November 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in November 2022 were at a seasonally adjusted annual rate (SAAR) of 640,000 units (600,000 expected). This is 5.8% (±22.7%)* above the revised October rate of 605,000 (originally 632,000 units), but 15.3% (±13.0%) below the November 2021 estimate of 756,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -14.8%. For longer-term perspectives, NSA sales were 53.9% below the “housing bubble” peak and 12.0% below the long-term, pre-2000 average.

The median sales price of new houses sold in November 2022 was $471,200 (-2.8%, or $13,500). The average sales price was $543,600 (+1.9% or $10,200). Homes priced at/above $750,000 comprised 17.4% of sales, up from the year-earlier 11.1%.

* 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 rose by 91,000 units (+9.5%). Sales also rose (35,000 units), resulting in inventory for sale shrinking in both absolute (-8,000 units) and months-of-inventory terms (-0.7 month) terms. 

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Existing home sales retreated for a tenth month in November (-7.7% or 340,000 units) to a SAAR of 4.09 million units (4.2 million expected). Inventory of existing homes for sale contracted in absolute terms (-80,000 units) but was unchanged on a months-of-inventory basis. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes increased to 13.5%. The median price of previously owned homes sold in November dropped to $370,900 (-2.1% or $8,100).

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Housing affordability nudged lower (-5.8 index points) although the median price of existing homes for sale in October fell by $4,700 (-1.2% MoM; +6.2 YoY) to $384,900. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices declined at a not-seasonally adjusted monthly change of -0.5% (+9.2% YoY).

“October 2022 marked the fourth consecutive month of declining home prices in the United States,” said Craig Lazzara, Managing Director at S&P DJI. “For example, the National Composite Index fell -0.5% for the month, reflecting a -3.0% decline since the market peaked in June 2022. We saw comparable patterns in our 10- and 20-City Composites, both of which stand -4.6% below their June peaks after October declines of -0.7% and -0.8%, respectively. These declines, of course, came after very strong price increases in late 2021 and the first half of 2022. Despite its recent weakness, on a year-over-year basis the National Composite gained 9.2%, which is in the top quintile of historical performance levels.

“Despite considerable regional differences, all 20 cities in our October report reflect these trends of short-term decline and medium-term deceleration. Prices declined in every city in October, with a median change of -0.9%. Year-over-year price gains in all 20 cities were lower in October than they had been in September; the median year-over-year increase across the 20 cities was 8.3%.

“October’s best-performing cities were Miami (+21.0% year-over-year) and Tampa (+20.5%), with Charlotte (+15.0%) edging Atlanta (+14.9%) for third place. The Southeast (+17.9%) and South (+17.0%) were the strongest regions by far, with gains more than double those of the Northeast, Midwest, and West. The two weakest performers were San Francisco (up only +0.6% year-over-year) and Seattle (+4.5%). San Francisco and Seattle peaked in May 2022, and both have declined by more than -10% since then.

“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be a headwind for home prices. Given the continuing prospects for a challenging macroeconomic environment, prices may well continue to weaken.”

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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.

3Q2022 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2022 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 +3.25% (+2.9% expected), up 0.32 percentage point (PP) from the second estimate (“3Qv2”) and +3.83PP from 2Q2022.

As with prior 3Q reports, three groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the headline. That combination was partially offset by private domestic investment (PDI). The updated estimates primarily reflected upward revisions to consumer spending and nonresidential fixed investment that were partly offset by a downward revision to private inventory investment.

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As for details (all relative to 3Qv2):

PCE. The upward revision to consumer spending (+$18.7 billion, chained 2012 dollars) was led by services (+$19.8B). Other services (+$10.9B) and financial services and insurance (+$8.1B) dominated the services category. Spending on goods receded (-$2.6B); furnishings and durable household equipment (-$1.1B) and recreational goods and vehicles (-$0.9B) were the top movers in this category.

