2Q2020 Gross Domestic Product: Third Estimate

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In its third estimate of 2Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -31.39% (-31.7% expected), up 0.31 percentage point (PP) from the second estimate (“2Qv2”) but -26.43PP from 1Q2020.

As noted in prior 2Q reports, two of the four groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- contributed to 2Q growth; personal consumption expenditures (PCE) and private domestic investment (PDI) detracted.

The headline number’s uptick reflected mostly insignificant changes to line items, which can be summarized as upward revisions to consumer spending on services and residential investment that were partly offset by downward revisions to exports and to business investment in intellectual property products. The most noteworthy changes included:

* PCE, services. From -22.77% to -21.95%.

* PDI, intellectual property products. From -0.35% to -0.53%.

* PDI, residential. From -1.72% to -1.60%.

* NetX, services exports. From -2.76% to -2.95%.

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“There is nothing new in this report, which is merely the statistical fine tuning and rehashing of a quarter that ended nearly three months ago,” wrote Consumer Metrics Institute’s Rick Davis. “Unfortunately, the BEA’s monthly release cycle gives us three progressively refined views of the same past quarter, when what we really need to know is how the economy has been performing since then.

“This also sets up a critical first report for 3Q2020, to be released on October 29th -- six days before the 2020 U.S. presidential election. Although the actual numbers are likely to be something of a wild card (the current NY Fed and Atlanta Fed ‘real-time’ headline guesstimates differ by over 15%!), the ‘annualization-of-quarterly-changes’ methodology employed by the BEA is guaranteed to generate an eye-popping positive headline number (probably somewhere from 15% to over 30% of spectacular ‘growth’). Clearly a number of politicians are going to claim that the BEA has just verified a ‘V’ shaped recovery, for which they will take credit -- although by then most votes will already have been cast.”

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.

August 2020 Residential Sales, Inventory and Prices

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Sales of new single-family houses in August 2020 were at a seasonally adjusted annual rate (SAAR) of 1,011,000 units (774,000 expected). This is 4.8 percent (±10.5 percent)* above the revised July rate of 965,000 (originally 901,000 units) and 43.2 percent (±19.5 percent) above the August 2019 SAAR of 706,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +45.6%. For longer-term perspectives, NSA sales were 27.2% below the “housing bubble” peak but 58.8% above the long-term, pre-2000 average.

The median sales price of new houses sold in August fell ($15,000 or -4.6% MoM) to $312,800; meanwhile, the average sales price decreased to $369,000 ($2,900 or -0.8%). Starter homes (defined here as those priced below $200,000) comprised 7.8% of the total sold, down from the year-earlier 8.8%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 0.6% of those sold in August, down from 1.8% 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 August, single-unit completions decreased by 42,000 units (-4.4%). Since completions fell while sales rose (46,000 units; +4.8%), inventory for sale contracted in both absolute (-9,000 units) and months-of-inventory (-0.3 month) terms.

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Existing home sales extended gains in August (140,000 units or +2.4%), to a SAAR of 6.00 million units (5.965 million expected). Inventory of existing homes for sale contracted in both absolute (-10,000 units) and months-of-inventory terms (-0.1 month). Although resales rose by a wider margin than new-home sales, the share of total sales comprised of new homes ticked up to 14.4%. The median price of previously owned homes sold in August rose to a new record $310,600 ($5,100 or +1.7 MoM).

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Housing affordability deteriorated (-0.9 percentage point) as the median price of existing homes for sale in July rose by $9,900 (+3.3% MoM; +8.5 YoY), to $307,800. 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 +0.8% (+4.8% YoY).

“Housing prices rose in July,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index gained 4.8% relative to its level a year ago, slightly ahead of June’s 4.3% increase. The 10- and 20-City Composites (up 3.3% and 3.9%, respectively) also rose at an accelerating pace in July compared to June. The strength of the housing market was consistent nationally -- all 19 cities for which we have July data rose, with 16 of them outpacing their June gains.

