January 2022 Residential Sales, Inventory and Prices

Click image for larger view

Click image for larger view

Sales of new single-family houses in January 2022 were at a seasonally adjusted annual rate (SAAR) of 801,000 units (804,000 expected). This is 4.5 percent (±16.2 percent)* below the revised December rate of 839,000 (originally 811,000 units) and 19.3 percent (±15.2 percent) below the January 2021 SAAR of 993,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -16.9%. For longer-term perspectives, NSA sales were 42.3% below the “housing bubble” peak but 22.4% above the long-term, pre-2000 average.

The median sales price of new houses sold in January 2022 jumped by 7.0% (+$27,800), to $423,300.  The average sales price rose by 3.0% (+$14,600), to a record-high $496,900. Homes priced at/above $750,000 were 9.4% of sales, nearly double the year-earlier 5.2%. 

* 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 January, single-unit completions fell by 73,000 units (-7.3%). Sales also retreated (38,000 units; -4.5%), resulting in inventory for sale expanding in both absolute (12,000 units) and months-of-inventory (+0.5 month) terms. 

Click image for larger view

Existing home sales rose in January (410,000 units or +6.7%), to a SAAR of 6.50 million units (6.088 million expected). Inventory of existing homes for sale contracted in absolute (-20,000 units) and months-of-inventory (-0.1 month) terms. Because new home sales declined resales increased, the share of total sales comprised of new homes slipped to 11.0%. The median price of previously owned homes sold in January dipped to $350,300 ($4,300 or -1.2% MoM).

Click image for larger view

Housing affordability fell as the median price of existing homes for sale in December advanced by $3,000 (+0.8% MoM; +16.1 YoY), to $364,300. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.9% (+18.8% YoY).

“This month’s report covers December 2021, and therefore brings our reporting on calendar 2021 to a close,” said Craig Lazzara, Managing Director at S&P DJI. “For the year, the National Composite Index recorded a gain of 18.8%. This is the highest calendar year increase in 34 years of data, and substantially ahead of 2020’s 10.4% gain. The 10- and 20-City Composites rose 17.0% and 18.6%, respectively -- a record for the 20-City Composite, and the second-best year ever for the 10-City Composite.

“We have noted that for the past several months, home prices have been rising at a very high, but decelerating rate. The deceleration paused in December, as year-over-year changes in all three composite indices were slightly ahead of their November levels. December’s 18.8% gain for the National Composite is the fifth-highest reading in history.

“We continue to see very strong growth at the city level. All 20 cities saw price increases in 2021, and prices in all 20 are at their all-time highs. December’s price increase ranked in the top quintile of historical experience for 19 cities, and in the top decile for 16 of them.

“Phoenix’s 32.5% increase led all cities for the 31st consecutive month. Tampa (+29.4%) and Miami (+27.3%) continued in second and third place in December. Prices were strongest in the South (+25.7%) and Southeast (+25.6%), but every region continued to log impressive gains.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic. More data will be required to understand whether this demand surge simply represents an acceleration of purchases that would have occurred over the next several years rather than a more permanent secular change. In the short term, meanwhile, we should soon begin to see the impact of increasing mortgage rates on home prices.”

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.

4Q2021 Gross Domestic Product: Second Estimate

Click image for larger version

In its second estimate of 4Q2021 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 +6.99% (+7.0% expected), up 0.10 percentage point (PP) from the “advance” estimate (“4Qv1”) but +4.68PP from 3Q2021.

As with 4Qv1, two groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI) -- were the drivers behind the 4Q expansion; net exports (NetX) and government consumption expenditures (GCE) detracted from the headline. As for details:

PCE. Contribution to 4Q headline: +2.13PP; +0.78PP from 3Q and -0.12PP from 4Qv1. Spending on goods was revised up by $7.0 billion (nominal), led by motor vehicles and parts (+$5.3B). That was more than offset by a downward revision to spending on services (-$19.4B), led by healthcare (-$11.0B).

PDI. Contribution to 4Q headline: +5.38PP; +3.33PP from 3Q and +0.23PP from 4Qv1. PDI was revised up by $22.4B, led by residential fixed investment (+$11.9B) and augmented by a broad-based net gain among nonresidential fixed investment (+10.2B). Private inventories, which again contributed 70% of the GDP headline, also were nudged up by $0.4B.

