November 2021 Residential Sales, Inventory and Prices

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Sales of new single-family houses in November 2021 were at a seasonally adjusted annual rate (SAAR) of 744,000 units (770,000 expected).  This is 12.4% (±17.2%)* above the revised October rate of 662,000 (originally 745,000 units), but 14.0% (±20.5%)* below the November 2020 SAAR of 865,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -13.1%. For longer-term perspectives, NSA sales were 46.4% below the “housing bubble” peak but 1.4% above the long-term, pre-2000 average.

The median sales price of new houses sold in November rose by $8,200 (+2.0%) to a record-high $416,900; meanwhile, the average sales price also hit a record $481,700 (+$3,500 or +0.7% MoM). Homes priced at/above $750,000 were 11.3% of sales, more than double the year-earlier 4.9%.

* 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 November, single-unit completions edged down by 1,000 units (-0.1%). Sales advanced (82,000 units; +12.4%), with inventory for sale rising in absolute terms (10,000 units) but declining (-0.6 month) in months-of-inventory terms. 

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Existing home sales jumped in November (120,000 units or +1.9%), to a SAAR of 6.46 million units (6.51 million expected). Inventory of existing homes for sale contracted in absolute (-120,000 units) and months-of-inventory (-0.2 month) terms. Because resales were outpaced by new-home sales, the share of total sales comprised of new homes nudged up to 10.3%. The median price of previously owned homes sold in November rose to $353,900 ($1,200 or +0.3% MoM).

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Housing affordability fell as the median price of existing homes for sale in October advanced by $2,900 (+0.8% MoM; +13.5 YoY), to $360,800. 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% (+19.1% YoY).

“In October 2021, U.S. home prices moved substantially higher, but at a decelerating rate,” said Craig Lazzara, Managing Director at S&P DJI. “The National Composite Index rose 19.1% from year-ago levels, and the 10- and 20-City Composites gained 17.1% and 18.4%, respectively. In all three cases, October’s gains were below September’s, and September’s gains were below August’s. That said, October’s 19.1% gain in the National Composite is the fourth-highest reading in the 34 years covered by our data. (The top three were the three months immediately preceding October.)

“We continue to see very strong growth at the city level. All 20 cities saw price increases in the year ended October 2021. October’s increase ranked in the top quintile of historical experience for 19 cities, and in the top decile for 17 of them. As was the case last month, however, in 14 of 20 cities, prices decelerated – i.e., increased by less in October than they had done in September.

“Phoenix’s 32.3% increase led all cities for the 29th consecutive month. Tampa (+28.1%) and Miami (+25.7%) continued in second and third place in October, narrowly edging out Las Vegas, Dallas, and San Diego. Prices were strongest in the South and Southeast (both +24.4%), but every region continued to log double-digit gains.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic. More data will be required to understand whether this demand surge represents an acceleration of purchases that would have occurred over the next several years, or reflects a more permanent secular change.”

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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.

3Q2021 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2021 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 +2.30% (+2.1% expected), up 0.20 percentage point (PP) from the second estimate (“3Qv2”) but -4.42PP from 2Q2021.

As with 3Qv2, three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI) and government consumption expenditures (GCE) -- were the drivers behind the 3Q expansion; net exports (NetX) detracted from the headline. Overall, the change in the headline number reflected upward revisions to consumer spending and inventory investment that were partly offset by a downward revision to exports and an upward revision to imports. As for details (all relative to 3Qv2):

PCE. The upward revision to consumer spending was led by recreation services (+$12.9 billion, nominal) and transportation services (+$9.9B). Downward revisions to goods spending (-$5.8B) was concentrated in the nondurable line items.

PDI. The value of inventories was revised up by $5.1B (farm: +$2.4B; nonfarm: +$2.6B). Residential fixed investment was revised up by $2.8B.

NetX. Exports of services was cut by $16.8B; that was partially offset by imports (changes of which are inversely correlated with the headline GDP estimate), which fell by $7.9B (services: -$6.4B; goods: -$1.6B).

GCE. Virtually all of revisions to this category occurred at the state and local level (consumption expenditures: +$0.9B; gross investment: +$0.3B).

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According to Consumer Metrics Institute’s Rick Davis, the key points of this report can be summarized as follows:

-- Consumer spending on goods continues to contract.

-- Global trade numbers are still softening.

-- Households have good reasons to keep their belts tightened, as annualized household disposable income was revised $32 lower than in 3Qv2.

