3Q2020 Gross Domestic Product: First (“Advance”) Estimate

Click image for larger version

The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2020 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +33.08% (+38.9% expected), up 64.47 percentage points (PP) from 2Q2020’s -31.39%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2020 was 2.91% lower than in 3Q2019; that growth rate was dramatically better (+6.12PP) than 2Q2020’s -9.03% relative to 2Q2019.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) were the drivers behind the expansion, whereas net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets.

As for details --

PCE (Contributed +25.27PP to the headline, up 49.28PP from 2Q):

·     Goods. Consumer spending for goods expanded at a rate of 9.24PP, a +11.30PP turnaround from 2Q. Spending on motor vehicles and parts ($84.3 billion, chained 2012 dollars), and clothing and footwear ($86.4 billion) led the increase.

·     Services. Spending on services jumped by 16.04PP (up 37.99PP from 2Q), particularly health care ($320.4 billion).

PDI (Contributed +11.58PP, up 20.35PP from 2Q):

·     Fixed investment. Nonresidential fixed investment edged up by 2.88PP (+6.55PP from 2Q), led by equipment ($153.4 billion). Residential investment amounted to $70.5 billion, or +2.09PP (+3.69PP from 2Q).

·     Inventories. Inventories expanded by $286.0 billion, or +6.62PP, up 10.12PP from 2Q.

NetX (Detracted 3.09PP, down 3.71PP from 2Q):

·     Exports. Exports rose at a rate of 4.90PP, up 14.41PP from 2Q.

·     Imports. A jump in imports (recall that imports are inversely correlated with GDP) subtracted 7.99PP from the headline (-18.12PP from 2Q).

GCE (Detracted 0.68PP, down 1.45PP from 2Q).

Annualized growth in the BLS’s real final sales of domestic product, which excludes the value of inventories) was +26.46% (+54.35PP from 2Q).

Click image for larger version

As was the case in 2Q, “the headline number should be disregarded,” wrote Consumer Metric Institute’s Rick Davis; “it is an artifact of arcane methodologies” that amplify QoQ changes. “On a YoY basis the economy is still shrinking, although the level of contraction during 3Q was certainly not as catastrophic as during 2Q. By 2020 standards, that is good news,” Davis concluded.

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 2020 Residential Sales, Inventory and Prices

Click image for larger view

Click image for larger view

Sales of new single-family houses in September 2020 were at a seasonally adjusted annual rate of (SAAR) 959,000 units (1.016 million expected). This is 3.5 percent (±19.9 percent)* below the revised August rate of 994,000 (originally 1.011 million units), but 32.1 percent (±28.8 percent) above the September 2019 SAAR of 726,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +33.9%. For longer-term perspectives, NSA sales were 31.0% below the “housing bubble” peak but 43.5% above the long-term, pre-2000 average.

The median sales price of new houses sold in September rose ($4,400 or +1.4% MoM) to $326,800; meanwhile, the average sales price jumped to a new record of $405,400 ($22,700 or +5.9% MoM). Starter homes (defined here as those priced below $200,000) comprised 6.7% of the total sold, down from the year-earlier 10.7%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.3% of those sold in September, 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.

Click image for larger view

As mentioned in our post about housing permits, starts and completions in September, single-unit completions increased by 19,000 units (+2.1%). Since completions rose while sales fell (35,000 units; -3.5%), inventory for sale expanded in both absolute (+2,000 units) and months-of-inventory (+0.2 month) terms.

Click image for larger view

Existing home sales extended gains in September (560,000 units or +9.4%), to a SAAR of 6.54 million units (6.2 million expected). Inventory of existing homes for sale contracted in both absolute (-20,000 units) and months-of-inventory terms (-0.3 month). Because resales rose while new-home sales fell, the share of total sales comprised of new homes dropped to 12.8%. The median price of previously owned homes sold in September rose to a new record $311,800 ($1,400 or +0.5 MoM).

Click image for larger view

Housing affordability deteriorated (-0.9 percentage point) as the median price of existing homes for sale in August rose by $5,500 (+1.8% MoM; +11.7 YoY), to a new high of $315,000. 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 +1.1% (+5.7% YoY).

“Housing prices were strong in August,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index gained 5.7% relative to its level a year ago, well ahead of July’s 4.8% increase. The 10- and 20-City Composites (up 4.7% and 5.2%, respectively) also rose at an accelerating pace in August. The strength of the housing market was consistent nationally – all 19 cities for which we have August data rose, and all 19 gained more in the 12 months ended in August than they had done in the 12 months ended in July.