NetX. Contribution to 4Q headline: -0.07PP; +1.19PP from 3Q and -0.07PP from 4Qv1. Exports were revised down by -$1.9B, led by goods (-$3.0B). Imports also were revised lower (-$2.3B), led by goods (-$1.6B). Recall that changes in imports are inversely correlated with changes to the GDP headline.

GCE. Contribution to 4Q headline: -0.45PP; -0.62PP from 3Q and +0.06PP from 4Qv1. GCE was revised higher (+$5.6B), on net led entirely by state and local government spending (+$5.6B).

The BEA’s real final sales of domestic product -- which ignores inventories -- was revised to +2.09% (+0.10PP from 4Qv1), a level +1.98PP above the 3Q estimate. 

Click image for larger version

“The key points of this report are unchanged from the report issued four weeks ago,” observed Consumer Metric Institute’s Rick Davis before adding the following specifics:

-- U.S. economic growth in 4Q2021 is materially misrepresented by the headline number. And people on the street would know it, if they had any reason to pay any attention to this report in the first place.

-- The BEA’s own “bottom line” number (real final sales) is less than a third of the headline at 2.08%, and even that is significantly boosted by under-reported inflation.

-- Inventory growth may pad the headline number, but it does not signal a healthy consumer sector. Inventories are a long-term zero-sum series, so what they add to the headline in one quarter will certainly be subtracted away in future quarters. In this case retailers simply overstocked for the holiday season in anticipation of both “supply chain” issues -- and a surge in consumer spending that ultimately never materialized.

-- The root cause of most of the above are disposable incomes that are not keeping pace with inflation.

“Reporting from the BEA should be better than this,” Davis continued. “Unfortunately, there is little political will or pressure to fix overly rosy economic reports.

“And reports from the BEA should be more timely than this. This report is rehashing a quarter now 60 to 150 days in the rearview mirror. We would be far better off learning what was happening to the economy in January.”

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.

January 2022 Residential Permits, Starts and Completions

Click image for larger view

Click image for larger view

Builders started construction of privately-owned housing units in January at a seasonally adjusted annual rate (SAAR) of 1,638,000 units (1.708 million expected).  This is 4.1% (±13.7%)* below the revised December estimate of 1,708,000 (originally 1.702 million units), but 0.8% (±12.5%)* above the January 2021 SAAR of 1,625,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +2.1%. 

Single-family housing starts in January were at a SAAR of 1,116,000; this is 5.6% (±12.0%)* below the revised December figure of 1,182,000 units (-1.7% YoY). Multi-family: 522,000 units (-0.8% MoM; +9.9% YoY).

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

Click image for larger view

Click image for larger view

Total completions were at a SAAR of 1,246,000 units.  This is 5.2% (±8.0%)* below the revised December estimate of 1,315,000 (originally 1.295 million units) and 6.2% (±10.0%)* below the January 2021 SAAR of 1,328,000 units; the NSA comparison: -7.2% YoY. 

Single-family completions were at a SAAR of 927,000; this is 7.3% (±6.8%) below the revised December rate of 1,000,000 units (-9.3% YoY). Multi-family: 319,000 units (+1.3% MoM; 0.0% YoY).

Click image for larger view

Click image for larger view

Total permits were at a SAAR of 1,899,000 units (1.760 million expected).  This is 0.7% above the revised December rate of 1,885,000 (originally 1.873 million units) and 0.8% above the January 2021 SAAR of 1,883,000 units; the NSA comparison: +2.9% YoY. 

Single-family permits were at a SAAR of 1,205,000 units; this is 6.8% above the revised December figure of 1,128,000 units (-1.4% YoY). Multi-family: 694,000 units (-8.3% MoM; +10.9% YoY).

Click image for larger view

Click image for larger view

Despite strong buyer demand, builder sentiment continued to slip in February as the industry grapples with ongoing building material production bottlenecks that are raising construction costs and delaying projects.

Builder confidence in the market for newly built single-family homes moved one point lower to 82 in February, marking the second straight month that confidence levels have declined by a single point, according to the NAHB/Wells Fargo Housing Market Index (HMI). Despite these monthly declines, the HMI has posted very solid readings at or above the 80-point mark for the past five months.