“In previous months, we’ve noted that a trend of accelerating increases in the National Composite Index began in August 2019. That trend was interrupted in May and June, as price gains decelerated modestly, but now may have resumed. Obviously more data will be required before we can say with confidence that any COVID-related deceleration is behind us.

“Phoenix’s 9.2% increase topped the league table for July; this is the 14th consecutive month in which Phoenix home prices rose more than those of any other city. Seattle (7.0%), Charlotte (6.0%) and Tampa (5.9%) continue to occupy the next three places, but there was some growth even in the worst performing cities, Chicago (0.8%) and New York (1.3%). Prices were particularly strong in the Southeast and West regions, and comparatively weak in the Midwest and Northeast.”

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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.

August 2020 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in August at a seasonally adjusted annual rate (SAAR) of 1,416,000 units (1.486 million expected). This is 5.1% (±9.6%)* below the revised July estimate of 1,492,000 (originally 1,496,000 units), but 2.8% (±10.3%)* above the August 2019 SAAR of 1,377,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +5.2%.

Single-family housing starts in August were at a SAAR of 1,021,000; this is 4.1% (±8.7%)* above the revised July figure of 981,000 units (+15.2% YoY). Multi-family starts: 395,000 units (-22.7% MoM; -15.0% 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 1,233,000 units. This is 7.5% (±14.2%)* below the revised July estimate of 1,333,000 (originally 1.280 million units) and 2.4% (±11.9%)* below the August 2019 SAAR of 1,263,000 units; the NSA comparison: -3.4% YoY.

Single-family completions were at a SAAR of 912,000; this is 4.4% (±19.1%)* below the revised July SAAR of 954,000 units (-3.6% YoY). Multi-family completions: 321,000 units (-15.3% MoM; -3.0% YoY).

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Total permits amounted to a SAAR of 1,470,000 units (1.530 million expected). This is 0.9% (±1.4%)* below the revised July rate of 1,483,000 (originally 1.495 million units) and 0.1% (±1.5%)* below the August 2019 SAAR of 1,471,000 units; the NSA comparison: -4.6% YoY.  

Single-family permits were at a SAAR of 1,036,000; this is 6.0% (±1.3%) above the revised July figure of 977,000 units (+11.4% YoY). Multi-family: 434,000 (-14.2% MoM; -29.7% YoY).

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In a strong signal that housing is leading the economic recovery, builder confidence in the market for newly-built single-family homes increased five points to hit an all-time high of 83 in September, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). The previous highest reading of 78 in the 35-year history of the series was set in August and also matched in December 1998.

“Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber,” said NAHB Chairman Chuck Fowke. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”

“Lumber prices are now up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home,” said NAHB Chief Economist Robert Dietz. “That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

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.

August 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in August (+1.2% expected) for its fourth consecutive monthly increase. However, even after the recent gains, the index in August was 7.3% below its pre-pandemic February level. Manufacturing output continued to improve in August, rising 1.0%, but the gains for most manufacturing industries have gradually slowed since June. Mining production fell 2.5% in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4%. At 101.4% of its 2012 average, the level of total industrial production was 7.7% lower in August than it was a year earlier.

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Industry Groups

Manufacturing output increased 1.0% in August. After falling 20.3% between February and April, factory production has rebounded; even so, in August it was still 6.7% below its February level (NAICS manufacturing: +1.0% MoM; -6.6% YoY). The index for durable manufacturing rose 0.7%, as a decline in the output of motor vehicles and parts was more than offset by broad-based increases for other durable goods industries (wood products: +1.4%). The index for nondurables rose 1.2%, with gains of more than 3% for apparel and leather and for plastics and rubber products (paper products: +0.4%). The output of other manufacturing (publishing and logging) increased 1.9%.

The index for utilities moved down 0.4% in August, with small decreases for both electric and gas utilities. Mining output fell 2.5% as a result of the drops in oil and gas drilling and extraction; coal and other types of mining posted gains.

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) in August to 71.4%, a rate that is 8.4PP below its long-run (1972–2019) average but 7.3PP above its low in April.

