October 2021 Residential Sales, Inventory and Prices

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Sales of new single-family houses in October 2021 were at a seasonally adjusted annual rate (SAAR) of 745,000 units (790,000 expected). This is 0.4% (±21.1%)* above the revised September rate of 742,000 (originally 800,000 units), but 23.1% (±15.1%) below the October 2020 SAAR of 969,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -24.4%. For longer-term perspectives, NSA sales were 46.4% below the “housing bubble” peak but 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in October rose by $3,000 (+0.7%) to a record-high $407,700; meanwhile, the average sales price jumped to $477,800 ($20,600 or +4.5% MoM), also a new record. Starter homes (defined here as those priced below $200,000) comprised 2.4% of the total sold, down from the year-earlier 5.6%; 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 1.7% of sales, up from the year-earlier 0.5%.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

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As mentioned in our post about housing permits, starts and completions in October, single-unit completions declined by 16,000 units (-1.7%). Although sales nudged higher (3,000 units; +0.4%), inventory for sale rose in both absolute (11,000 units) and months-of-inventory (+0.2 month) terms. 

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Existing home sales rose in October (50,000 units or +0.8%), to a SAAR of 6.34 million units (6.20 million expected). Inventory of existing homes for sale contracted in absolute terms (-10,000 units) but was unchanged in months-of-inventory terms. Because resales rose at a faster pace than new-home sales, the share of total sales comprised of new homes declined to 10.5%. The median price of previously owned homes sold in October advanced to $353,900 ($2,700 or +0.8% MoM).

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Housing affordability was unchanged despite the median price of existing homes for sale in September dropping by $5,000 (-1.4% MoM; +13.8 YoY), to $359,700. 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 +1.0% (+19.5% YoY).

“If I had to choose only one word to describe September 2021’s housing price data, the word would be ‘deceleration,’” said Craig Lazzara, Managing Director at S&P DJI. “Housing prices continued to show remarkable strength in September, though the pace of price increases declined slightly. The National Composite Index rose 19.5% from year-ago levels, with the 10- and 20-City Composites up 17.8% and 19.1%, respectively. This month, however, the rate of price growth began to decline, as each of our three composites rose less in September than in August.

“We also saw very strong price growth at the city level. All 20 cities saw price increases in September, and all 20 cities stand at their all-time highs. September’s price increase ranked in the top quintile of historical experience for all 20 cities, and in the top decile for 17 of them. That said, in 14 of 20 cities, prices decelerated -- i.e., increased by less in September than in August.

“Phoenix’s 33.1% increase led all cities for the 28^th consecutive month. Tampa (+27.7%) rose to second place in September, and Miami (+25.2%) edged out Dallas, San Diego, and Las Vegas for the bronze medal. Prices were strongest in the South (+24.3%) and the Sunbelt (+24.2%), but every region logged double-digit gains.

“We have previously suggested that the strength in the U.S. housing market is being driven by households’ reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. More data will be required to understand whether this demand surge represents simply an acceleration of purchases that would have occurred over the next several years, or reflects a secular change in locational preferences. September’s report is consistent with either explanation.”

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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: Second Estimate

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In its second estimate of 3Q2021 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) edged up the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.11% (+2.1% expected), up 0.09 percentage point (PP) from the “advance” estimate (“3Qv1”) but -4.62PP from 2Q2021.

As with 3Qv1, 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. As for details:

PCE. Contribution to 3Q headline: +1.18PP; -6.74PP from 2Q and +0.09PP from 3Qv1. Spending on goods was revised up by $11.7 billion (nominal), led by motor vehicles and parts (+$12.5B). That was largely offset by a downward revision to spending on services (-$5.6B), led by other services (-$7.3B).

PDI. Contribution to 3Q headline: +1.93PP; +2.58PP from 2Q and -0.01PP from 3Qv1. PDI was revised up by $0.9B, led by nonresidential structures (+$4.1B); nonfarm inventories also were nudged up by $2.9B. The broad-based upward revisions were largely offset by downward revision to intellectual property products (-$7.2B).