“This set of revisions does not materially change our view of the economy,” Davis wrote. “This report continues to show mild rotation of consumer spending from goods to services, unwinding some of the spending shifts caused by the pandemic. It also highlighted the ongoing weakening of foreign trade.”

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

November 2021 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.5% in November (+0.7% expected). The indexes for both manufacturing and mining increased 0.7%, while the index for utilities decreased 0.8%. At 102.3% of its 2017 average, total IP in November was 5.3% above its year-earlier level and at its highest reading since September 2019. 

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Industry Groups

In November, manufacturing output rose 0.7%, reaching its highest level since January 2019 (NAICS manufacturing: +0.7% MoM; +4.8% YoY). The indexes for durables, nondurables, and other manufacturing (logging and publishing) rose 0.8%, 0.5%, and 0.8%, respectively. Within durables, the largest increases were posted by motor vehicles and parts and by aerospace and miscellaneous transportation equipment (wood products: +0.7%). The only decrease was posted by machinery. Despite the increase for motor vehicles and parts in November, production for that industry was 5.4% below its year-earlier level. Within nondurables, textile and product mills, paper (+1.6%), and plastics and rubber products all recorded gains of more than 1%; the index for petroleum and coal products fell 1.2% after rising 3.8% in October.

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) to 76.8%; even so, it was 2.8PP below its long-run (1972–2020) average.

Manufacturing CU increased 0.5PP to 77.3% in November, its highest rate since December 2018 (NAICS manufacturing: +0.6%, to 77.5%; wood products: +0.7%; paper: +1.5%). The operating rate for mining rose 0.6PP to 77.7%, while the operating rate for utilities fell 0.8PP to 73.2%. The rates for all three groups remained below their long-run averages.

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Capacity at the all-industries level increased by 0.1% MoM (+0.4% YoY) to 133.1% of 2017 output. NAICS manufacturing edged up less than 0.1% (+0.3% YoY) to 130.6%. Wood products: 0.0% (+0.3% YoY) at 123.2%; paper: +0.1% (+0.8% YoY) to 113.9%.

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.

November 2021 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in November at a seasonally adjusted annual rate (SAAR) of 1,679,000 units (1.563 million expected).  This is 11.8% (±15.2%)* above the revised October estimate of 1,502,000 (originally 1.520 million units) and 8.3% (±14.3%)* above the November 2020 SAAR of 1,551,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +9.8%. 

Single-family housing starts in November were at a rate of 1,173,000; this is 11.3% (±15.8%)* above the revised October figure of 1,054,000 units (-0.2% YoY). Multi-family: 506,000 units (+12.9% MoM; +38.9% YoY). 

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

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Total completions were at a SAAR of 1,282,000 units.  This is 4.1% (±13.5%)* above the revised October estimate of 1,231,000 (originally 1.242 million units) and 3.1% (±13.6%)* above the November 2020 SAAR of 1,244,000 units; the NSA comparison: +2.3% YoY. 

Single-family completions were at a SAAR of 910,000; this is 0.1% (±12.0%)* below the revised October rate of 911,000 units (-1.2% YoY). Multi-family: 372,000 units (+16.3% MoM; +13.2% YoY).

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Total permits were at a SAAR of 1,712,000 units (1.655 million expected).  This is 3.6% (±0.9%) above the revised October rate of 1,653,000 (originally 1.650 million units) and 0.9% (±2.0%)* above the November 2020 SAAR of 1,696,000 units; the NSA comparison: +6.7% YoY. 

Single-family permits were at a SAAR of 1,103,000; this is 2.7% (±1.1%) above the revised October figure of 1,074,000 units (+0.6% YoY). Multi-family: 609,000 units (+5.2% MoM; +17.9% YoY).

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Despite inflation concerns and ongoing production bottlenecks, home builder confidence edged higher for the fourth consecutive month on strong consumer demand and limited existing inventory. Builder sentiment in the market for newly built single-family homes moved one point higher to 84 in December, according to the NAHB/Wells Fargo Housing Market Index (HMI). This ties the highest reading of the year that was posted in February.

“While demand remains strong, finding workers, predicting pricing and dealing with material delays remains a challenge,” said NAHB Chairman Chuck Fowke. “Policymakers need to work on supply chain improvements and controlling costly inflation. Addressing lumber tariffs would be a good place to start.”

“The most pressing issue for the housing sector remains lack of inventory,” said NAHB Chief Economist Robert Dietz. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.”

