2Q2021 Gross Domestic Product: Third Estimate

Click image for larger version

In its third estimate of 2Q2021 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 +6.73% (+6.7% expected), up 0.17 percentage point (PP) from the second estimate (“2Qv2”) and +0.45PP from 1Q2021.

As noted in prior 2Q reports, personal consumption expenditures (PCE) was the only grouping of GDP components driving the expansion. Private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets. Overall, the change in the headline number reflected upward revisions to consumer spending, exports, and inventory investment that were partly offset by an upward revision to imports. As for details (all relative to 2Qv2):

PCE. The upward revision to consumer spending was somewhat evenly split between goods (+$2.4 billion, nominal) and services (+$3.4B). The food and beverage category (+$1.5B) led spending on goods while health care (+$18.7B) and other services (+19.6B) led services spending. Financial services and insurance were revised lower (-$23.8B).

PDI. Investment in nonresidential structures was revised up by $3.7B, along with private inventories (+$1.8B). That was largely offset, however, by a $5.5B cut to intellectual property products.

NetX. An upward revision to exports (+$5.9B) more than offset an increase in imports (+$2.9B). Recall that the headline number falls as imports increase.

GCE. Revisions in this category netted out to -$0.1B.

Click image for larger version

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

-- The headline number was aided by the BEA under-estimating inflation. If the [also arguably suspect] BLS inflation data is used to deflate the reported raw growth, the headline would be essentially halved.

-- Household savings rates are at historically high levels, suggesting households are still cautious about spending.

-- Unless there is another round of government subsidies, this is likely the high-water point for the pandemic recovery growth. Growth rates in excess of 6% are unsustainable in "normal" times in developed countries. If conditions are indeed returning to normal, the economy's growth rate should as well.

-- Consumer spending on goods has been driving this recovery, with double digit annualized growth relative to the same quarters of 2019 -- even with historically high savings rates.

“The CARES Act giveaways and boosted unemployment benefits clearly did drive consumer spending. Unfortunately, unless households start to spend their savings, 2Q2021 is probably the last quarter that will benefit from the governmental giveaways,” 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.

August 2021 Residential Sales, Inventory and Prices

Click image for larger view

Click image for larger view

Sales of new single-family houses in August 2021 were at a seasonally adjusted annual rate (SAAR) of 740,000 units (708,000 expected). This is 1.5% (±15.1%)* above the revised July rate of 729,000 (originally 708,000 units), but 24.3% (±19.1%) below the August 2020 estimate of 977,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -23.5%. For longer-term perspectives, NSA sales were 46.7% below the “housing bubble” peak but 18.6% above the long-term, pre-2000 average.

The median sales price of new houses sold in August was unchanged at a record-high $390,900; meanwhile, the average sales price edged down to $443,200 ($5,500 or -1.2% MoM). Starter homes (defined here as those priced below $200,000) comprised 2.3% of the total sold, down from the year-earlier 6.7%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 were less than 0.6% of sales, essentially unchanged from 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 August, single-unit completions rose by 26,000 units (+2.8%). Because sales increased by a smaller amount (11,000 units; +1.5%), inventory for sale rose in absolute (+12,000 units) and months-of-inventory (+0.1 month) terms. 

Click image for larger view

Existing home sales retreated in August (120,000 units or +2.0%), to a SAAR of 5.88 million units (5.90 million expected). Inventory of existing homes for sale contracted in absolute terms (20,000 units) but months-of-inventory was unchanged. Because resales shrank while new-home sales rose, the share of total sales comprised of new homes jumped to 11.2%. The median price of previously owned homes sold in August fell to $356,700 ($2,800 or -0.8% MoM).

Click image for larger view

Housing affordability rose by 3.9 percentage points as the median price of existing homes for sale in July edged down by $3,100 (-0.8% MoM; +18.6 YoY), to $367,000. 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 +1.6% (+19.7% YoY).

“July 2021 is the fourth consecutive month in which the growth rate of housing prices set a record,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The National Composite Index marked its fourteenth consecutive month of accelerating prices with a 19.7% gain from year-ago levels, up from 18.7% in June and 16.9% in May. This acceleration is also reflected in the 10- and 20-City Composites (up 19.1% and 19.9%, respectively). The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country. In July, all 20 cities rose, and 17 gained more in the 12 months ended in July than they had gained in the 12 months ended in June. Home prices in 19 of our 20 cities now stand at all-time highs, with the sole outlier (Chicago) only 0.3% below its 2006 peak. The National Composite, as well as the 10- and 20-City indices, are likewise at their all-time highs.