NetX. Contribution to 3Q headline: -1.16PP; -0.98PP from 2Q and -0.02PP from 3Qv1. A downward revision to goods exports (-$1.7B) was nearly offset by a downward revision to imports (-$1.5B), led by services (-$2.4B). Recall that changes in imports are inversely correlated with changes to the GDP headline.

GCE. Contribution to 3Q headline: +0.16PP; +0.52PP from 2Q and +0.02PP from 3Qv1. GCE was revised higher (+$6.7B), led entirely by state and local government spending (+$6.8B).

The BEA's real final sales of domestic product -- which ignores inventories -- was revised to -0.02% (+0.02PP from 3Qv1), a level 8.01PP below the 2Q estimate. 

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Frankly, few of these revisions are statistically significant. Moreover, to paraphrase Consumer Metric Institute’s Rick Davis, this report tells us nothing about the current quarter.

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

October 2021 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in October at a seasonally adjusted annual rate (SAAR) of 1,520,000 units (1.587 million expected). This is 0.7% (±12.2%)* below the revised September estimate of 1,530,000 (originally 1.555 million units), but 0.4% (±12.3%)* above the October 2020 SAAR of 1,514,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -0.2%. 

Single-family housing starts in October were at a rate of 1,039,000; this is 3.9% (±9.5%)* below the revised September figure of 1,081,000 units (-11.7% YoY). Multi-family: 481,000 units (+7.1% MoM; +37.1% 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 1,242,000 units. This is virtually unchanged from (±13.0%)* the revised September estimate of 1,242,000 (originally 1.240 million units), but 8.4% (±9.2%)* below the October 2020 SAAR of 1,356,000 units; the NSA comparison: -9.3% YoY.

Single-family completions were at a SAAR of 929,000; this is 1.7% (±12.7%)* below the revised September rate of 945,000 units (+2.4% YoY). Multi-family: 313,000 units (+5.4% MoM; -32.7% YoY).

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Total permits were at a SAAR of 1,650,000 units (1.630 million expected). This is 4.0% (±1.5%) above the revised September rate of 1,586,000 (originally 1.589 million units) and 3.4% (±1.6%) above the October 2020 SAAR of 1,595,000 units; the NSA comparison: +0.1% YoY.

Single-family were at a SAAR of 1,069,000 units; this is 2.7% (±1.2%) above the revised September figure of 1,041,000 units (-10.8% YoY). Multi-family: 581,000 units (+6.6% MoM; +26.0% YoY).

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Low existing inventories and strong buyer demand helped push builder confidence higher for the third consecutive month even as supply-side challenges -- including building material bottlenecks and lot and labor shortages -- remain stubbornly persistent. Builder sentiment in the market for newly built single-family homes moved three points higher to 83 in November, according to the NAHB/Wells Fargo Housing Market Index (HMI).

“The solid market for home building continued in November despite ongoing supply-side challenges,” said NAHB Chairman Chuck Fowke. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”

“In addition to well publicized concerns over building materials and the national supply chain, labor and building lot access are key constraints for housing supply,” said NAHB Chief Economist Robert Dietz. “Lot availability is at multi-decade lows and the construction industry currently has more than 330,000 open positions. Policymakers need to focus on resolving these issues to help builders produce more housing to meet strong market demand.”

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 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 1.6% in October (+0.9% expected) after falling 1.3% in September; about half of October’s gain reflected a recovery from the effects of Hurricane Ida. Manufacturing output increased 1.2% in October; excluding a large gain in the production of motor vehicles and parts, factory output moved up 0.6%. The output of utilities rose 1.2%, and mining output stepped up 4.1%. At 101.6% of its 2017 average, total IP was 5.1% above its year-earlier level and at its highest reading since December 2019. 