Manufacturing CU was 70.2% in August, 10.3PP higher than its trough in April but still 8.0PP below its long-run average (NAICS manufacturing: +1.0%, to 70.9%). The operating rates for durable and nondurable manufacturing increased to 69.4% and 72.4%, respectively. The rate for durables was 15.5PP above its April low but still 5.5PP below its pre-pandemic February level (wood products: +1.4%); the rate for nondurables has risen 5.1PP since April but was still 4.0PP below its February level (paper products: +0.5%). The operating rate for mining moved down to 74.5% in August, the second-lowest level in the history of the series after the 72.6% rate recorded in May of this year.

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Capacity at the all-industries level was essentially unchanged MoM (+0.6 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.4% YoY) at 140.1%. Wood products: 0.0% (+1.7% YoY) at 169.7%; paper products: -0.1% (-0.6 % YoY) to 109.1%.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

August 2020 Consumer and Producer Price Indices (incl. Forest Products)

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Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4% in August (0.3% expected). The monthly increase in the seasonally adjusted all-items index was broad-based; a sharp rise in the used cars and trucks index was the largest factor, but the indexes for gasoline, shelter, recreation, and household furnishings and operations also contributed. The energy index rose 0.9% in August as the gasoline index rose 2.0%. The food index rose 0.1% in August after falling in July; an increase in the food away from home index more than offset a slight decline in the food at home index. 

The index for all items less food and energy rose 0.4% in August after increasing 0.6% in July. The sharp rise in the index for used cars and trucks accounted for over 40% of the increase; the indexes for shelter, recreation, household furnishings and operations, apparel, motor vehicle insurance, and airline fares also rose. The indexes for education and personal care were among the few to decline.

The all-items index increased 1.3% for the 12 months ending August; this figure has been rising since the period ending May 2020, when the 12-month increase was 0.1%. The index for all items less food and energy increased 1.7% over the last 12 months. The food index increased 4.1% over the last 12 months, with the index for food at home rising 4.6%. Despite recent monthly increases, the energy index fell 9.0% over the last 12 months.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.3% in August (+0.3% expected). Final demand prices rose 0.6% in July and fell 0.2% in June. The August rise was led by a 0.5% increase in the index for final demand services. Prices for final demand goods also advanced, inching up 0.1%. The index for final demand less foods, energy, and trade services moved up 0.3% in August, the same as in both July and June.

On a year-over-year comparison, the final demand index declined 0.2% for the 12 months ended in August. Final demand less foods, energy, and trade services increased 0.3%.

Final Demand

Final demand services: The index for final demand services rose 0.5% in August, the same as in July. In August, two-thirds of the advance can be traced to a 1.2% increase in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) The indexes for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services also moved up, 0.3% and 0.2%, respectively.

Product detail: Nearly 20% of the August advance in prices for final demand services is attributable to a 1.1% increase in margins for machinery, equipment, parts, and supplies wholesaling. The indexes for automobiles and automobile parts retailing; truck transportation of freight; food retailing; portfolio management; and securities brokerage, dealing, investment advice, and related services also rose. In contrast, margins for chemicals and allied products wholesaling declined 4.5%. The indexes for airline passenger services and investment banking also fell.

Final demand goods: Prices for final demand goods edged up 0.1% in August, the fourth consecutive increase. The August rise can be attributed to a 0.3% advance in the index for final demand goods less foods and energy. Conversely, prices for final demand foods fell 0.4%, and the index for final demand energy declined 0.1%.

Product detail: Among prices for final demand goods in August, the index for plastic resins and materials rose 4.0%. Prices for diesel fuel, gas fuels, packaged fluid milk and related products, and nonferrous scrap also moved higher. In contrast, the index for chicken eggs dropped 12.2%. Prices for home heating oil, gasoline, and ethanol also decreased.

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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.