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

November 2021 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 0.8% (+0.7% expected) in November after rising 0.9% in October. The monthly all-items seasonally adjusted increase was the result of broad increases in most component indexes, similar to last month. The indexes for gasoline, shelter, food, used cars and trucks, and new vehicles were among the larger contributors. The energy index rose 3.5% in November as the gasoline index increased 6.1% and the other major energy component indexes also rose. The food index increased 0.7% as the index for food at home rose 0.8%.

The index for all items less food and energy rose 0.5% in November following a 0.6% increase in October. Along with shelter, used cars and trucks, and new vehicles, the indexes for household furnishings and operations, apparel, and airline fares were among those that increased. The indexes for motor vehicle insurance, recreation, and communication all declined in November.

The all-items index rose 6.8% for the 12 months ending November, the largest 12-month increase since the period ending June 1982. The index for all items less food and energy rose 4.9% over the last 12 months, while the energy index rose 33.3% over the last year, and the food index increased 6.1%. These changes are the largest 12-month increases in at least 13 years in the respective series.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.8% in November (+0.5% expected). Final demand prices moved up 0.6% in each of the three prior months. On an unadjusted basis, the final demand index rose 9.6% for the 12 months ended in November, the largest advance since 12-month data were first calculated in November 2010.

In November, the index for final demand services rose 0.7% and prices for final demand goods increased 1.2%.

The index for final demand less foods, energy, and trade services moved up 0.7% in November, the largest rise since climbing 0.8% in July. For the 12 months ended in November, prices for final demand less foods, energy, and trade services increased 6.9%, the largest advance since 12-month data were first calculated in August 2014.

Final Demand

Final demand services: The index for final demand services rose 0.7% in November, the eleventh consecutive advance. Over half of the broad-based increase in November can be traced to prices for final demand services less trade, transportation, and warehousing, which climbed 0.6%. The indexes for final demand trade services and for final demand transportation and warehousing services also moved higher, rising 0.6% and 1.9%, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Leading the November increase in the index for final demand services, prices for portfolio management advanced 2.9%. The indexes for guestroom rental; securities brokerage, dealing, investment advice, and related services; fuels and lubricants retailing; airline passenger services; and transportation of freight and mail also moved higher. In contrast, margins for chemicals and allied products wholesaling fell 1.3%. The indexes for furnishings wholesaling and for bundled wired telecommunications access services also declined.

Final demand goods: The index for final demand goods rose 1.2% in November following a 1.3% increase in October. In November, advances were broad based. Prices for final demand goods less foods and energy climbed 0.8%, the index for final demand energy jumped 2.6%, and prices for final demand foods moved up 1.2%.

Product detail: Within final demand goods in November, prices for iron and steel scrap rose 10.7%. The indexes for gasoline, fresh fruits and melons, fresh and dry vegetables, industrial chemicals, and jet fuel also moved higher. Conversely, prices for diesel fuel decreased 2.6%. The indexes for processed young chickens and for light motor trucks also fell.

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The not-seasonally adjusted price indexes we track all advanced on both a MoM and YoY basis.

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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.

October 2021 International Trade (Softwood Lumber)

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Softwood lumber exports rose (9 MMBF or +6.6%) in October, along with imports (103 MMBF or +8.4%). Exports were 55 MMBF (+56.1%) above year-earlier levels; imports were 130 MMBF (-8.9%) lower. As a result, the year-over-year (YoY) net export deficit was 185 MMBF (-13.6%) smaller. However, the average net export deficit for the 12 months ending October 2021 was 9.9% higher 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 (52.6% of total exports; of which Canada: 18.8%; Mexico: 33.8%), Asia (20.2%; especially China: 5.9%; and Japan: 3.6%), and the Caribbean: 19.7% especially the Dominican Republic: 8.7%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -21.5% relative to the same months in 2020. Meanwhile, Canada was the source of most (88.5%) softwood lumber imports into the United States. Imports from Canada were 7.1% higher YTD than the same months in 2020. Overall, YTD exports were up 28.3% compared to 2020; imports: +8.7%.

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U.S. softwood lumber export activity through the West Coast customs region represented 30.3% of the U.S. total; Gulf: 40.6%, and Eastern: 22.8%. Mobile (17.8% of the U.S. total) was the single most-active district, followed by Seattle (16.7%), Savannah (10.3%), Laredo (15.5%) and San Diego (11.2%). At the same time, Great Lakes customs region handled 61.4% of softwood lumber imports -- most notably the Duluth, MN district (21.1%) -- coming into the United States. 