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Industry Groups

In October, manufacturing output rose 1.2%, reaching its highest level since March 2019 (NAICS manufacturing: +1.3% MoM; +4.8% YoY). The indexes for both durable and nondurable goods advanced 1.3%, while the index for other manufacturing (logging and publishing) fell 1.5%. Within durables, the largest increase was posted by motor vehicles and parts, while a strike at a major manufacturer contributed to a decrease of 1.3% for machinery (wood products: +0.6%). Within nondurables, the index for petroleum and coal products moved up 5.0%; gains of more than 1% were also recorded by printing and support and by chemicals (paper: -0.2%).

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Capacity utilization (CU) for the industrial sector increased 1.2 percentage points (PP) to 76.4%; even so, it was still 3.2PP below its long-run (1972–2020) average.

Manufacturing CU increased 0.9PP in October to 76.7%, its highest rate since January 2019 (NAICS manufacturing: +1.3%, to 77.1%; wood products: +0.6%; paper products: -0.3%). The operating rate for mining jumped 3.1PP to 76.9%, while the operating rate for utilities rose 0.8PP to 73.8%. The rates for all three sectors remained below their long-run averages.

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Capacity at the all-industries level increased by 0.1% MoM (+0.3% YoY) to 133.1% of 2017 output. NAICS manufacturing edged up less than 0.1% (+0.2% YoY) at 130.6%. Wood products: 0.0% (+0.3% YoY) at 123.2%; paper products: +0.1% (+0.7% YoY) to 113.8%.

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.

October 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 0.9% in October (+0.5% expected) after rising 0.4% in September. The monthly all-items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter (+0.5%), food, used cars and trucks (+2.5%), and new vehicles (+1.4%) among the larger contributors. The energy index rose 4.8% over the month, as the gasoline index increased 6.1% and the other major energy component indexes also rose. The food index increased 0.9% as the index for food at home rose 1.0%.

The index for all items less food and energy rose 0.6% in October after increasing 0.2% in September. Most component indexes increased over the month. Along with shelter, used cars and trucks, and new vehicles, the indexes for medical care, for household furnishing and operations, and for recreation all increased in October. The indexes for airline fares and for alcoholic beverages were among the few to decline over the month. 

The all-items index rose 6.2% for the 12 months ending October, the largest 12-month increase since the period ending November 1990. The index for all items less food and energy rose 4.6% over the last 12 months, the largest 12-month increase since the period ending August 1991. The energy index rose 30.0% over the last 12 months, and the food index increased 5.3%.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.6% in October (+0.6% expected). Final demand prices moved up 0.5% in September and 0.7% in August. Over 60% of the October increase in the index for final demand can be traced to a 1.2% rise in prices for final demand goods. The index for final demand services moved up 0.2%, and prices for final demand construction advanced 6.6%. Prices for final demand less foods, energy, and trade services moved up 0.4% in October after increasing 0.1% in September.

On an unadjusted basis, the final demand index rose 8.6% for the 12 months ended in October. For the 12 months ended in October, the index for final demand less foods, energy, and trade services rose 6.2%.

Final Demand

Final demand goods: The index for final demand goods moved up 1.2% in October following a 1.3% increase in September. In October, three-quarters of the advance can be attributed to a 4.8% jump in prices for final demand energy. The index for final demand goods less foods and energy moved up 0.5%. Conversely, prices for final demand foods decreased 0.1%.

Product detail: One-third of the October advance in the index for final demand goods can be traced to prices for gasoline, which rose 6.7%. The indexes for diesel fuel, fresh and dry vegetables, gas fuels, jet fuel, and plastic resins and materials also moved higher. In contrast, prices for beef and veal decreased 10.3%. The indexes for light motor trucks and for residential electric power also fell.