“A trend of accelerating increases in the National Composite Index began in August 2019 but was interrupted in May and June, as COVID-related restrictions produced modestly-decelerating price gains. We speculated last month that the accelerating trend might have resumed, and August’s results easily bear that interpretation. The last time that the National Composite matched August’s 5.7% growth rate was 25 months ago, in July 2018. If future reports continue in this vein, we may soon be able to conclude that the COVID-related deceleration is behind us.

“Phoenix’s 9.9% increase topped the league table for August; this is the 15th consecutive month in which Phoenix home prices rose more than those of any other city. Seattle (8.5%) once again took the silver medal, with San Diego (7.6%) in third place. It’s a measure of housing’s strength that even the worst-performing cities, Chicago (1.2%) and New York (2.8%), did better in August than in July. Prices were strongest in the West and Southeast regions, and comparatively weak in the Midwest and Northeast.”

Click image for larger view

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 2020 Residential Permits, Starts and Completions

Click image for larger view

Click image for larger view

Builders started construction of privately-owned housing units in September at a seasonally adjusted annual rate (SAAR) of 1,415,000 units (1.451 million expected). This is 1.9% (±8.8%)* above the revised August estimate of 1,388,000 (originally 1,416,000 units) and 11.1% (±11.3%)* above the September 2019 SAAR of 1,274,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +10.4%.

Single-family housing starts in September were at a SAAR of 1,108,000; this is 8.5% (±9.2%)* above the revised August figure of 1,021,000 units (+23.8% YoY). Multi-family: 307,000 units (-16.3% MoM; -19.9% YoY).

* 90% confidence interval (CI) is not statistically different from zero. The Census Bureau does not publish CIs for the entire multi-unit category.

Click image for larger view

Click image for larger view

Total completions were at a SAAR of 1,413,000. This is 15.3% (±11.4%) above the revised August estimate of 1,226,000 (originally 1.233 million units) and 25.8% (±11.5%) above the September 2019 SAAR of 1,123,000 units; the NSA comparison: +25.8% YoY.

Single-family completions were at a SAAR of 921,000; this is 2.1% (±9.0%)* above the revised August rate of 902,000 units (+8.6% YoY). Multi-family: 492,000 units (+51.9% MoM; +79.1% YoY).

Click image for larger view

Click image for larger view

Total permits amounted to a SAAR of 1,553,000 units (1.500 million expected). This is 5.2% (±1.6%) above the revised August rate of 1,476,000 (originally 1.470 million units) and 8.1% (±1.8%) above the September 2019 SAAR of 1,437,000 units; the NSA comparison: +13.4% YoY.

Single-family permits were at a rate of 1,119,000; this is 7.8% (±1.1%) above the revised August figure of 1,038,000 units (+32.5% YoY). Multi-family: 434,000 units (-0.9% MoM; -16.2% YoY).

Click image for larger view

Click image for larger view

In a further show of strength for the housing sector, builder confidence in the market for newly-built single-family homes increased two points to 85 in October, further surpassing the previous all-time high of 83 recorded in September, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). These are the first two months the index has ever been above 80.

“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in this Covid-era,” said NAHB Chairman Chuck Fowke. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”

“The housing market continues to be a bright spot for the economy, supported by increased buyer interest in the suburbs, exurbs and small towns,” added NAHB Chief Economist Robert Dietz. “NAHB analysis…showed that new single-family home sales are outpacing starts by a historic margin. Bridging this gap will require either a gain in construction volume or reductions in available inventory, which is already at a historic low in terms of months’ supply.”

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 International Trade (Softwood Lumber)

 

Click image for larger view

Click image for larger view

Softwood lumber exports edged up (1 MMBF or +0.6%) in August whereas imports jumped (132 MMBF or +10.9%). Exports were 20 MMBF (-18.4%) below year-earlier levels; imports were 129 MMBF (+10.6%) higher. As a result, the year-over-year (YoY) net export deficit was 149 MMBF (+13.5%) larger. However, the average net export deficit for the 12 months ending August 2020 was 0.9% smaller than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above).