“July’s 19.7% price gain for the National Composite is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. This month, New York joined Boston, Charlotte, Cleveland, Dallas, Denver, and Seattle in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quintile of historical performance; in 15 cities, price gains were in the top 5% of historical performance.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. July’s data are consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.

“Phoenix’s 32.4% increase led all cities for the 26th consecutive month, with San Diego (+27.8%) and Seattle (+25.5%) not far behind. As has been the case for the last several months, prices were strongest in the Southwest (+24.2%) and West (+23.7%), but every region logged double-digit gains and recorded all-time-high rate increases.”

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.

August 2021 Residential Permits, Starts and Completions

Click image for larger view

Click image for larger view

Builders started construction of privately-owned housing units in August at a seasonally adjusted annual rate (SAAR) of 1,615,000 units (1.575 million expected). This is 3.9% (±11.3%)* above the revised July estimate of 1,554,000 (originally 1.543 million units) and 17.4% (±12.1%) above the August 2020 SAAR of 1,376,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +17.6%. 

Single-family housing starts in August were at a SAAR of 1,076,000 units; this is 2.8% (±10.4%)* below the revised July figure of 1,107,000 units (+4.7% YoY). Multi-family: 539,000 units (+20.6% MoM; +57.0% YoY). 

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

Click image for larger view

Click image for larger view

Total completions in were at a SAAR of 1,330,000 units.  This is 4.5% (±11.1%)* below the revised July estimate of 1,392,000 (originally 1.391 million units), but 9.4% (±10.3%)* above the August 2020 SAAR of 1,216,000 units; the NSA comparison: +8.7% YoY. 

Single-family housing completions were at a SAAR of 971,000 units; this is 2.8% (±9.6%)* above the revised July rate of 945,000 units (+8.4% YoY). Multi-family: 359,000 units (-19.7% MoM; +9.6% YoY).

Click image for larger view

Click image for larger view

Total permits were at a SAAR of 1,728,000 units (1.610 million expected). This is 6.0% (±1.4%) above the revised July rate of 1,630,000 (originally 1.635 million units) and 13.5% (±1.8%) above the August 2020 SAAR of 1,522,000 units; the NSA comparison: +20.5% YoY.  

Single-family permits were at a SAAR of 1,054,000; this is 0.6% (±1.3%)* above the revised July figure of 1,048,000 (+4.2% YoY). Multi-family: 674,000 units (+15.8% MoM; +58.4% YoY).

Click image for larger view

Click image for larger view

Builder confidence inched up in September on lower lumber prices and strong housing demand, even as the housing sector continues to grapple with building-material supply chain issues and labor challenges. Ending a three-month decline, builder sentiment in the market for newly built single-family homes edged up one point to 76 in September, according to the NAHB/Wells Fargo Housing Market Index (HMI).

“Builder sentiment has been gradually cooling since the HMI hit an all-time high reading of 90 last November,” said NAHB Chairman Chuck Fowke. “The September data show stability as some building material cost challenges ease, particularly for softwood lumber. However, delivery times remain extended, and the chronic construction labor shortage is expected to persist as the overall labor market recovers.”

“The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity, as reflected in the September HMI,” said NAHB Chief Economist Robert Dietz. “While building material challenges persist, the rate of cost growth has eased for some products, but the job openings rate in construction is trending higher.”

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 2021 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Total industrial production (IP) increased 0.4% in August (+0.5% expected) after moving up 0.8% in July. Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point (PP). Although the hurricane forced plant closures for petrochemicals, plastic resins, and petroleum refining, overall manufacturing output rose 0.2%. Mining production fell 0.6%, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico. The output of utilities increased 3.3%, as unseasonably warm temperatures boosted demand for air conditioning. At 101.6% of its 2017 average, total IP in August was 5.9% above its year-earlier level and 0.3% above its pre-pandemic (February 2020) level. 