PDI. Inventories (-$10.9B) dominated the downward revision to PDI. This was partially offset by upward revisions to nonresidential structures (+$3.8B) and intellectual property products (+$3.2B).

NetX. Exports were trimmed by $4.2B while imports slipped marginally (-$0.1B).

GCE. Upward revisions to state and local gross investment (+$3.7B) dominated this line item.

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Consumer Metrics Institute’s Rick Davis summarized the key points of this report as follows:

-- As a stand-alone quarter, 3Q2022 seems to be showing comfortable growth. Normally, we should be very pleased.

-- That said, wildly different measurements of quarterly inflation make any estimates of “real” growth extremely difficult.

“In short,” Davis concluded, “the optimism that can be drawn from this report should be, at best, somewhat guarded.”

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 2022 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 1,427,000 units (1.400 million expected). This is 0.5% (±12.3%)* below the revised October estimate of 1,434,000 (originally 1.425 million units) and 16.4% (±13.4%) below the November 2021 SAAR of 1,706,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -15.1%.

Single-family starts in November were at a SAAR of 828,000; this is 4.1% (±11.3%)* below the revised October figure of 863,000 units (-32.6% YoY). Multi-family: 599,000 units (+4.9% MoM; +25.3% 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 1,490,000. This is 10.8% (±15.8%)* above the revised October estimate of 1,345,000 (originally 1.339 million units) and 6.0% (±17.6%)* above the November 2021 rate of 1,406,000 units; the NSA comparison: +8.1% YoY.

Single-family completions were at a SAAR of 1,047,000; this is 9.5% (±12.9%)* above the revised October rate of 956,000 units (+11.3% YoY). Multi-family: 443,000 units (+13.9% MoM; +0.6% YoY).

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Total permits were at a SAAR of 1,342,000 units (1.495 million expected). This is 11.2% below the revised October rate of 1,512,000 (originally 1.526 million units) and 22.4% below the November 2021 SAAR of 1,729,000 units; the NSA comparison: -23.8% YoY.

Single-family permits were at a rate of 781,000; this is 7.1% below the revised October figure of 841,000 units (-31.4% YoY). Multi-family: 561,000 units (-16.4% MoM; -11.9% YoY).

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High mortgage rates, elevated construction costs running well above the inflation rate and flagging consumer demand due to deteriorating affordability conditions have dragged builder sentiment down every month in 2022.

Builder confidence in the market for newly built single-family homes posted its 12th straight monthly decline in December, dropping two points to 31, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the lowest confidence reading since mid-2012, with the exception of the onset of the pandemic in the spring of 2020.

“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced homes prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”

“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” said NAHB Chief Economist Robert Dietz. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”

Dietz added that in this tenuous economic climate, builders still need to plan a year or more out when thinking about land and construction timelines. “NAHB is expecting weaker housing conditions to persist in 2023, and we forecast a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024.”

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 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) declined 0.2% in November (+0.1% expected). Decreases of 0.6% for manufacturing and 0.7% for mining were partly offset by a rebound of 3.6% for utilities following three months of declines. At 104.5% of its 2017 average, total industrial production in November was 2.5% above its year-earlier reading. 

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Market Groups

Decreases were broad based across market groups with the primary exceptions of consumer energy products, energy materials, and defense and space equipment. The output of consumer durables fell about 2%, led by automotive products, while the output of consumer non-energy nondurables decreased about ½%. The production of business equipment fell 0.8%, reflecting decreases for transit equipment and for industrial and other equipment. The indexes for construction supplies, business supplies, durable materials, and nondurable materials all declined ½% or less.

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Industry Groups

Manufacturing output decreased 0.6% in November but remained 1.2% above its year-earlier level (NAICS manufacturing: -0.6% MoM; +1.4% YoY). The indexes for durable and nondurable manufacturing both declined 0.6%, and the index for other manufacturing (publishing and logging) slipped 0.4%. Within durables, increases were recorded by wood products (+3.6%), by computer and electronic products, and by aerospace and miscellaneous transportation equipment; these gains were outweighed by losses for other industries, particularly for motor vehicles and parts. Within nondurables, most industries registered decreases (paper: -1.0%), with only printing and support posting an increase.

