time, Great Lakes customs region handled 65.5% of softwood lumber imports -- most notably the Duluth, MN district (21.2%) -- coming into the United States. 
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Southern yellow pine comprised 24.7% of all softwood lumber exports, Douglas-fir (14.7%) and treated lumber (12.2%) were also significant. Southern pine exports were down 38.1% YTD relative to 2018, while treated: -23.5%; Doug-fir: -8.4%.
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.

Wednesday, November 6, 2019

October 2019 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil nudged down by $2.98 (-5.2%), to $53.96 per barrel in October. The decrease occurred within the context of a modestly weaker U.S. dollar (broad trade-weighted index basis, which now accounts for the value of both goods and services), the lagged impacts of a 320,000 barrel-per-day (BPD) rise in the amount of petroleum products supplied during August (to 21.6 million BPD), and a moderate rise in accumulated oil stocks (October average: 439 million barrels). 
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From the 4 November 2019 issue of Peak Oil Review:
“OPEC's oil production jumped by 690,000 BPD from September to 29.59 million BPD in October, as the Saudis saw their production surge by 850,000 BPD, to 9.9 million, according to the Reuters survey.  The Saudis are now pumping as much oil as they did before the attack in mid-September.  OPEC+ will, at the very least, extend production curbs beyond the March 2020 deadline.  Analysts believe any increase in OPEC+'s production in the immediate future would send oil prices "into the abyss" and is not in line with the group's "long-held commitment to stabilize the oil market."
“The course of U.S. shale oil production over the next five months will be important to what OPEC+ does this winter.  Russia's Deputy Energy Minister Sorokin said last week that Russia is monitoring the growth in U.S. shale oil production and that there has been a significant slowdown over the past three-four months.  He noted that drilling efficiency has stalled over the past two years.
“The Trump administration, however, still sees the U.S. shale oil boom barreling ahead, despite slowing production, falling rig counts, and investment in new production sagging.  Energy Secretary Perry said last week that U.S. shale production has turned the world "on its head," and Goldman Sachs Group Inc. is "off a bit" in a report last week saying that the bonanza is fading.
“The downturn in shale drilling has been so steep and fast that oilfield companies are taking the unprecedented step of scrapping entire fleets of fracking equipment.  With almost half of U.S. fracking machinery expected to be sitting idle within weeks, shale drillers are retiring truck-mounted pumping units and other equipment used to fracture shale rock.  In previous market slumps, frackers parked unused equipment to await a revival in demand; this time it's different, gear is being stripped down for parts or sold for scrap.
“As oil prices remain low, talk has begun about the outlook for Texas' economy.  According to a recent Reuters report, smaller independent oil and gas producers in the state are struggling to get loans from banks as the latter become increasingly wary of the ability of the borrowers to return the money when the time comes.  Jobs in the Texas oil and gas industry are falling, too. The Houston Business Journal reported this month that September saw a 1,100 decline in the number of jobs in the mining and logging sector-the category that includes oil and gas jobs.
“Conventional oil and gas discoveries have fallen since the shale boom and the subsequent oil price collapse.  In fact, they've fallen to their lowest level in 70 years.  This year has seen new discoveries of nearly 8 billion barrels of oil "equivalent" (which includes natural gas) compared to 10 billion barrels of oil equivalent discovered last year.  But what's most striking is that discoveries aren't even close to keeping pace with the loss of conventional resources.  According to Rystad, the current resource replacement ratio for conventional oil is only 16 percent.  In other words, only one barrel out of every six consumed is being replaced with new resources.
“Given that the world currently consumes some 35 billion barrels of oil per year, it is difficult to understand the optimism for the future of the oil industry.” 
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Selected highlights from the 1 November 2019 issue of OilPrice.com’s Oil & Energy Insider include:
Trade war hurdles remain despite soothing words. President Trump has raised expectations that a partial trade deal is all but a done deal, but hurdles remain. Reuters reports that Trump’s insistence on China buying as much as $50 billion in farm products – more than twice as much as China bought in the year before the trade war – is a sticking point. Bloomberg also reported that Chinese officials are not optimistic about a comprehensive deal, as they do not trust Trump to stick to the terms of any agreement. Still, press reports suggest there is momentum in the near-term for a partial deal.
Trump admin may back off auto freeze. The Wall Street Journal reports that the Trump administration is reconsidering its freeze on fuel economy standards, and instead might opt for 1.5 percent annual increases, putting it closer to the Obama-era proposal.
Oilfield services scrap equipment. Bloomberg reports that the surplus of fracking equipment is being stripped for parts and sold off, rather than merely being idled. The industry is expected to use around 13 million horsepower at the end of 2019, out of 25 million horsepower available. Bloomberg reports that around 2.2 million horsepower – about 10 percent of industry capacity – is headed for the scrap heap.
China manufacturing data contracts sharply. Factory data from China showed a sixth consecutive month of contraction, and activity fell faster than expected. “We expect the official manufacturing PMI to remain sluggish in coming months, the growth slowdown could gather pace, and markets could become more volatile in coming months,” said analysts from Nomura in a note. New data on Friday, however, was more positive.
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.