Click image for larger version

Click image for larger version

Industry Groups

Despite an estimated drag of 0.2PP due to Hurricane Ida, manufacturing output increased 0.2% in August and was 1.0% above its pre-pandemic level (NAICS manufacturing: +0.1% MoM; +6.2% YoY). The production of durable goods edged up in August; among its industries, the largest gain was recorded by furniture and related products and the largest loss was recorded by electrical equipment, appliances, and components (wood products: -0.4%). The output of nondurable goods also edged up, with gains for food, beverage, and tobacco products, for paper (+1.1%), and for petroleum and coal products outweighing losses elsewhere, in particular for chemicals. The output of other manufacturing (publishing and logging) rose 2.4%.

Click image for larger version

Capacity utilization (CU) for the industrial sector rose 0.2PP in August to 76.4%, a rate that is 3.2PP below its long-run (1972–2020) average.

Manufacturing CU increased 0.1PP in August to 76.7% (NAICS manufacturing: +0.1%, to 77.0%; wood products: -0.4%; paper products: +1.0%). The operating rate for mining fell 0.4PP to 76.1%, while the operating rate for utilities rose 2.3PP to 75.6%. The rates for all three sectors remained below their long-run averages.

Click image for larger version

Capacity at the all-industries level edged up by 0.1% MoM (+0.2% YoY) to 132.9% of 2017 output. NAICS manufacturing was unchanged (0.0% YoY) at 130.5%. Wood products: 0.0% (+0.4% YoY) at 123.1%; paper products: +0.1% (+0.4% YoY) to 113.6%.

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 2021 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 0.3% in August (+0.4% expected) after rising 0.5% in July. The indexes for gasoline, household furnishings and operations, food, and shelter all rose in August and contributed to the monthly all-items seasonally adjusted increase. The energy index increased 2.0%, mainly due to a 2.8% increase in the gasoline index. The index for food rose 0.4%, with the indexes for food at home and food away from home both increasing 0.4%.

The index for all items less food and energy rose 0.1% in August, its smallest increase since February 2021. Along with the indexes for household operations and shelter, the indexes for new vehicles, recreation, and medical care also rose in August. The indexes for airline fares, used cars and trucks, and motor vehicle insurance all declined over the month. 

The all-items index rose 5.3% for the 12 months ending August, a smaller YoY increase than the 5.4% rise for the period ending July. The index for all items less food and energy rose 4.0% over the last 12 months, also a smaller increase than the period ending July. The energy index rose 25.0% over the last 12 months, and the food index increased 3.7%; both were larger than the increases for the 12-month period ending July.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.7% in August (+0.6% expected). Final demand prices moved up 1.0% in July, the same as in June. Leading the August increase in the index for final demand, prices for final demand services rose 0.7%. The index for final demand goods moved up 1.0%. Prices for final demand less foods, energy, and trade services moved up 0.3% in August after increasing 0.9% in July.

On an unadjusted basis, the final demand index rose 8.3% for the 12 months ended in August, the largest advance since 12-month data were first calculated in November 2010. For the 12 months ended in August, the index for final demand less foods, energy, and trade services rose 6.3%, the largest advance since 12-month data were first calculated in August 2014.

Final Demand

Final demand services: Prices for final demand services moved up 0.7% in August, the eighth consecutive advance. Two-thirds of the broad-based increase in August can be traced to the index for final demand trade services, which rose 1.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services and for final demand services less trade, transportation, and warehousing climbed 2.8% and 0.1%, respectively.

Product detail: Over 30% of the August increase in prices for final demand services can be traced to a 7.8% rise in margins for health, beauty, and optical goods retailing. The indexes for transportation of passengers (partial), chemicals and allied products wholesaling, bundled wired telecommunications access services, machinery and equipment parts and supplies wholesaling, and traveler accommodation services also moved higher. Conversely, prices for hospital outpatient care fell 1.5%. The indexes for hardware, building materials, and supplies retailing and for securities brokerage, dealing, investment advice, and related services also decreased. (See table 4.)

Final demand goods: The index for final demand goods moved up 1.0% in August after increasing 0.6% in July. In August, half of the broad-based advance can be attributed to a 2.9% rise in prices for final demand foods. The indexes for final demand goods less foods and energy and for final demand energy also moved higher, 0.6% and 0.4%, respectively.

Product detail: About a quarter of the August advance in prices for final demand goods can be attributed to an 8.5% rise in the index for meats. Prices for residential natural gas, industrial chemicals, processed young chickens, motor vehicles, and steel mill products also moved higher. In contrast, the index for iron and steel scrap decreased 3.7%. Prices for diesel fuel and for natural, processed, and imitation cheese also moved lower.