July 2020 International Trade (Softwood Lumber)

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Softwood lumber exports edged down (1 MMBF or -1.3%) in July whereas imports rose (35 MMBF or +3.0%). Exports were 28 MMBF (-24.0%) below year-earlier levels; imports were 85 MMBF (+7.6%) higher. As a result, the year-over-year (YoY) net export deficit was 113 MMBF (+11.2%) larger. Also, the average net export deficit for the 12 months ending July 2020 was 2.7% 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 (51.6%; of which Canada: 26.8%; Mexico: 24.8%), Asia (24.1%; especially China: 9.4%; and Japan: 6.3%), and the Caribbean: 17.9% (especially the Dominican Republic: 4.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -8.9% relative to the same months in 2019. Meanwhile, Canada was the source of most (86.6%) of softwood lumber imports into the United States. Imports from Canada were 8.6% lower YTD than the same months in 2019. Overall, YTD exports were down 17.7% compared to 2019; imports: -4.7%.

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (39.7% of the U.S. total), followed by the Eastern (26.5%) and Gulf (24.0%) regions. Seattle (22.8% of the U.S. total) was the single most-active district, followed by San Diego (15.9%) and Mobile (14.7%). At the same time, Great Lakes customs region handled 57.0% of softwood lumber imports -- most notably the Duluth, MN district (20.8%) -- coming into the United States.

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Southern yellow pine comprised 22.0% of all softwood lumber exports, Douglas-fir (17.7%) and treated lumber (13.7%) were also significant. Southern pine exports were down 13.0% YTD relative to 2019, while treated: -12.5%; Doug-fir: -11.9%.

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.

August 2020 Currency Exchange Rates

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In August the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-1.9%), euro (-2.9%) and yen (-0.6%). On the broad trade-weighted index basis (goods and services), the USD weakened by 1.4% 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.

August 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 1.371 million jobs in August (+1.4 million expected). Also, June and July employment changes were revised down by a combined 39,000 (June: -10,000; July: -29,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-1.8 percentage points) to 8.4% because the increase in the number of employed (+3.76 million) far outstripped expansion of the labor force (+968,000).

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Observations from the employment reports include:

* Changes in the establishment (+1.371 million jobs) and household surveys (+3.756 million employed) were not well correlated.

* Goods-producing industries gained a relatively modest 43,000 jobs, while service-providing employment jumped by 1.328 million jobs) -- especially government (+344,000 -- predominantly temporary census workers), retail trade (+248,900), leisure and hospitality (+174,000), education and health services (+147,000), and temporary help services (+106,700). Manufacturing expanded by 29,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted more slowly in August. Wood Products employment advanced by 1,100 (ISM was unchanged); Paper and Paper Products: unchanged (ISM decreased); Construction: +16,000 (ISM unchanged).

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* The number of employment-age persons not in the labor force fell (783,000) to 99.7 million. As a result, the employment-population ratio (EPR) rose to 56.5%; i.e., a little more than half of the employment-age population is presently employed.

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* Because the civilian labor force expanded by 968,000 in August, the labor force participation rate advanced (+0.3 PP) to 61.7%. Average hourly earnings of all private employees gained $0.11 to $29.47, resulting in a 4.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.18, to $24.81 (+4.9% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (+0.1 hour) to 34.6 hours, average weekly earnings increased by $6.74, to $1,019.66 (+7.7% YoY). With the consumer price index running at an annual rate of +1.0% in July, whether consumers are keeping up with price inflation depends upon their employment status.

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* Full-time jobs jumped (+2.84 million), to 122.4 million. Workers 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 -- fell by 871,000 (presumably, in most cases returning to full-time work). Those working part time for non-economic reasons rose by 838,000 while multiple-job holders edged up by 182,000. Once again, the shrinkage in the number of temporarily unemployed (-3.065 million, to 6.160 million) could explain the majority (or all) of August’s job gains.

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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 August fell by $8.6 billion, to $185.9 billion (-4.4% MoM; -3.9% YoY). 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 August was 4.7% below the year-earlier average.

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.