Mining output declined 0.7%. The indexes for oil and gas extraction and for oil and gas well drilling also each fell 0.7%; the decrease for drilling followed more than two years of nearly uninterrupted increases. The output of utilities strengthened 3.6% in November, as a decrease for natural gas utilities partly offset an increase for electric utilities.

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Capacity utilization (CU) moved down 0.2 percentage point (PP) in November to 79.7%, a rate that is 0.1PP above its long-run (1972–2021) average.

Manufacturing CU fell 0.6PP in November to 78.9%, a rate that is 0.7PP above its long-run average (wood products: +3.6%; paper: -1.0%). The operating rate for mining fell 0.7PP to 88.2%, while the operating rate for utilities increased 2.4PP to 74.4%. Capacity utilization for mining was 1.9PP above its long-run average, but the rate for utilities remained substantially below its long-run average of 84.7%.

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Capacity at the all-industries level increased by 0.1% MoM (+1.6% YoY) to 131.2% of 2017 output. Manufacturing also edged up by 0.1% (+1.1% YoY) to 129.4%. Wood products: +0.1% (+1.0% YoY) to 126.5%; paper: -0.1% (-0.5% YoY) to 109.9%.

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 2022 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) rose 0.1% in November (+0.3% expected) after increasing 0.4% in October. Over the last 12 months, the all-items index increased 7.1% before seasonal adjustment.

The index for shelter was by far the largest contributor to the monthly all-items increase, more than offsetting decreases in energy indexes. The food index increased 0.5% over the month with the food at home index also rising 0.5%. The energy index decreased 1.6% over the month as the gasoline index, the natural gas index, and the electricity index all declined.

The index for all items less food and energy rose 0.2% in November, after rising 0.3% in October. The indexes for shelter, communication, recreation, motor vehicle insurance, education, and apparel were among those that increased over the month. Indexes which declined in November include the used cars and trucks, medical care, and airline fares indexes.

The all-items index increased 7.1% for the 12 months ending November; this was the smallest 12-month increase since the period ending December 2021. The index for all items less food and energy rose 6.0% over the last 12 months. The energy index increased 13.1% for the 12 months ending November, and the food index increased 10.6% over the last year; all of these increases were smaller than for the period ending October.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) advanced 0.3% in November (+0.2% expected). Final demand prices also rose 0.3% in both October and September. On an unadjusted basis, the index for final demand moved up 7.4% for the 12 months ended in November.

In November, most of the increase in the index for final demand is attributable to a 0.4% advance in prices for final demand services. The index for final demand goods inched up 0.1%.

Prices for final demand less foods, energy, and trade services moved up 0.3% in November after rising 0.2% in October. For the 12 months ended in November, the index for final demand less foods, energy, and trade services increased 4.9%.

Final Demand

Final demand services: The index for final demand services advanced 0.4% in November after edging up 0.1% in October. Leading the November increase, prices for final demand services less trade, transportation, and warehousing climbed 0.4%. Margins for final demand trade services rose 0.7%. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, prices for final demand transportation and warehousing services declined 0.9%.

Product detail: About one-third of the November rise in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which jumped 11.3%. The indexes for machinery and vehicle wholesaling, loan services (partial), fuels and lubricants retailing, portfolio management, and long-distance motor carrying also moved higher. Conversely, prices for transportation of passengers (partial) fell 5.6%. The indexes for automobile and automobile parts retailing and for traveler accommodation services also decreased.

Final demand goods: The index for final demand goods inched up 0.1% in November following a 0.6% rise in October. A 3.3% increase in prices for final demand foods was a major factor in the November advance. The index for final demand goods less foods and energy moved up 0.3%. In contrast, prices for final demand energy decreased 3.3%.