Click image for larger view

North America (49.4%; of which Canada: 26.4%; Mexico: 23.0%), Asia (20.2%; especially China: 6.7%; and Japan: 5.1%), and the Caribbean: 23.9% (especially the Dominican Republic: 8.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -11.6% relative to the same months in 2019. Meanwhile, Canada was the source of most (88.4%) of softwood lumber imports into the United States. Imports from Canada were 6.6% lower YTD than the same months in 2019. Overall, YTD exports were down 17.8% compared to 2019; imports: -2.8%.

Click image for larger view

Click image for larger view

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 Eastern (23.6%) and Gulf (28.8%) regions. Seattle (19.6% of the U.S. total) ceded the title of single most-active district to Mobile (21.2%), followed by San Diego (15.9%) and. At the same time, Great Lakes customs region handled 60.1% of softwood lumber imports -- most notably the Duluth, MN district (24.4%) -- coming into the United States.

Click image for larger view

Click image for larger view

Southern yellow pine comprised 26.8% of all softwood lumber exports, Douglas-fir (15.2%) and treated lumber (14.2%) were also significant. Southern pine exports were down 13.4% YTD relative to 2019, while treated: -11.2%; Doug-fir: -13.1%.

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.

September 2020 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Total industrial production (IP) fell 0.6% in September (+0.6% expected), its first decline after four consecutive months of gains. The index increased at an annual rate of 39.8% for the third quarter as a whole. Although production has recovered more than half of its February to April decline, the September reading was still 7.1% below its pre-pandemic February level. Manufacturing output decreased 0.3% in September and was 6.4% below February's level. The output of utilities dropped 5.6%, as demand for air conditioning fell by more than usual in September. Mining production increased 1.7% in September; even so, it was 14.8% below a year earlier. At 101.5% of its 2012 average, total industrial production was 7.3% lower in September than it was a year earlier.

Click image for larger version

Click image for larger version

Industry Groups

Manufacturing output decreased 0.3% in September, but it advanced at an annual rate of 53.7% in the third quarter (NAICS manufacturing: -0.3% MoM; -5.7% YoY). The index for durable manufacturing fell 0.5% in September. Increases for primary metals, for fabricated metal products, and for aerospace and miscellaneous transportation equipment were more than outweighed by decreases elsewhere; most notably, the indexes for computer and electronic products and for motor vehicles and parts fell more than 2½% (wood products: -0.6%). The index for nondurables was unchanged, as gains for textiles and product mills, for printing and support, and for chemicals were offset by declines for petroleum and coal products, for apparel and leather, and for paper (-0.4%). The output of other manufacturing (publishing and logging) decreased 0.5%.

The index for utilities moved down 5.6% in September, with a drop in the output of electric utilities more than offsetting an increase for natural gas utilities. Mining was little changed for the third quarter as a whole but increased 1.7% in September, boosted by an increase in oil and gas extraction; in addition, oil and gas well drilling edged up following six consecutive months of declines.

Click image for larger version

Capacity utilization (CU) for the industrial sector decreased 0.5 percentage point (PP) in September to 71.5%, a rate that is 8.3PP below its long-run (1972–2019) average but 7.3PP above its low in April.

Manufacturing CU was 70.5% in September, 10.4PP higher than its trough in April but still 7.7PP below its long-run average (NAICS manufacturing: -0.3% MoM, to 71.1%). The operating rate for durables decreased 0.4PP to 69.4%, and the rate for nondurables was unchanged at 72.9%. Capacity utilization for durables was 15.5PP above its April low but still 5.4PP below its pre-pandemic February level (wood products: -0.6% MoM). The rate for nondurables has risen 5.3PP since April but was still 3.5PP below its February level (paper products: -0.4% MoM). The operating rate for mining moved up to 77.6% in September, while the rate for utilities fell to 70.4%.

Click image for larger version

Capacity at the all-industries level was essentially unchanged MoM (+0.4 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.2% YoY) at 140.1%. Wood products: 0.0% (+1.3% YoY) at 169.7%; paper products: -0.1% (-0.6 % YoY) to 109.0%.

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

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

Click image for larger version

Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in September (0.2% expected) after rising 0.4% in August. The index for used cars and trucks continued to rise sharply (+6.7% MoM) and accounted for most of the monthly increase in the seasonally adjusted all-items index. The food index was unchanged, with an increase (+0.6%) in the food away from home index offsetting a decline (-0.4%) in the food at home index. The energy index rose 0.8% in September as the index for natural gas increased 4.2%.