Final demand services: Prices for final demand services moved up 0.2% in October, the tenth consecutive advance. Nearly two-thirds of the increase in October can be attributed to the index for final demand trade services, which rose 0.4%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services advanced 1.7%. Conversely, the index for final demand services less trade, transportation, and warehousing fell 0.1%.

Product detail: Over 80% of the October increase in prices for final demand services can be traced to margins for automobiles and automobile parts retailing, which rose 8.9%. The indexes for apparel, footwear, and accessories retailing; truck transportation of freight; food and alcohol retailing; hospital outpatient care; and machinery and equipment parts and supplies wholesaling also moved up. In contrast, prices for securities brokerage, dealing, investment advice, and related services fell 6.6%. The indexes for fuels and lubricants retailing and for portfolio management also declined.

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The not-seasonally adjusted price indexes we track were mixed 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 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added “robust” 531,000 jobs in October, far better than the 450,000 expected). Also, August and September employment changes were revised up by a combined 235,000 (August: +117,000; September: 118,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down by 0.2 percentage point, to 4.6%, as the number of people who found work (+359,000) exceeded growth in the civilian labor force (+104,000). 

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Observations from the employment reports include:

* The establishment (+531,000 jobs) and household surveys (+359,000 employed) were better correlated than has often been the case.

* Goods-producing industries gained a respectable 108,000 jobs; service-providers: +423,000. Job growth was widespread, with notable job gains occurring in leisure and hospitality (+164,000), in professional and business services (+100,000), in manufacturing (+60,000), and in transportation and warehousing (+54,400). Employment in public education declined (-64,900), although that estimate is clouded by the repeated closing and reopening of schools over the past year, which has confounded the BLS’s seasonal adjustment for education.

As mentioned above, manufacturing added 60,000 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 October. Wood Products employment rose by 1,400 (ISM fell); Paper and Paper Products: +2,200 (ISM fell); Construction: +44,000 (ISM rose).

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* The number of employment-age persons not in the labor force rose modestly (+38,000) to 100.5 million. Nonetheless, the employment-population ratio (EPR) edged up fractionally to 58.8%; 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 104,000 in October (only partly offsetting September’s shrinkage of 183,000), the labor force participation rate was unchanged at 61.6%. Average hourly earnings of all private employees increased by $0.11 (to $30.96), and the year-over-year increase rose to +4.9%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.10, to $26.26 (+5.8% YoY). Since the average workweek for all employees on private nonfarm payrolls contracted (0.1 hour) to 34.7 hours, average weekly earnings inched up (+$0.73) to $1,074.31 (+4.5% YoY). With the consumer price index running at an annual rate of +5.4% in September, even those who are employed are -- on average -- only barely keeping up with the official inflation rate.

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* Full-time jobs advanced (+279,000) to 128.3 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 45,000, whereas those working part time for non-economic reasons declined by 68,000; multiple-job holders also fell by 67,000.

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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 October dropped by $12.7 billion, to $220.3 billion (-5.5% MoM; +18.0% 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 October was 22.4% 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.

September 2021 International Trade (Softwood Lumber)

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Softwood lumber exports fell (7 MMBF or -4.4%) in September, along with imports (73 MMBF or -5.6%). Exports were 58 MMBF (+68.4%) above year-earlier levels; imports were 203 MMBF (-14.2%) lower. As a result, the year-over-year (YoY) net export deficit was 262 MMBF (-19.4%) smaller. However, the average net export deficit for the 12 months ending September 2021 was 13.3% 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 (52.5% of total exports; of which Canada: 23.8%; Mexico: 28.7%), Asia (22.4%; especially China: 9.9%; and Japan: 4.3%), and the Caribbean: 19.1% especially the Dominican Republic: 5.5%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -27.9% relative to the same months in 2020. Meanwhile, Canada was the source of most (86.3%) softwood lumber imports into the United States. Imports from Canada were 8.8% higher YTD than the same months in 2020. Overall, YTD exports were up 25.0% compared to 2020; imports: +11.1%.