Product detail: The November advance in prices for final demand goods was led by a 38.1% jump in the index for fresh and dry vegetables. Prices for chicken eggs; meats; canned, cooked, smoked, or prepared poultry; and tobacco products also moved higher. Conversely, the gasoline index fell 6.0%. Prices for diesel fuel, residential natural gas, and primary basic organic chemicals also declined.

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All 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 purposes of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

October 2022 International Trade (Softwood Lumber)

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With October exports of goods and services at $256.6 billion (-0.7% MoM; +13.6% YoY) and imports at $334.8 billion (+0.6% MoM; +13.9% YoY), the net trade deficit was $78.2 billion (+5.4% MoM; +14.7% YoY). 

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Softwood lumber exports rose (5 MMBF or +5.1%) in October, along with imports (52 MMBF or +4.1%). Exports were 46 MMBF (-29.8%) below year-earlier levels; imports: 10 MMBF (-0.8%) lower. As a result, the year-over-year (YoY) net export deficit was 35 MMBF (+3.0%) larger. However, the average net export deficit for the 12 months ending October 2022 was 4.1% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (56.7% of total softwood lumber exports; of which Mexico: 35.9%; Canada: 20.8%), Asia (12.3%; especially Japan: 2.5%), and the Caribbean: 24.4% especially the Dominican Republic: 11.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (2.3% of U.S. total) were -60.2% relative to the same month of the prior year. Meanwhile, Canada was the source of most (83.0%) softwood lumber imports into the United States. Imports from Canada were 5.0% lower YTD/YTD. Overall, YTD exports were down 6.4% compared to the prior year; imports: -2.3%.

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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: 41.2%, and Eastern: 18.6%. Seattle (11.4% of the U.S. total), Mobile (21.9%), San Diego (16.7%) and Laredo (14.2%) were the most active districts. At the same time, Great Lakes customs region handled 59.2% of softwood lumber imports -- most notably the Duluth, MN district (19.2%) -- coming into the United States. 

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Southern yellow pine comprised 26.5% of all softwood lumber exports; Douglas-fir (13.3%), treated lumber (17.4%), other pine (9.2%) and finger-jointed (11.1%) were also significant. Southern pine exports were down 17.9% YTD/YTD, while Doug-fir: +7.5%; treated: +12.3%; other pine: (-13.4%); and finger-jointed: -8.3%.

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 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil inched down, by $3.18 (+3.6%) to $84.37 per barrel in November. That decrease occurred within the context of a noticeably weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of September’s decrease of 131,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.6 million BPD), and accumulated oil stocks that slumped to the bottom of the five-year average range (November average: 432 million barrels). 

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Selected highlights from the 2 December 2022 issue of OilPrice.com’s Oil & Energy Insider include:

“Every month that OPEC+ meets to revisit its production strategy, the oil community carefully watches every single utterance. The switching from a physical meeting in Vienna to an online conference call has led most analysts to believe the most likely outcome will be a rollover of production quotas and that there will not be any drastic moves happening on [4 December],” wrote Editor Ton Kool; those expectations were borne out. “With the EU having tentatively agreed to an oil price cap level for crude, we might be in for a surprise at the OPEC meeting. In the meantime, however, OPEC+ has been hugely aided by rumors circulating of China's easing of lockdown restrictions, with oil prices set to close out the week with a significant gain.”

EU Agrees to $60 per Barrel Oil Price Cap. Member states of the European Union have tentatively agreed to a $60 per barrel price cap on Russian seaborne oil, coming into effect December 05, with an adjustment mechanism that would seek to keep the cap at 5% below market price.

Global Food Prices Continue Downward Slump. The UN Food and Agriculture Organization stated its price index that tracks most globally traded food commodities fell marginally to 135.7, marking the eighth straight monthly decline and moving back into territory seen exactly a year ago.