The index for all items less food and energy rose 0.2% in September after larger increases in July and August. The index for used cars and trucks rose 6.7% in September, its largest monthly increase since February 1969. The indexes for shelter, new vehicles, and recreation also increased in September. The indexes for motor vehicle insurance, airline fares, and apparel were among those to decline over the month.

The all-items index rose 1.4% for the 12 months ending September, a slightly larger increase than the 1.3% rise for the 12-month period ending August. The index for all items less food and energy rose 1.7% over the last 12 months, the same increase as the period ending August. The food index increased 3.9% over the last 12 months, while the energy index declined 7.7%.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) advanced 0.4% in September (+0.2% expected). Final demand prices rose 0.3% in August and 0.6% in July. In September, nearly two-thirds of the rise in prices for final demand is attributable to a 0.4% increase in the index for final demand services. Prices for final demand goods also moved up 0.4%.

On an unadjusted basis, the final demand index increased 0.4% for the 12 months ended in September, the first advance since moving up 0.3% for the 12 months ended in March. The index for final demand less foods, energy, and trade services advanced 0.4% in September, the largest increase since rising 0.4% in April 2019. For the 12 months ended in September, prices for final demand less foods, energy, and trade services moved up 0.7%, the largest advance since increasing 1.0% for the 12 months ended in March.

Final Demand

Final demand services: The index for final demand services rose 0.4% in September, the third consecutive advance. Over 80% of the broad-based September increase can be traced to prices for final demand services less trade, transportation, and warehousing, which climbed 0.5%. The indexes for final demand trade services and for final demand transportation and warehousing services also moved higher, rising 0.2% and 0.4%, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: A 3.9% advance in the index for traveler accommodation services was a major factor in the September rise in prices for final demand services. The indexes for hardware, building materials, and supplies retailing; fuels and lubricants retailing; transportation of passengers (partial); food wholesaling; and hospital inpatient care also moved higher. In contrast, the index for food retailing fell 3.2%. Prices for truck transportation of freight and deposit services (partial) also decreased.

Final demand goods: The index for final demand goods increased 0.4% in September, the fifth consecutive rise. Nearly two-thirds of the September advance is attributable to prices for final demand goods less foods and energy, which climbed 0.4%. The index for final demand foods jumped 1.2%. Conversely, prices for final demand energy declined 0.3%.

Product detail: A 14.7% rise in prices for iron and steel scrap was a major factor in the September advance in the index for final demand goods. Prices for fresh and dry vegetables, residential electric power, corn, beef and veal, and oilseeds also moved higher. In contrast, the gasoline index fell 2.8%. Prices for natural, processed, and imitation cheese and for household refrigeration equipment also decreased.

Click image for larger version

The not-seasonally adjusted price indexes we track were all positive MoM but mixed YoY.

Click image for larger version

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 2020 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil retreated by $2.70 (-6.4%), to $39.63 per barrel in September. That decrease occurred within the context of a marginally weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 888,000 barrel-per-day (BPD) rise in the amount of petroleum products demanded/supplied during July (to 18.3 million BPD, on par with volumes during/after the Great Recession), and a slight decline in accumulated oil stocks (September average: 496 million barrels) -- although still above the five-year average maximum.

Click image for larger view

From the 5 October 2020 issue of The Energy Bulletin:

Oil fell [during the last week of September] in New York to $37.05 and Brent plummeted to $39.27, after President Trump’s positive Covid-19 diagnosis combined with labor market weakness led to heightened concerns over an economic recovery. The coronavirus is resurgent again in Europe and hasn’t been brought under control in big economies such as India, leading to forecasters scaling back their estimates for when oil demand will get back to pre-virus levels.  Concerns are increasing that global crude supplies and demand could again fall more out of balance.

“Trump and the coronavirus news, along with the setback to the talks on the U.S. stimulus package, are just triggers and a reminder that the global economy is in trouble at least for the next six months,” said the founder of Vanda Insights in Singapore. “What’s coming on top of that is the realization that there’s more supply coming into the market just as demand growth is weakening.”

U.S. crude inventories unexpectedly declined in the week ended Sept. 25th as exports surged to a 20-week high. Commercial crude inventories fell 1.98 million barrels to 492 million, narrowing the surplus above the five-year average to 12.4%, the weakest supply overhang since late May. Some of the decline is due to the series of storms that have hampered oil production in the Gulf of Mexico in recent months.