Click image for larger version

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

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.

August 2021 Currency Exchange Rates

Click image for larger view

In August, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+0.6%) and euro (+0.5%) but depreciated against the Japanese yen (-0.3%). On the broad trade-weighted index basis (goods and services), the USD strengthened by 0.3% 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.

July 2021 International Trade (Softwood Lumber)

Click image for larger view

Click image for larger view

Softwood lumber exports rose (18 MMBF or +16.7%) in July, while imports fell (205 MMBF or -14.1%). Exports were 40 MMBF (+45.5%) above year-earlier levels; imports were 36 MMBF (+3.0%) higher. As a result, the year-over-year (YoY) net export deficit was 4 MMBF (-0.4%) smaller. Also, the average net export deficit for the 12 months ending July 2021 was 19.2% higher 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 (53.9% of total exports; of which Canada: 25.0%; Mexico: 28.9%), Asia (20.0%; especially China: 7.2%; and Japan: 4.7%), and the Caribbean: 19.3% especially the Dominican Republic: 6.5%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -50.3% relative to the same months in 2020. Meanwhile, Canada was the source of most (84.8%) of softwood lumber imports into the United States. Imports from Canada were 16.5% higher YTD than the same months in 2020. Overall, YTD exports were down 3.8% compared to 2020; imports: +17.9%.

Click image for larger view

Click image for larger view

U.S. softwood lumber export activity through the West Coast customs region represented 32.2% of the U.S. total; Gulf: 32.1%, and Eastern: 25.4%. Seattle (16.4% of the U.S. total) was the single most-active district, followed by Mobile (16.0%) and San Diego (12.8%). At the same time, Great Lakes customs region handled 56.7% of softwood lumber imports -- most notably the Duluth, MN district (23.2%) -- coming into the United States. 

Click image for larger view

Click image for larger view

Southern yellow pine comprised 23.5% of all softwood lumber exports; Douglas-fir (14.1%) and treated lumber (12.6%) were also significant. Southern pine exports were down 5.3% YTD relative to 2020, while Doug-fir: +3.9%; and treated: +16.5%.

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 2021 Employment Report

Click image for larger view

The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 235,000 jobs in August (falling “disappointingly” short of the 720,000 expected). On a brighter note, June and July employment changes were revised up by a combined 134,000 (June: +24,000; July: +110,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) declined by 0.2 percentage point, to 5.2%, as gains among the employed (+509,000) significantly outpaced expansion of the civilian labor force (+190,000). 

Click image for larger view

Observations from the employment reports include:

* Goods-producing industries gained a rather miniscule 40,000 jobs; service-providers: +195,000. Notable job gains occurred in professional and business services (+74,000), transportation and warehousing (+53,200), private education (+40,200), and other services (+37,000). Employment in retail trade (-28,500), and food service and drinking places (-41,500) declined over the month. Manufacturing added 37,000 jobs. That result is at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted in August. Wood Products employment rose by 1,800 (ISM was unchanged); Paper and Paper Products: +800 (ISM fell); Construction: -3,000 (ISM rose).

Click image for larger view

* The number of employment-age persons not in the labor force edged lower (-49,000) to 100.1 million. Consequently, the employment-population ratio (EPR) inched up to 58.5%; i.e., nearly six out of 10 in the employment-age population are presently employed. 

Click image for larger view

* Although the civilian labor force expanded by 190,000 in August, the labor force participation rate was unchanged at 61.7%. Average hourly earnings of all private employees increased by $0.17 (to $30.73), and the year-over-year increase jumped to +4.3%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.14, to $25.99 (+4.8% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.7 hours, average weekly earnings increased by $5.90, to $1,066.33 (+4.4% YoY). With the consumer price index running at an annual rate of +5.4% in July, even those who are employed are -- on average – not keeping up with the official inflation rate.

Click image for larger view

* Full-time jobs nudged down (30,000) to 127.4 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 -- slipped by 14,000, whereas those working part time for non-economic reasons jumped by 272,000; multiple-job holders advanced by 15,000.

Click image for larger view

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 August rose by $13.4 billion, to $229.9 billion (+6.2% MoM; +23.7% 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 20.7% 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.