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U.S. softwood lumber export activity through the West Coast customs region represented 31.3% of the U.S. total; Gulf: 34.7%, and Eastern: 25.9%. Mobile (18.1% of the U.S. total) was the single most-active district, followed by Seattle (17.3%), Savannah (12.6%), Laredo (11.6%) and San Diego (11.8%). At the same time, Great Lakes customs region handled 60.1% of softwood lumber imports -- most notably the Duluth, MN district (20.0%) -- coming into the United States. 

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Southern yellow pine comprised 26.7% of all softwood lumber exports; Douglas-fir (13.0%), treated lumber (10.6%), other pine (12.5%) and finger-jointed (11.2%) were also significant. Southern pine exports were up 11.3% YTD relative to 2020, while Doug-fir: +13.0%; and treated: +17.4%.

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

October 2021 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose by $9.83 (+13.7%), to $81.48 per barrel in October. That increase occurred within the context of a marginally stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of August’s increase of 617,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.5 million BPD, and an advance in accumulated oil stocks (October average: 428 million barrels).

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From the 1 November 2021 issue of The Energy Bulletin:

Oil: Futures rose above $84 a barrel on Friday, within sight of a multi-year high hit last week. Expectations that OPEC and its allies will keep supply tight countered a weekly rise in US inventories and the prospect of more Iranian exports. Oil posted a monthly gain for October of 11% on signs that consumption is outpacing supply and declining stockpiles. New York futures closed at $83.57 and London at $83.72. Last month’s advance shows the impact of an ongoing shortage of natural gas, which has boosted demand for oil products. At the same time, rising margins signal that crude consumption will remain strong as refiners continue to process more oil to meet demand. That could mean that global oil stockpiles will continue to fall in the coming months.

Algeria said on Thursday a crude output increase by OPEC and its allies in December should not exceed 400,000 b/d because of risks. Fuel consumption is soaring around the globe, and with millions of barrels of daily refining capacity offline, refiners still in the game are reaping some of their fattest margins in years. Globally, about 2.3 million b/d of refining capacity was shut down during the pandemic. Another 1 million barrels are likely to be shut down in the next year, Facts Global Energy analyst Steve Sawyer said. That’s just as demand is returning to pre-pandemic levels. Fuel demand is soaring, with cars jamming roads again and gas-to-oil switching gaining speed ahead of winter.

Crude oil tanks at the Cushing, Oklahoma storage hub are more depleted than they have been in the last three years, and prices of further dated oil contracts suggest they will stay lower for months. US demand for crude from refiners making gasoline and diesel has surged as the economy has recovered from the worst of the pandemic. In addition, demand across the globe means other countries have looked to the US for crude, also boosting draws out of Cushing. Analysts expect the draw on inventories to continue in the short term, which could further increase US crude prices that have already climbed by about 25% in the last two months.

The scarcity premium embedded in the structure of Brent crude oil futures widened to the most since 2013 last week, a sign of the tight market underpinning oil’s rally that pundits increasingly predict will push the market to $100 a barrel.  Saudi Aramco said oil-output capacity worldwide is dropping quickly, and companies need to invest more in production. It’s a “huge concern,” Chief Executive Officer Amin Nasser said in an interview. “If there’s aviation pick up next year, that spare capacity will be depleted,” he said. “It’s now getting to a situation where there’s a limited supply — whatever is left that’s spare is declining rapidly.” Several oil and gas traders have criticized governments and climate activists for calling on companies to stop investing.

OPEC: An OPEC+ committee trimmed its forecasts for global oil demand growth this year to 5.7 million b/d from 5.8 million despite a continuing strong recovery in consumption. The Joint Technical Committee, which met on Thursday, left its demand growth forecast for next year steady at 4.2 million b/d. The source said the revision for 2021 was “nothing to worry about” as it updated actual data and rounding. Ministers from the OPEC, Russia, and their allies meet on Nov. 4th to decide output policy.