Tuesday, November 5, 2019

October 2019 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that in October, U.S. manufacturing contracted at a marginally slower pace. The PMI registered 48.3%, up 0.5 percentage point (PP) from the September reading. (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. Notable changes in the sub-indexes included a turnaround (although barely back into positive territory) in exports (+9.4PP) and a drop in input prices (-4.2PP). 
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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 (+2.1PP, to 54.7%). Drivers behind the rise were concentrated in new orders (+1.9PP) and employment (+3.3PP). 
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Of the industries we track, only Paper Products contracted. Respondent comments included the following:
Construction -- "Current outlooks for commodities, equipment, and materials indicate purchasing now has leverage. Investment is still hampered by uncertainties in trade, global economic environment, manufacturing and the like."
Real Estate -- "Business remains brisk and well ahead of last year to date, as we near the peak of our busiest season. Looking ahead, our customers remain upbeat about their business well into next year."
Paper Products -- "Trade cost pressures continue to be a headwind in our business."

Relevant commodities:
Priced higher -- Lumber products.
Priced lower -- Freight, diesel and gasoline.
Prices mixed -- None.
In short supply -- Construction subcontractors; and labor (general, construction and temporary).

Findings of IHS Markit’s October surveys were mixed relative to their ISM counterparts, but the overall conclusions were the same -- the U.S. economy remains rather fragile.
Manufacturing -- PMI rises to six-month high in October
Key findings:
* Modest improvement in operating conditions as PMI rises to 51.3
* Faster upturns in output, new orders and employment
* Output prices broadly unchanged

Services -- Slowest rise in business activity since February 2016
Key findings:
* Marginal upturn in output
* Fastest fall in employment for almost a decade
* Renewed rise in input prices

Commentary by Chris Williamson, Markit’s chief business economist:
Manufacturing -- "Tentative signs of renewed vigor are appearing in the U.S. manufacturing sector, with the survey’s production gauge having now risen for three successive months to suggest that the soft patch bottomed out in July. Growth of new orders hit a six-month high, fueled in part by a renewed increase in exports, prompting producers to take on more staff, with payroll numbers rising at the quickest pace since May.
"The improvement in current conditions was matched by a lifting of business optimism about the year ahead to the highest seen since June. It was also encouraging to see this optimism feed through to an upturn in demand for investment goods, such as plant and machinery, as this hints that firms are moving back into expansion mode, albeit only tentatively so far.
"However, while the outlook has improved, further growth is by no means assured. Survey respondents continue to report widespread concerns over issues such as tariffs, the auto sector’s ongoing malaise, a lack of pricing power amid weak demand and uncertainty about the economic and political situation over the coming year. While the survey data are moving in the right direction, the overall picture therefore remained one of only very modest growth and guarded optimism."

Services -- “Although October saw signs of manufacturing pulling out of its recent soft patch, the far-larger service sector remained in the doldrums as inflows of new work failed to grow for the first time since 2009. Taken together, the manufacturing and service sector surveys consequently suggest that the U.S. economy got off to a disappointing start in the fourth quarter, consistent with GDP growing at an annualized rate of less than 1.5%.
“With inflows of new work drying up, firms are relying on previously-placed orders to sustain current output growth, meaning the rate of expansion could weaken further in coming months if demand doesn’t revive. Hence we’re seeing jobs being cut at an increased rate among surveyed companies, with employment falling for a second successive month and to a degree not seen since 2009. Such a weakening of the survey’s employment index will likely feed through to the official jobs numbers as we move toward the end of the year.
“The news was by no means all negative, however, with firms becoming more optimistic about the year ahead, buoyed by hopes of an easing of trade tensions and stimulus from lower interest rates. However, the overall degree of optimism remains sharply lower than this time last year as companies remain concerned by ongoing uncertainty about the outlook.”

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.