August 2020 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed U.S. manufacturing expanding more quickly during August. The PMI registered 56.0%, up 1.8 percentage points (PP) from the July 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. All of the sub-indexes reflected increased activity, although the pickup in slow deliveries and shrinking inventories suggest producers are struggling to bring product to market.

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The services sector -- which accounts for 80% of the economy and 90% of employment -- also expanded further, albeit at a marginally slower rate (-1.2PP, to 56.9%). The most noteworthy changes in the services PMI (formerly known as NMI) sub-indexes included new orders (-10.9PP), input prices (+6.6PP) and export orders (+6.5PP).

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All of the industries we track expanded. Comments from respondents included:

Wood Products. "Homebuilder business continues to be robust, with month-over-month gains continuing since May. Business remains favorable and will only be held back by supply issues across the entire industry."

Paper Products. "We are starting to see parts of our business rebound in August, while other parts remained weak. Some of our export business has come back for the first time since the start of COVID-19; however, domestic portfolios remain mixed."

Construction. "Overall, we are seeing improvement in the level of activity in the short term. Backlog of orders is inconsistent."

Real Estate. "Business recovery continues as the country reopens."

 

Relevant commodities:

Priced higher. Crude oil, freight, lumber, OSB, natural gas, labor, and paper products.

Priced lower. Gasoline.

Prices mixed. Diesel.

In short supply. Lumber, and labor (general, construction and temporary).

 

Findings of IHS Markit‘s August surveys generally agreed with their ISM counterparts.

Manufacturing. Fastest manufacturing expansion since January 2019.

Key findings:

* Faster upturn in new orders as export growth hits four-year high

* Quickest rise in employment since November 2019

* Cost pressures strongest since early-2019

 

Services. Strongest expansion in business activity since March 2019.

Key findings:

* Output growth quickens amid renewed upturn in new business

* Employment rises at the fastest pace since June 2014 as backlogs of work show largest rise for over a decade

* Input cost pressures remain steep

 

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “The manufacturing upturn gained further ground in August, adding to indications that the third quarter should see a strong rebound in production from the steep decline suffered in the second quarter.

“Encouragingly, new order inflows improved markedly, outpacing production to leave many companies struggling to produce enough goods to meet demand, often due to a lack of operating capacity. Backlogs of uncompleted work consequently rose at the fastest rate since the early months of 2019, encouraging increasing numbers of firms to take on more staff.

“Key to the upturn was a jump in new export orders, which rose at the fastest rate for four years, reflecting improving demand in many foreign markets, and benefitting larger companies in particular. Disappointingly, new orders and export sales at smaller manufacturers continued to fall, highlighting an unbalanced recovery in favor of larger firms.”

 

Services. “Surging inflows of new business helped propel service sector activity higher in August, with the sector growing at its fastest rate for almost one and a half years. Firms were often left struggling to meet demand and, despite taking on extra staff at a pace not seen for over six years, backlogs of uncompleted work accumulated at a rate exceeding anything recorded since 2009. The increase in backlogs of work bodes well for robust output growth to persist into September.

“Combined with the stronger picture emerging from manufacturing in August, the improved performance of the vast service sector adds to signs that the third quarter will see an impressive rebound in the economy from the collapse seen in the second quarter. “However, the survey also highlights how the rebound is very uneven and the recovery path remains highly uncertain.

“August’s growth was driven by financial and business services as well as tech firms, but consumer-facing sectors such as travel, tourism and recreation remained firmly in decline due to the need for ongoing social distancing.

“Companies across the board also remain concerned about resurgent virus infections and the durability of demand in the coming months after the initial rebound potentially fades, with uncertainty over the Presidential election adding further risks to the outlook for many companies.”

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.

August 2020 Monthly Average Crude Oil Price

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Gains to the monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil decelerated further when rising by $1.63 (+4.0%), to $42.34 per barrel in August. The August increase occurred within the context of a weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 1.3 million barrel-per-day (BPD) jump in the amount of petroleum products demanded/supplied during June (to 17.4 million BPD, on par with volumes previously seen in mid-1995), and a drop-off in accumulated oil stocks (August average: 508 million barrels) -- although still above the five-year average maximum.