Preliminary well production data for July shows that after recovering by around 540,000 b/d in June, oil output for the lower 48 states, excluding the Gulf, posted a second monthly increase of more than 400,000 b/d in July. Rystad Energy estimates another rise of 230,000 bpd in August from the same regions, which would take the total for the month to a peak of 9.2 million BPD.

Click image for larger view

Selected highlights from the 2 October 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Demand concerns continue. U.S. gasoline demand remained flat for most of the third quarter, undercutting hopes of a rebound. “It’s hard to paint the bullish demand story for energy in the short term…I just don’t see it,” said Jennifer Rowland, senior energy analyst for Edward Jones. “Instead, I see all the warning signs.”

Oil traders doubt OPEC+ increases production. OPEC+ is scheduled to further unwind production cuts beginning in January, adding 2 million BPD back onto the market. But some traders doubt that the group will follow through due to weak demand. “I don’t think OPEC will increase production in January...If they do, the market will test them to the downside,” Pierre Andurand, founder and chief investment officer at Andurand Capital, told the FT Global Commodities Summit.

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 2020 Currency Exchange Rates

Click image for larger view

In September the monthly average value of the U.S. dollar (USD) was unchanged versus Canada’s “loonie” (0.0%), appreciated against the euro (+0.4%), and depreciated against the yen (-0.4%). On the broad trade-weighted index basis (goods and services), the USD weakened by 0.5% against a basket of 26 currencies.

Click image for larger view

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 2020 ISM and Markit Surveys

Click image for larger version

The Institute for Supply Management‘s (ISM) monthly sentiment survey showed U.S. manufacturing expanding more slowly during September. The PMI registered 55.4%, down 0.6 percentage point (PP) from the August 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. The sub-indexes reflected slower growth, except for order backlogs (+0.6PP) and exports (+1.0PP).

Click image for larger version

The services sector -- which accounts for 80% of the economy and 90% of employment expanded at a somewhat faster rate (+0.9PP, to 57.8%). The most noteworthy changes in the services PMI (formerly known as NMI) sub-indexes included order backlogs (-6.5PP), imports (-4.2PP), and new orders (+4.7PP).

Click image for larger version

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

Paper Products. “We are seeing a marked increase in international demand in Q4 compared to Q2 and Q3. Still not at historical levels; however, a positive outlook.”

Wood Products. “Raw material shortages, especially of hardwood logs, are starting to impact overall supply. Domestic market demand is fragmented but remains sound. Export demand, especially to China, is robust.”

Construction. “Work orders are improving rapidly. Lack of available labor is having a significant impact on our ability to fulfill orders.”

 

Relevant commodities:

Priced higher. Gasoline, labor (general, construction and temporary), lumber and lumber products, OSB, and shingles.

Priced lower. Oil.

Prices mixed. Natural gas.

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

 

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

Manufacturing. Strongest improvement in operating conditions since January 2019.

Key findings:

* Output growth accelerates to fastest in ten months

* Second-sharpest rise in employment since November 2019

* Business confidence moderates on election and virus uncertainty

 

Services. New business growth accelerates to fastest since March 2019.

Key findings:

* Business activity rises further amid stronger expansion in new sales

* Employment growth remains historically elevated

* Selling prices increase at sharpest pace for two years

 

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

Manufacturing. “U.S. manufacturers rounded off a solid quarter which should see the sector rebound strongly from the steep second quarter downturn.

“Encouragingly, companies reported a marked upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring. Similarly, fuller order books helped drive further job creation as firms continued to expand capacity.

“But it was not all good news. Supply shortages worsened as companies increasingly struggled to source enough inputs to meet production requirements. With demand often exceeding supply, prices rose sharply again across many types of inputs, especially metals.

“Growth of new orders for consumer goods also waned during the month, hinting at some cooling of demand from households, commonly blamed on Covid-19. Overall order book inflows consequently slowed compared to August.

“The outlook also darkened, as companies grew more concerned about the sustained economic disruption from the pandemic alongside uncertainty caused by the upcoming presidential election. The sector therefore looks to be entering the fourth quarter on a slower growth trajectory, adding to signs that fourth quarter GDP growth will wane considerably from the third quarter rebound.”

 

Services. “The U.S. economy continued to rebound in September from the deep contraction seen at the height of the Covid-19 pandemic, with business activity rising across both manufacturing and services to round off the strongest quarter since early 2019.