August 2021 ISM and Markit Surveys

Click image for larger version

The Institute for Supply Management‘s (ISM) monthly sentiment survey showed a slight increase in the proportion of U.S. manufacturers reporting expansion in August. The PMI registered 59.9%, a rise of 0.4 percentage point (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. The sub-indexes for input prices (-6.3PP) and inventories (supplier: +5.3PP; customer: +5.2PP) exhibited the largest changes.

“Companies and suppliers continue to struggle at unprecedented levels to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products,” said Timothy Fiore, chair of the Manufacturing Business Survey Committee. “The new surges of COVID-19 are adding to pandemic-related issues -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems -- that continue to limit manufacturing-growth potential.”

Click image for larger version

The services sector -- which accounts for 80% of the economy and 90% of employment -- retreated from July’s all-time high of service-sector respondents reporting expansion (-2.4PP, to 61.7%). The most noteworthy changes in the sub-indexes included business activity (-6.9PP), input prices (-6.9PP), and exports (-5.2PP).

Click image for larger version

All of the industries we track expanded. Respondent comments included the following:

Ag & Forestry. “There is a shortage of available workers which is challenging our business operations.”

Construction. “Material and labor shortages continue to hinder productivity. Price increases are ever-present and repetitive. Large, multinational manufacturers have had multiple price increases in the last three months.”

 

Findings of IHS Markit‘s August survey headline results were mixed relative to their ISM counterparts. Manufacturing: Markit’s headline decelerated while ISM rose slightly; services: Markit tumbled further while ISM also retreated.

Manufacturing. Marked improvement in operating conditions amid strong demand conditions

Key findings:

* Substantial rise in new orders…
* …but output growth is constrained by material shortages
* Inflationary pressures reach fresh series high

 

Services. Slowest rise in activity so far this year as demand recovery slows during August

Key findings:

* Output growth moderates amid slower upturn in new business
* Staff shortages contribute to record rise in backlogs of work
* Inflationary pressures pick up

 

Commentary from Markit:

Manufacturing. “U.S. goods producers continued to register marked upturns in output and new orders in August, as demand flourished once again,” wrote Siân Jones, Senior Economist at IHS Markit. “That said, constraints on production due to material shortages exerted further pressure on capacity as backlogs of work rose at a near-record rate.

“Not only were firms facing difficulties trying to clear outstanding work, they also faced further hikes in supplier costs. The pace of cost inflation exceeded the previous series record amid a pervasive scarcity of inputs. Favorable demand conditions allowed finished goods prices to also rise at an unprecedented rate, as firms sought to protect their margins.

“Delivery times lengthened at the second-sharpest rate in over 14 years of data collection, with purchasing activity still rising markedly. It was not only producers who highlighted stockpiling, however, as reports of customers shoring up their holdings of finished items resulted in a substantial drop in post-production inventories. Challenges rebuilding such stocks, including material and labor shortages, and ever-burgeoning levels of incomplete work are likely to remain a feature for some time to come.”

 

Services. “Growth slowed sharply in the U.S. service sector in August, joining the manufacturing sector in reporting a marked cooling in demand and encountering growing problems finding staff and supplies,” wrote Chris Williamson, Chief Business Economist at IHS Markit. “Jobs growth almost stalled among the surveyed companies in August and supplier lead times are lengthening at a near record rate.

“While the resulting overall pace of economic growth signaled is the weakest seen so far this year, backlogs of uncompleted work are rising at a rate unprecedented in at least 12 years, underscoring how supply and labor shortages are putting the brakes on the recovery. The inevitable upshot is higher prices, with firms’ input costs and selling prices rising at increased rates again in August, continuing the steepest period of price growth yet recorded by the survey by a wide margin.

“Encouragement comes from a rise in business expectations about the year ahead, though optimism in the service sector in particular remains off the high seen in the second quarter, to a large extent reflecting concerns over the spread of the Delta variant.”

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 2021 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 July increased $7.8 billion or 1.6% to $508.5 billion. Durable goods shipments increased $5.6 billion or 2.2% to $257.8 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $2.2 billion or 0.9% to $250.7 billion, led by chemical products. Shipments of wood products rose by 0.9%; paper: +0.3%.

Click image for larger view

Inventories increased $3.7 billion or 0.5% to $744.4 billion. The inventories-to-shipments ratio was 1.46, down from 1.48 in June. Inventories of durable goods increased $2.8 billion or 0.6% to $453.7 billion, led by primary metals. Nondurable goods inventories increased $1.0 billion or 0.3% to $290.7 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.7%; paper: +0.5%.