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Southern yellow pine comprised 26.2% of all softwood lumber exports; Douglas-fir (12.7%), treated lumber (13.5%), other pine (12.1%) and finger-jointed (12.6%) were also significant. Southern pine exports were up 15.3% YTD relative to 2020, while Doug-fir: +14.9%; and treated: +18.8%.

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

November 2021 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil slipped by $2.33 (-2.9%), to $79.15 per barrel in November. That increase occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of September’s decrease of 287,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.2 million BPD, and a plateauing of accumulated oil stocks (November average: 434 million barrels).

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From the 29 November 2021 issue of The Energy Bulletin:

Oil:  The discovery of a new coronavirus variant named Omicron triggered global alarm on Friday as countries rushed to suspend travel from southern Africa, and the equity and commodity markets on both sides of the Atlantic suffered their most significant drop in more than a year. The World Health Organization said Omicron might spread more quickly than other forms of the virus, and preliminary evidence suggested an increased risk of reinfection.

Oil prices plunged on Friday as reports of the new coronavirus variant sparked fears of more pandemic lockdowns and another blow to fuel demand. West Texas Intermediate dropped by 13% to settle at $68.15/barrel as US traders returned following Thanksgiving. The international benchmark Brent fell 12% to settle at $72.72/barrel. Both oil markers had their biggest one-day declines since the WTI price briefly went negative in April 2020 at the height of the pandemic.

The fall in price came days after the White House announced that it would release some 50 million barrels of crude from its Strategic Petroleum Reserve over the coming months in conjunction with added contributions from five other countries. The US announcement on Tuesday had little immediate effect on prices. But news of the Omicron variant has now overwhelmed sentiment.

The Biden administration proposed several changes to the nation's federal oil and gas leasing program, including hiking fees on drilling companies to keep them out of sensitive wildlife and cultural zones. The recommendations followed a months-long review aimed at ensuring drilling on federal lands and waters benefits the public. But in a sign of the extreme controversy surrounding the issue, environmental groups slammed the proposals as too weak, and the industry criticized them as too harsh.

Shale Oil:  Producers in the US are showing no sign of accelerating the pace of deployment for drilling rigs, despite criticism from the Biden administration that they're holding back on production to the detriment of consumers. According to Baker Hughes, the number of rigs drilling for crude in US fields rose by 6 to 467 this week. Moreover, operators added 23 drilling rigs in the second consecutive month, suggesting that explorers are more interested in growing production slowly and steadily than in heeding the administration's call for more supply.

The biggest US oil-rig operator, Helmerich & Payne, posted a steeper-than-expected loss and warned of ballooning costs amid worsening energy-industry inflation. Analysts at Tudor, Pickering, Holt & Co. say growing demand for rigs isn't translating into improved profitability. Helmerich's warning follows similar commentary by America's No. 2 provider of fracking pumps, Liberty Oilfield Services, which last month cited "serious" supply-chain issues that have boosted costs faster than they can be passed on.

Prognosis: The US uses more gasoline than any other nation globally, and lately Americans have grown concerned about the swift rise in costs at the pump. The average retail price of gas was at $3.40 for a regular gallon, up from roughly $2.11 at this time a year ago and the swift increase - 61% over 12 months - has alarmed consumers. As a result, President Biden tried to deliver a Thanksgiving gift for US drivers on Tuesday by announcing that the US would release 50 million barrels of oil from its 600-million-barrel Strategic Reserve in response to voter concerns. The UK, India, South Korea, Japan, and China also agreed to release oil stocks. Britain's planned release is for up to 1.5m barrels; India about 5 million and Japan about a million. Volume from the others is not yet known.

The total release from all the countries involved covers about 12 hours of worldwide oil demand of about 100 million b/d. Only 32 million barrels of the US's contribution will be from newly authorized releases. They will be delivered to the markets slowly between mid-December and the end of April 2022 in a swap with oil companies, which must return an equivalent volume by 2024. The other 18 million barrels have already been authorized. Given that the US release and that of other nations will be on the order of 40 million barrels spread over 229 days, the impact on world prices will be minimal as the world will consume some 2.3 billion barrels during this period.

Industry observers generally agreed that the move would have a limited effect on lowering gasoline prices. Market prices recovered after the announcement in a few hours. So far, the most significant impact of the release announcement was that OPEC+ producers began threatening to forego planned monthly production increases of 400,000 b/d.