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From the 31 August 2020 issue of The Energy Bulletin:

[Daily] oil prices have failed to break out of their narrow trading ranges over the past few weeks despite a flurry of positive news including declining inventories and reports that OPEC+ producers are mostly sticking to their pledged cuts. After a brief, half-hearted rally, oil prices have dropped back to an average trading range in the low-$40s after the Labor Department reported that US weekly jobless claims totaled 1.106 million. This comes just a week after the tally dipped below the 1M mark for the first time since March, thus raising serious doubts about the economic recovery's sustainability.

According to IHS Markit's latest forecast, post-covid-19 global oil demand growth -- on which the future of the oil industry hinges -- is expected to taper off. This report joins the growing chorus of pessimistic forecasts looking at the future of global oil demand growth, which has been pushed down due to the lockdowns and much less travel.

Global oil demand is currently sitting at 89% of pre-pandemic levels, IHS Markit said. It is expected to rise a bit and level off at between 92% and 95% of the demand pre-pandemic. Therefore, oil demand growth will plateau through Q1 2021 as fewer people are commuting to work, and as air travel slumps considerably amid remaining travel restrictions and people's fear of air travel which forces many people together in confined spaces. So far in 2020, global jet fuel demand and gasoline have rebounded from April lows, but global jet fuel demand is still off 50% year to date. US gasoline demand is down by a lesser amount, but still significant, at around 20%.

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Selected highlights from the 28 August 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Oil prices retreated in the wake of Hurricane Laura, which led to much less destruction than the market had anticipated. That leaves the oil price dynamic little changed from the past two months – WTI and Brent are stuck in familiar territory between $42 and $45.

Gulf of Mexico energy industry largely dodges Hurricane Laura. The concentration of energy assets along the Texas and Louisiana coast more or less avoided the worst-case scenario from Hurricane Laura. “The damage is not as bad as anticipated, which is creating more sell pressure along the energy complex,” said Phil Flynn, senior market analyst at Price Futures Group. More than 80% of oil output in the Gulf of Mexico and almost 3 million barrels a day of refining capacity had been shut ahead of the storm, most of which should come back online fairly quickly.

Report: Oil majors can’t afford dividends. The five supermajors -- ExxonMobil, Royal Dutch Shell, BP, Chevron, and Total -- collectively paid $16.9 billion more to shareholders than they generated from their core business operations, according to an IEEFA report. They plugged the gap through asset sales and debt. ExxonMobil, which is being removed from the Dow Jones Industrial Average, posted a negative free cash flow of $4.4 billion and paid out $8.1 billion to shareholders. Collectively, the majors added $50 billion in debt in the second quarter.

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 2020 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 July increased $21.3 billion or 4.6% to $479.5 billion. Durable goods shipments increased $17.1 billion or 7.5% to $244.6 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $4.2 billion or 1.8% to $235.0 billion, led by petroleum and coal products. Shipments of wood products rose by 5.9%; paper: +1.4%.

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Inventories decreased $3.1 billion or 0.5% to $687.2 billion. The inventories-to-shipments ratio was 1.43, down from 1.51 in June. Inventories of durable goods decreased $2.7 billion or 0.6% to $421.8 billion, led by fabricated metal products. Nondurable goods inventories decreased $0.5 billion or 0.2% to $265.4 billion, led by chemical products. Inventories of wood products fell by 0.3%; paper: -0.8.

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New orders increased $27.8 billion or 6.4% to $466.1 billion. Excluding transportation, new orders rose by 8.2 billion or 2.1% (-5.2% YoY). Durable goods orders increased $23.7 billion or 11.4% to $231.1 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $1.2 billion or 1.9% (+0.1% YoY). New orders for nondurable goods increased $4.2 billion or 1.8% to $235.0 billion.

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Unfilled durable-goods orders decreased $8.3 billion or 0.8% to $1,084.3 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.70, down from 7.01 in June. 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.