“Covid-19 worries and social distancing continued to impact many businesses, however, especially in consumer-facing sectors, where demand for services fell once again. However, business and financial services, healthcare and housing sectors all fared well as the economy continued to revive, and exports of services also picked up as other countries continued to open up their economies.

“Encouragingly, new orders for services grew at an increased rate in September, putting additional pressure on operating capacity and fueling another robust rise in employment. A further rise in backlogs of work bodes well for robust jobs growth to be sustained into October.

“Sentiment on prospects for the coming year darkened significantly, however, linked to growing worries about virus numbers, uncertainty regarding the presidential election and fears that the economy is susceptible to weakening unless more support measures are put in place soon.”

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 2020 Employment Report

Click image for larger view

The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 661,000 jobs in September (+894,000 expected). Also, July and August employment changes were revised up by a combined 145,000 (July: +27,000; August: +118,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) receded (-0.5 percentage point) to 7.9% under a combination of rising employment (+275,000) and shrinking labor force (-695,000).

Click image for larger view

Observations from the employment reports include:

* Changes in the establishment (+661,000 jobs) and household surveys (+275,000 employed) were not well correlated. 

* Goods-producing industries gained 93,000 jobs, while service-providing employment added a more robust 568,000 jobs -- especially leisure and hospitality (+318,000), retail trade (+142,000), health care and social assistance (+107,000) , and in professional and business services (+89,000). Public-sector employment declined, mainly in state and local government education (-231,100). Manufacturing expanded by 66,000 jobs. That result is perhaps somewhat consistent the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which nearly ceased contracting in September. Wood Products employment advanced by 3,900 (ISM was unchanged); Paper and Paper Products: +3,000 (ISM increased); Construction: +26,000 (ISM not yet reported).

Click image for larger view

* The number of employment-age persons not in the labor force rose (879,000) to 100.6 million. Even so, the employment-population ratio (EPR) inched up to 56.6%; i.e., a little more than half of the employment-age population is presently employed.

Click image for larger view

* Because the civilian labor force contracted by 695,000 in September, the labor force participation rate retreated (-0.3 PP) to 61.4%. Average hourly earnings of all private employees gained $0.02 to $29.47, resulting in a 4.7% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.01, to $24.79 (+4.6% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (+0.1 hour) to 34.7 hours, average weekly earnings increased by $3.64, to $1,022.61 (+3.1% YoY). With the consumer price index running at an annual rate of +1.3% in August, whether consumers are keeping up with price inflation depends upon their employment status.

Click image for larger view

* Full-time jobs were essentially unchanged (+54,000) at 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 1.272 million, whereas those working part time for non-economic reasons rose by 288,000; multiple-job holders declined by 339,000. Once again, the shrinkage in the number of temporarily unemployed (-1.523 million, to 4.637 million) could explain the majority (or all) of September’s job gains.

Click image for larger view

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 September edged down by $159 million, to $185.7 billion (-0.1% MoM; -8.1% 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 September was 6.6% below the year-earlier average. The fall-off in taxes withheld may be explained by President Trump’s executive order deferring certain payroll obligations through December 31, 2020.

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 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

Click image for larger view

Click image for larger view

According to the U.S. Census Bureau, the value of manufactured-goods shipments in August increased $1.4 billion or 0.3% to $481.3 billion. Durable goods shipments decreased $0.5 billion or 0.2% to $244.3 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $1.9 billion or 0.8% to $236.9 billion, led by petroleum and coal products. Shipments of wood products rose by 2.9%; paper: +1.0%.

Click image for larger view

Inventories increased $0.2 billion or virtually unchanged to $686.6 billion. The inventories-to-shipments ratio was 1.43, unchanged from July. Inventories of durable goods decreased $0.6 billion or 0.1% to $420.4 billion, led by machinery. Nondurable goods inventories increased $0.8 billion or 0.3% to $266.2 billion, led by chemical products. Inventories of wood products rose by 0.9%; paper: +0.2.

Click image for larger view

New orders increased $3.2 billion or 0.7% to $470.1 billion. Excluding transportation, new orders rose by $2.9 billion or 0.7% (-4.9% YoY). Durable goods orders increased $1.3 billion or 0.5% to $233.2 billion, led by machinery. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $1.2 billion or 1.9% (+2.0% YoY). New orders for nondurable goods increased $1.9 billion or 0.8% to $236.9 billion.

Click image for larger view

Unfilled durable-goods orders decreased $6.2 billion or 0.6% to $1,078.6 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.60, down from 6.69 in July. 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.