Over the longer term, the future for OPEC+ oil production does not look bright. There are persistent rumblings that Russia's output is peaking for geological reasons, and output from most of the smaller OPEC members has been declining for years. Only a handful of middle eastern states have substantial oil reserves left and these are on the cusp of unbearable summer temperatures leading to serious crop and water shortages that could stifle oil production growth.

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Selected highlights from the 30 November 2021 issue of OilPrice.com‘s Intelligence Report include:

Black Friday's price collapse shook the oil market, destroying the bullish sentiment that had been building throughout the month. While prices partially recovered on Monday, they plunged again on Tuesday morning as uncertainty intensified. Concerns over the rapid spread of the Omicron variant have bolstered fears of demand destruction. Everyone is now focused on the upcoming OPEC+ meeting as the potential loss of 2-3 million b/d of global demand could convince the cartel to halt its 400,000 b/d monthly production additions.

Saudi Arabia Shrugs Off Omicron Fears. Whilst other Middle Eastern countries were hesitant to assess OPEC+ prospects of incremental supply, Saudi Arabia's energy minister Prince Abdulaziz bin Salman and Russia's energy minister Alexander Novak were inclined to keep the oil group on its pre-charted course.

Jet Fuel Demand Poised to Suffer. Demand for jet fuel, by far the largest laggard in terms of post-pandemic recovery, is now under severe pressure as Omicron fears continue triggering border closures. Originally, it was expected to have a robust Q4, but these new developments could ruin that.

White House Seeks US Royalty Rate Revamp. In a recently published blueprint for the future development of oil and gas projects on federal lands, the Biden Administration is advocating an increase in royalty rates, currently some 12.5% on onshore leases and 12.5-18.75% on offshore leases.

 

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

November 2021 Currency Exchange Rates

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In November, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+1.1%%), the euro (+1.6%) and Japanese yen (+0.7%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.9% 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.

November 2021 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added a mere 210,000 jobs in November, well below the 545,000 expected). On a brighter note, September and October employment changes were revised up by a combined 82,000 (September: +67,000; October: +15,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell by 0.4 percentage point, to 4.2%, as the number of people who found work (+1.136 million) were nearly double the growth in the civilian labor force (+594,000).

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Observations from the employment reports include:

* The establishment (+210,000 jobs) and household surveys (+1,136 million employed) were poorly correlated. Many analysts blame the seasonal-adjustment process, which has been “out of whack” since the start of the pandemic. For November, the seasonal adjustment was more than double the average of the past decade. I.e., seasonal adjustments may have stripped out more job gains than warranted. 

* Goods-producing industries gained 60,000 jobs; service-providers: +175,000. Notable job gains occurred in professional and business services (+90,000), transportation and warehousing (+49.700), construction (+31,000), and manufacturing (+31,000). Declines occurred in retail trade (-20,000) and state and local governments (-27,000) -- especially local education (-12,600).

As mentioned above, manufacturing added 31,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded more rapidly in November. Wood Products employment rose by 2,000 (ISM was unchanged); Paper and Paper Products: +2,200 (ISM rose); Construction: +31,000 (ISM fell).

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* The number of employment-age persons not in the labor force contracted (-473,000) to just under 100.0 million. With the labor force expanding, the employment-population ratio (EPR) edged up fractionally to 59.2%; i.e., nearly six out of 10 in the employment-age population are presently employed. 

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* Because the civilian labor force expanded by 594,000 in November, the labor force participation rate also inched up to 61.8%. Average hourly earnings of all private employees increased by $0.08 (to $31.03), and the year-over-year increase settled at +4.8%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.12, to $26.40 (+5.9% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded (0.1 hour) to 34.8 hours, average weekly earnings rose (+$5.87) to $1,079.84 (+2.9% YoY). With the consumer price index running at an annual rate of +6.2% in October, the average worker continues to lose purchasing power.

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* Full-time jobs jumped (+954,000) to 129.3 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 -- retreated by 137,000, along with those working part time for non-economic reasons (-131,000); multiple-job holders rose by 85,000.

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For a “sanity test” of the job numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in November increased by $23.5 billion, to $243.7 billion (+10.7% MoM; +25.2% 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 November was 22.9% above 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.