US Senate Votes to Override Rail Strike. Voting 80-15 to override union objections to a proposed rail worker contract, the US Senate has used its authority under the Railway Labor Act to allay a nationwide rail strike that was set to begin on December 9, voting down two amendments that would have softened the blow. 

Russian Ammonia Deal Almost Done. According to UN aid chief Martin Griffiths, a deal to resume exports of Russian ammonia via pipeline to a Black Sea port in Ukraine is now close, a deal that would alleviate the huge pressure on nitrate fertilizers across the globe.

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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 2022 Currency Exchange Rates

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In November, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-1.7%), the euro (-3.3%), and the Japanese yen (-3.1%). On the broad trade-weighted index basis (goods and services) the USD weakened by 2.1% 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.

October 2022 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 $3.9 billion or 0.7 percent to $554.8 billion. Durable goods shipments increased $1.1 billion or 0.4 percent to $275.5 billion, led by machinery. Meanwhile, nondurable goods shipments increased $2.8 billion or 1.0 percent to $279.3 billion, led by petroleum and coal products. Shipments of wood products fell by 0.8%; paper: -0.1%.

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Inventories increased $4.0 billion or 0.5 percent to $805.3 billion. The inventories-to-shipments ratio was 1.45, unchanged from September. Inventories of durable goods increased $0.8 billion or 0.2 percent to $489.5 billion, led by machinery. Nondurable goods inventories increased $3.2 billion or 1.0 percent to $315.8 billion, led by petroleum and coal products. Inventories of wood products contracted by 0.5%; paper: -0.1%.

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New orders increased $5.8 billion or 1.0 percent to $556.6 billion. Excluding transportation, new orders rose by $3.7 billion or 0.8% (+8.7% YoY). Durable goods orders increased $3.0 billion or 1.1 percent to $277.4 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.5 billion or 0.6% (+6.4% YoY). New orders for nondurable goods increased $2.8 billion or 1.0 percent to $279.3 billion.

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Unfilled durable-goods orders increased $6.9 billion or 0.6 percent to $1,144.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.03, unchanged from September. Real (inflation-adjusted) unfilled orders, which -- prior to the pandemic -- had been a good litmus test for potential 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 110% of the prior peak in November 2014, thanks to the largest-ever batch of aircraft orders. However, 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.

November 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for November 2022 slipped into contraction. The PMI registered 49.0%, down 1.2 percentage points (PP) from October’s 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. Subindexes with the largest changes included customer inventories (+7.1PP), order backlogs (-5.3PP), imports (-4.2PP), and input prices (-3.6PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated in November (+2.1PP, to 56.5%). Exports (-9.3PP), imports (+9.1PP), and slow supplier deliveries (-2.4PP) exhibited the largest changes.

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Of the industries we track, Wood Products and Paper Products both contracted. Respondent comments included the following:

Construction. “Generally unchanged month over month. New business requests are solid, with costs rising steadily for materials, meals and lodging.”

 

Changes in S&P Global’s survey headline results were mixed relative to those of ISM: For manufacturing both surveys fell into contraction; for services, ISM expanded more rapidly while S&P contracted more quickly. Details from S&P Global’s surveys follow --

Manufacturing. November sees first deterioration in U.S. manufacturing performance since June 2020.

Key findings:
* Renewed decline in output amid faster fall in new orders
* First improvement in supplier performance since October 2019
* Cost pressures ease further

 

Services. Business activity contraction gains pace as demand conditions weaken in November.

Key findings:
* Quicker fall in new orders weighs on service sector output
* Slowest rise in cost burdens since December 2020...
*...with selling price inflation softening again

 

Commentary by Chris Williamson, S&P Global’s senior economist:

Manufacturing. “A combination of the rising cost of living, higher interest rates and growing recession fears have led to slumping demand for goods in both the [domestic] market and abroad. Companies are consequently cutting production at a rate not seen since the global financial crisis, if the initial pandemic lockdowns are excluded. However, even with the latest production cuts, the downturn in demand has still led to one of the largest increases in unsold stock recorded since survey data were first available 15 years ago, which suggests that companies will continue to reduce production in the coming months to bring these inventories down to more manageable levels.