Click image for larger view

New orders increased $1.9 billion or 0.4% to $508.1 billion. Excluding transportation, new orders rose by $3.6 billion or 0.8% (+14.9% YoY). Durable goods orders decreased $0.3 billion or 0.1% to $257.4 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.1 billion or 0.1% (+14.8% YoY). New orders for nondurable goods increased $2.2 billion or 0.9% to $250.7 billion.

Click image for larger view

Unfilled durable-goods orders increased $4.1 billion or 0.3% to $1,225.6 billion, led by machinery. The unfilled orders-to-shipments ratio was 6.79, down from 6.90 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 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.

August 2021 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil dipped by $4.79 (-6.6%), to $67.70 per barrel in August. That decrease occurred within the context of a marginally stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of June’s increase of 443,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.5 million BPD, and a modest retreat in accumulated oil stocks (August average: 433 million barrels).

Click image for larger view

From the 30 August 2021 issue of The Energy Bulletin:

Oil: Prices advanced as hurricane Ida shut off some 59% of Gulf of Mexico crude production. At the same time, the Federal Reserve reinforced its support to begin tapering stimulus by the end of the year. Futures in New York rose 2% on Friday to post the biggest weekly gain in more than a year. Federal Reserve Chair Powell said the central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to start raising interest rates after that. Some 49% of Gulf natural gas production was also shut ahead of the storm. The Gulf accounts for roughly 17% of the nation’s oil production, totaling about 1.7 million b/d, and 5% of its dry gas production.

New York futures settled $1.32 higher at $68.74, and London’s Brent climbed $1.63 to $72.70. NYMEX gasoline settled 1.88 cents at $2.27/gal, and September low sulfur diesel rose 2.60 cents to $2.11/gal. The price of crude could be headed for a jump of between 20 percent and 50 percent, judging from a bullish breakout pattern that suggests a significant rally could be coming.  The so-called “golden cross” appears on a chart when the short-term moving average of an asset crosses above its long-term moving average. The gold cross chart pattern points to a potential for a significant rally. “That’s only happened three times since the beginning of this century, and each of those three times has been followed by a further solid rally in crude oil, anywhere from 20%-50%.”

Crude inventories last week dropped for a third straight week while fuel demand rose to its highest since March 2020, the EIA said on Wednesday. Crude inventories fell by 3 million barrels in the week to Aug. 20th, slightly higher than analysts’ expectations. At 432.6 million barrels, crude stocks were at their lowest since January 2020. “A tick higher in refinery runs and a tick lower in imports has yielded a third consecutive draw to crude inventories – dropping them to their lowest since late January 2020.”

Shale Oil: Under normal circumstances, energy downturns have created perfect opportunities for oil and gas heavyweights to land prime assets on the cheap. A good case in point: the last oil bust of 2016 was followed by a sizable number of huge M&A deals in the sector, including the $60 billion tie-ups between Shell, BG Group, Canadian Oil Sands, and Suncor Energy, as well as a handful that fell through including the proposed merger between Halliburton and Baker Hughes. But Big Oil has now ditched that old playbook and appears largely disinterested in some M&A action this time around. As a result, the current year is shaping up as one of the slowest in the oil and gas industry.

Click image for larger view

Selected highlights from the 31 August 2021 issue of OilPrice.com’s Intelligence Report include:

Hurricane Ida made the headlines this week, forcing the evacuation and shut-downs of offshore platforms in the Gulf of Mexico, shutting in some 1.7 million barrels per day (mbpd) of crude output and 2 mbpd of refining capacity. The prospect of smaller crude demand in the USGC, as Louisiana refiners will struggle to bring back full capacity anytime soon, has weighed on crude prices, setting them for a downward correction.

Simultaneously, the upcoming OPEC+ meeting on 01 September has left market watchers guessing as to how the oil-producing club will react to the US' call to produce more. We assume that the initial production target allocation, agreed last month, will remain unchanged.

Hurricane Ida Shuts 2 Mbpd of US Refining Capacity. With most of New Orleans and Louisiana assessing the damage brought about by the hurricane, some 2 mbpd of refining capacity remains still offline in the US Gulf Coast, including ExxonMobil's 500 kbpd Baton Rouge Refinery and Marathon's 565 kbpd Garyville Refinery.

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.