November 2021 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed a slight increase in the proportion of U.S. manufacturers reporting expansion in November. The PMI registered 61.1%, a rise of 0.3 percentage point (PP) from the October 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 for customer inventories (-6.6PP), imports (+3.5PP), slow deliveries (-3.4PP), and input prices (-3.3PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment -- tiptoed up to another record high (+2.4PP, to 69.1%). Input prices (-0.6PP) and order backlogs (-1.4PP) backed off their previous record-high readings; slow supplier deliveries held steady at its all-time high; and inventory sentiment (-0.9PP) slipped to a new low. These outcomes are expressed in the survey’s headline as expansionary because such levels typically occur when demand is strong; in this case, however, they are associated with supply chain disruptions.

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Of the industries we track, only Wood Products did not expand. Respondent comments included the following:

Construction. “Construction material shortages and longer lead times continue to hamper operations. Significant cost increases from labor and freight are forecast for the start of next year.”

 

IHS Markit‘s survey headline results ran counter to their ISM counterparts.

Manufacturing. PMI drops to 11-month low amid softer demand conditions and material shortages

Key findings:

* Output growth subdued amid softer rise in new sales and supply shortage
* Job creation slows due to reports of labor shortages
* Input costs rise at fastest pace on record

 

Services. Service sector reports sustained strong business growth, but costs surge higher

Key findings:

* Output and new orders rise sharply but growth rates cool
* Cost inflation accelerates to second highest on record
* Job creation quickens, yet backlogs show near-record increase

 

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

Manufacturing. “Broad swathes of US manufacturing remain hamstrung by supply chain bottlenecks and difficulties filling staff vacancies. Although November brought some signs of supply chain problems easing slightly to the lowest recorded for six months, widespread shortages of inputs meant production growth was again severely constrained to the extent that the survey is so far consistent with manufacturing acting as a drag on the economy during the fourth quarter.

“While demand remains firm, November brought signs of new orders growth cooling to the lowest so far this year, linked to shortages limiting scope to boost sales and signs of push-back from customers as prices continued to rise sharply during the month.

“While average selling price inflation eased as firms sought to win customers, the rate of input cost inflation hit a new high, hinting at a squeeze on margins.”

 

Services. “US business activity continued to grow at a solid rate in November, adding to signs that the pace of economic growth is accelerating in the fourth quarter after the Delta wave induced slowdown of the third quarter. While growth is not matching the surge seen earlier in the year when the economy reopened, the fourth quarter expansion should be well above the economy’s long-run trend to mark a solid end to the year.

“Growth is lopsided, however, being led by the service sector as manufacturing remains heavily constricted by supply shortages and, in some cases, labor supply issues. These constraints are also increasingly affecting service providers, as evidenced by the service sector reporting a near record build-up of uncompleted orders during November as companies often lacked the capacity to meet demand. Cost pressures in the service sector also spiked higher in November, generally linked to higher prices paid for inputs and staff due to shortages, the rate of inflation running just shy of May’s all-time peak.

“While business expectations for the year ahead rose in November, the vast majority of the survey data were collected prior to the news of the Omicron variant, which casts a renewed shadow of uncertainty over the outlook for business and poses a downside risk to near-term growth prospects.”

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 2021 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 October increased $10.2 billion or 2.0% to $523.4 billion. Durable goods shipments increased $4.1 billion or 1.6% to $261.5 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $6.1 billion or 2.4% to $261.9 billion, led by petroleum and coal products. Shipments of wood products rose by 1.0%; paper: +0.2%.

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Inventories increased $6.4 billion or 0.8% to $764.2 billion. The inventories-to-shipments ratio was 1.46, down from 1.48 in September. Inventories of durable goods increased $3.1 billion or 0.7% to $466.4 billion, led by fabricated metal products. Nondurable goods inventories increased $3.3 billion or 1.1% to $297.8 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.9%; paper: +0.7%.

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New orders increased $5.1 billion or 1.0% to $522.1 billion. Excluding transportation, new orders rose by $7.1 billion or 1.6% (+14.0% YoY). Durable goods orders decreased $1.1 billion or 0.4% to $260.3 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.5 billion or 0.7% (+12.2% YoY). New orders for nondurable goods increased $6.1 billion or 2.4% to $261.9 billion.

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Unfilled durable-goods orders increased $3.1 billion or 0.3% to $1,249.8 billion, led by machinery. The unfilled orders-to-shipments ratio was 6.76, down from 6.82 in September. 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 103% of their December 2008 peak. Real unfilled orders then jumped to 109% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Except for the year-long run up during 2019, real unfilled orders have been trending lower since November 2014.

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.