OPEC’s claim that there is no shortage in the physical oil market appears at odds with the upward trajectory of the futures market. Varying appetites for different quality and regional crudes is the missing link. While the level of buying interest in Middle East barrels appears to better match OPEC’s strategy to steadily bring crude back to the market, the bullish narrative that has pushed Brent above $85 is led by the appetite for sweeter grades, according to market participants and analysts.

Shale Oil: After posting their biggest quarterly profits in years, Exxon Mobil and Chevron disclosed plans to expand drilling in the Permian Basin. Latecomers to the West Texas shale fields, both last year slashed shale production and cut drilling as oil demand tanked. They could soon add two rigs each and rev up output, executives said on earnings calls. Exxon last quarter produced about 500,000 b/d of oil and gas from the Permian Basin using nine drilling rigs. The company’s third-quarter Permian output rose nearly 30% above the prior period. Chevron plans to add two drilling rigs and two crews to complete new wells in the Permian this quarter.

Prognosis: Energy transition and peak demand predictions have spooked investors in oil, putting the prospect of peak production sooner than anticipated, accompanied by wild price spikes. Key climate talks are taking place, with fossil fuel in policy-makers’ crosshairs. But as it stands now, mobility curbs that hollowed out both spending on upstream oil projects and oil end-use may already be set to rein in the growth of both supply and demand permanently. “On current trends, global oil supply is likely to peak even earlier than demand,” the research department of bank Morgan Stanley said in a note last week.

Top US oil firms are doubling down on drilling, deepening a divide with European rivals on the outlook for renewables, and winning support from big investors who do not expect the stateside companies to invest in wind and solar. Among a dozen US fund managers contacted by Reuters from companies overseeing about $7 trillion in assets, most said they prefer oil firms to generate returns from businesses they know best and give shareholders cash to make their renewable bets.

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Selected highlights from the 29 October 2021 issue of OilPrice.com’s Oil & Energy Insider include:

The recent remarkable energy rally calmed down this week, with gas, coal, and oil prices all posting a weekly loss. In the case of crude, it was the first weekly decline in two months. Whilst oil companies were buoyed by an overwhelmingly positive string of Q3 results (most notably Chevron reporting its highest quarterly profit in 8 years), the case for $85+crude prices has weakened over this week. Iranian talks are back on the geopolitical agenda in November, crude inventories in the US increased once again, and geopolitical uncertainty threatens Bosnia, Libya, and Sudan.

OPEC+ to Stick to Supply Discipline. The OPEC+ Joint Technical Committee meeting this week largely agreed that the oil group should maintain its 400,000 b/d monthly supply increases, despite importers' calls for more barrels.

Iran Nuclear Talks Will Restart Next Month. Top negotiators from Iran and the European Union have agreed to restart nuclear talks by the end of November following a three-month hiatus triggered by the election of President Ebrahim Raisi.

Windfall Profits Might Trigger Wave of Share Buybacks. Buoyed by Q3 results coming in at a profit of $6.75 billion, US major ExxonMobil (NYSE:XOM) will spend some $10 billion on share buybacks thanks to windfall profits from high oil and gas prices this year, a practice it suspended in 2016.

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 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed a slight decrease in the proportion of U.S. manufacturers reporting expansion in October. The PMI registered 60.8%, a decline of 0.3 percentage point (PP) from the September reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The sub-indexes for new orders (-6.9PP), input prices (+4.5PP) and imports (-5.8PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment -- jumped to a record high (+4.8PP, to 66.7%). Input prices (+5.4PP), slow supplier deliveries (+6.9PP), and order backlogs (+5.4PP) all posted record-high readings while inventory sentiment (-9.0PP) dropped to a record low. These outcomes are expressed in the survey's headline as expansionary because such moves 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 contracted. Respondent comments included the following:

Construction. “Supply chain disruptions continue to roil new residential construction. Material and skilled labor shortages are lengthening cycle times and forcing substitutions.”