“Likewise, companies are slashing their purchases of inputs and raw materials at a rate not seen outside of the pandemic since the global financial crisis.

“This slump in demand is increasingly manifesting itself in a shift from a sellers’- to a buyers’-market for a wide variety of goods, as evidenced by improving supply chains, meaning price pressures are now abating rapidly.

“While supply chain worries persist, notably in relation to China’s lockdowns, companies’ concerns are increasingly moving away from the supply side to focusing on the darkening outlook for demand, meaning the business mood remains among the gloomiest seen over the past decade.”

 

Services. “The survey data are providing a timely signal that the health of the U.S. economy is deteriorating at a marked rate, with malaise spreading across the economy to encompass both manufacturing and services in November. The survey data are broadly consistent with the U.S. economy contracting in the fourth quarter at an annualized rate of approximately 1%, with the decline gathering momentum as we head towards the end of the year.

“There are some small pockets of resilience, notably in the tech and healthcare sectors, but other sectors are reporting falling output amid the rising cost of living, higher interest rates, weaker global demand and reduced confidence. Struggling most of all is the financial services sector, though consumer facing service providers are also seeing a steep fall in demand as households tighten their budgets.

“A striking development is the extent to which companies are increasingly reporting a shift towards discounting in order to help stimulate sales, which augurs well for inflation to continue to retrench in the coming months, potentially quite significantly.”

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 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 263,000 jobs in November, better than the 200,000 expected. However, September and October employment changes were revised down by a combined 23,000 (September: -46,000; October: +23,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 3.7%, as the number of employed fell (-138,000) while the labor force shrank (-186,000).

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Observations from the employment reports include:

* The disagreement between the establishment (+263,000 jobs) and household surveys (-138,000 employed) was quite noticeable. The validity of the surveys is questionable when they are misaligned to this degree.

* Goods-producing industries added 37,000 jobs; service providers: +226,000. Notable job gains occurred in leisure and hospitality (+88,000), health care (+44,700), and government (+42,000). Employment declined in retail trade (-29,000) and in transportation and warehousing (-15,100). Total nonfarm employment (153.5 million) is now 1.0 million jobs above its pre-pandemic level in February 2020. Private-sector employment is 1.5 million higher than in February 2020, while government employment is 461,000 lower. Employment is also perhaps nearly 7.1 million below its potential if accounting for growth in the working-age population since January 2006.

As mentioned above, manufacturing added 37,000 jobs. That result inconsistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which moved from breakeven to contraction in November. Wood products employment expanded by 1,600 (ISM was unchanged); paper and paper products: -2,000 (ISM fell); construction: +20,000 (ISM not reported at time of blog posting).

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* The number of employment-age persons not in the labor force rose (+359,000) to 100.2 million; that level is 5.2 million higher than in February 2020. Despite the above-mentioned job gains, the employment-population ratio (EPR) ticked down marginally to 59.9%; the EPR is 1.3PP below the February 2020 level. 

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* Because the civilian labor force shrank by 186,0000 in November, the labor force participation rate also edged down fractionally to 62.1%. Average hourly earnings of all private employees increased by $0.18 (to $32.82), and the year-over-year increase rose to +5.1%. Although the average workweek for all employees on private nonfarm payrolls shrank to 34.4 hours, average weekly earnings rose (+$2.93) to $1,129.01 (+4.1% YoY). With the consumer price index running at an annual rate of +7.7% in October, the average worker keeps losing purchasing power. In fact, average hourly wages have lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs rose (+92,000) to 132.3 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 -- inched up by 25,000, while those working part time for non-economic reasons fell (-77,000); multiple-job holders: +165,000. 

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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 decreased by $9.7 billion, to $237.5 billion (-3.9% MoM; -2.6% 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 3.5% 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.