September 2019 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments in September decreased 0.2% to $501.1 billion. Durable goods shipments decreased 0.5% to $252.1 billion. Meanwhile, nondurable goods shipments increased 0.1% to $249.0 billion. Shipments of wood products fell by 0.6% while paper edged up 0.1%. 
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Inventories increased 0.3% to $697.9 billion. The inventories-to-shipments ratio was 1.39, unchanged from August. Inventories of durable goods increased 0.5% to $430.3 billion. Nondurable goods inventories increased 0.1% to $267.6 billion. Inventories of wood products contracted 0.4%; paper: -0.2%. 
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New orders decreased 0.6% to $496.7 billion. Excluding transportation, new orders edged down by 0.1% (+0.1% YoY). Durable goods orders decreased 1.2% to $247.7 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending – fell by 0.6% (0.0% YoY). New orders for nondurable goods increased 0.1% to $249.0 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 less than 70% of the losses incurred since the beginning of the Great Recession. The recovery in real new orders is back to just 51% of the ground given up in the Great Recession. 
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Unfilled durable-goods orders were essentially unchanged at $1,163.3 billion. The unfilled orders-to-shipments ratio was 6.69, up from 6.68 in August. Real unfilled orders, which had been a good litmus test for sector growth, show a less positive 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 been trending sideways-to-down.
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.

Monday, November 4, 2019

October 2019 Currency Exchange Rates

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In October the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.4%) and euro (-0.4%) but appreciated against the yen (+0.6%). On the broad trade-weighted index basis (goods and services), the USD lost 0.5% 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.

Saturday, November 2, 2019

October 2019 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 128,000 jobs in October (+93,000 expected). Also, combined August and September employment gains were revised up by 95,000 (August: +51,000; September: +44,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up to 3.6% as expansion of the labor force (+325,000) outpaced growth in the number of employed persons (+241,000). 
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Observations from the employment reports include:
* The establishment (+128,000 jobs) and household survey results (+241,000 employed) were better correlated than usual in October. Had average (since 2009) October CES (business birth/death model) and seasonal adjustments been used, job gains might have been a more modest +83,000.
* Manufacturing shrank by 36,000 jobs in October. That result is reasonably consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a slower pace in October. Wood Products employment added 1,400 jobs (ISM unchanged); Paper and Paper Products: +600 (ISM decreased); Construction: +10,000 (ISM not yet published). 
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* The number of employment-age persons not in the labor force (NILF) was little changed (-118,000) at 95.5 million. This metric has leveled off since the latter half of 2018. Meanwhile, the employment-population ratio (EPR) was stable at 61.0% -- its highest level since December 2008; roughly, then, for every five people being added to the working-age population, three are employed. 
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* With growth in the labor force 57% larger than that of the working-age civilian population, the labor force participation rate increased fractionally to 63.3%. Average hourly earnings of all private employees rose by $.0.06, to $28.18, resulting in a 3.0% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.04, to $23.70 (+3.5% YoY). Because the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings increased by $2.06, to $969.39 (+2.7% YoY). With the consumer price index running at an annual rate of 1.7% in September, workers are maintaining purchasing power according to official metrics. 
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* Full-time jobs jumped by 451,000, to a new record. Those employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 88,000. Those working part time for non-economic reasons declined by 24,000 while multiple-job holders fell by 199,000. 
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For a “sanity test” 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 October decreased by $4.4 billion, to $197.7 billion (-2.2% MoM, +0.4% YoY and +4.0% YTD). To reduce some of the monthly 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 October was 5.1% 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.

September 2019 Construction Spending

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Construction spending during September 2019 was estimated at a seasonally adjusted annual rate (SAAR) of $1,293.6 billion, 0.5% (±1.0%)* above the revised August estimate of $1,287.1 billion (originally $1,287.3 billion); consensus expectations were for +0.2%. The September figure is 2.0% (±1.8%) below the September 2018 SAAR of $1,319.7 billion; the not-seasonally adjusted YoY change (shown in the table below) was -1.8%.
During the first nine months of this year, construction spending amounted to $968.7 billion, 2.2% (±1.2%) below the $990.2 billion for the same period in 2018.
* 90% confidence interval includes zero. The U.S. Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero. 
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Private Construction
Spending on private construction was at a SAAR of $961.7 billion, 0.2% (±0.7%)* above the revised August estimate of $959.9 billion (originally $955.0 billion):
- Residential: $511.4 billion, +0.6% (±1.3%)*;
- Nonresidential: $450.3 billion, -0.3% (±0.7%)*.
Public Construction
Public construction spending was $331.9 billion, 1.5% (±1.8%)* above the revised August estimate of $327.2 billion (originally $332.3 billion):
- Educational: $78.9 billion, +3.1% (±1.8%);
- Highway: $98.0 billion, +2.6% (±4.4%)*. 
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Click here for a discussion of September’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories and prices.
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.