Real Estate. “Construction remains quite strong, although material supply issues persist.”

 

Findings of IHS Markit‘s October survey headline results were largely consistent with their ISM counterparts.

Manufacturing. Output growth hampered further by material shortages, but expansion in new orders remains sharp

Key findings:

* Upturn in production slowest for 15 months
* Severe supplier delays drive marked increase in input costs
* Output charge inflation hits fresh series high

 

Services. Business activity growth quickens to three-month high amid stronger client demand

Key findings:

* Faster expansions in output and new orders
* Backlogs of work rise at survey-record rate
* Sharpest increase in output charges in series history

 

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

Manufacturing. “October saw US manufacturers report yet another near-record lengthening of supply chains, with shortages of components constraining production growth to the lowest since July of last year. Around half of all companies reporting lower production in October attributed the decline to a lack of supplies. However, a further one-in-ten cited a lack of labor, and one-in-four reported that demand had fallen, often as a result of customers either lacking other inputs or pushing back on higher prices.

“Although production growth has now slipped below the pre-pandemic long-run average due to the supply and labor constraints, demand growth -- as measured by new order inflows -- remains well above trend despite easing in October, hence producers saw another steep rise in backlogs of uncompleted work. This shortfall of production relative to demand was the principal driving force behind a survey record rise in manufacturers’ selling prices, suggesting that inflationary pressures continue to build and look unlikely to abate to any significant degree any time soon.”

 

Services. “The final PMI data add to indications that the US economy has picked up speed again in the fourth quarter. After the Delta variant caused growth to slow in the third quarter, the easing of virus case numbers has been followed by a strong revival of economic activity, notably in the service sector, which looks set to be the driving force of the economy as we head towards the end of the year.

“While the service sector is seeing a waning impact from the pandemic, it’s a different story in manufacturing, where the supply crisis continues to cause havoc and dampen production growth. Supply delays worsened in October, which has in turn fed through to a further intensification of inflationary pressures.

“Going forward, the big questions will revolve around the extent to which manufacturers can overcome their supply chain bottlenecks, which look set to worsen as we head towards the busy holiday period, and whether the service sector can sustain its current resilience as the rebound from the pandemic starts to fade and incomes are squeezed by higher prices.”

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

September 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 September increased $3.2 billion or 0.6% to $511.5 billion. Durable goods shipments increased $1.1 billion or 0.4% to $257.0 billion, led by machinery. Meanwhile, nondurable goods shipments increased $2.1 billion or 0.8% to $254.5 billion, led by petroleum and coal products. Shipments of wood products were unchanged; paper: +0.1%.

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Inventories increased $6.3 billion or 0.8% to $756.9 billion. The inventories-to-shipments ratio was 1.48, unchanged from August. Inventories of durable goods increased $4.2 billion or 0.9% to $462.9 billion, led by transportation equipment. Nondurable goods inventories increased $2.1 billion or 0.7% to $294.0 billion, led by petroleum and coal products. Inventories of wood products shrank by 0.4%; paper: +0.2%.

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New orders increased $1.3 billion or 0.2% to $515.9 billion. Excluding transportation, new orders rose by $3.1 billion or 0.7% (+14.5% YoY). Durable goods orders decreased $0.9 billion or 0.3% to $261.4 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.7 billion or 0.8% (+12.8% YoY). New orders for nondurable goods increased $2.1 billion or 0.8% to $254.5 billion.

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Unfilled durable-goods orders increased $8.9 billion or 0.7% to $1,247.3 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.84, down from 6.85 in August. Real unfilled orders, which had been a good litmus test for sector growth, show a less-positive picture; in real terms, unfilled orders in June 2014 were back to 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.

October 2021 Currency Exchange Rates

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In October, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-1.9%%) but appreciated against the euro (+1.4%) and Japanese yen (+2.7%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.6% 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.