“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” said NAHB Chairman Jerry Konter. “These delivery delays are raising construction costs and pricing prospective buyers out of the market. Policymakers must make it a priority to address supply chain issues that are harming housing affordability.”

“Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard,” said NAHB Chief Economist Robert Dietz. “Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”

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.

January 2022 Industrial Production, Capacity Utilization and Capacity

Click image for larger version

Total industrial production (IP) increased 1.4% in January (+0.4% expected). Manufacturing output and mining production rose 0.2% and 1.0%, respectively. The index for utilities jumped 9.9%; after being held down in December by unusually mild weather, the demand for heating surged in January with the arrival of significantly colder-than-normal temperatures. At 103.5% of its 2017 average, total industrial production in January was 4.1% higher than its year-earlier level and 2.1% above its pre-pandemic (February 2020) reading. 

Click image for larger version

Click image for larger version

Industry Groups

Manufacturing output rose 0.2% in January and was up 2.5% over the past 12 months (NAICS manufacturing: +0.2% MoM; +2.7% YoY). In January, durable manufacturing, nondurable manufacturing, and other manufacturing (publishing and logging) each recorded increases of 0.2%. Within durables, miscellaneous manufacturing and machinery posted the largest gains, while motor vehicles and parts and nonmetallic mineral products posted the largest losses (wood products: +0.2%). Within nondurables, sizable increases were recorded by textile and product mills; food, beverage, and tobacco products; and paper (+0.8%). The largest losses came in the indexes for printing and support and for petroleum and coal products, which both declined around 1.5%.

The increase of 9.9% in the output of utilities in January was the largest in the history of the index (since 1972) and reflected strength for both electric utilities and natural gas utilities. The index for mining rose 1.0%. Oil and gas well drilling advanced 6.2%; the index in January was nearly 50% above its year-earlier level but still about 14% below its pre-pandemic reading.

Click image for larger version

Capacity utilization (CU) for the industrial sector increased 1.0 percentage point (PP) in January to 77.6%, a rate that is 1.9PP below its long-run (1972–2021) average.

Manufacturing CU increased 0.1PP in January to 77.3%, 1.8PP higher than its pre-pandemic level but still 0.8PP below its long-run average (NAICS manufacturing: +0.2%, to 77.6%; wood products: 0.0%; paper: +0.9%). The operating rate for mining rose 0.5PP to 79.1%, and the operating rate for utilities advanced 6.9PP to 78.1%. Despite these gains, both rates remained below their long-run averages.

Click image for larger version

Capacity at the all-industries level increased by 0.1% MoM (+0.5% YoY) to 133.3% of 2017 output. NAICS manufacturing also edged up 0.1% (+0.4% YoY) to 130.8%. Wood products: 0.0% (+0.3% YoY) at 123.5%; paper: -0.1% (+0.8% YoY) to 113.9%.

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

January 2022 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 0.6% in January (+0.5% expected). Increases in the indexes for food, electricity, and shelter were the largest contributors to the seasonally adjusted all-items increase. The food index rose 0.9% in January following a 0.5% increase in December. The energy index also increased 0.9% over the month, with an increase in the electricity index being partially offset by declines in the gasoline index and the natural gas index.

The index for all items less food and energy rose 0.6% in January, the same increase as in December. This was the seventh time in the last 10 months it has increased at least 0.5%. Along with the index for shelter, the indexes for household furnishings and operations, used cars and trucks, medical care, and apparel were among many indexes that increased over the month. 

The all-items index rose 7.5% for the 12 months ending January, the largest 12-month increase since the period ending February 1982. The all-items less food and energy index rose 6.0%, the largest 12-month change since the period ending August 1982. The energy index rose 27.0% over the last year, and the food index increased 7.0%.

 

Producer Price Index

The Producer Price Index for final demand increased 1.0% in January (+0.5% expected). This rise followed advances of 0.4% in December 2021 and 0.9% in November. On an unadjusted basis, final demand prices moved up 9.7% for the 12 months ended January 2022.

In January, the index for final demand services rose 0.7%, and prices for final demand goods moved up 1.3%.

Prices for final demand less foods, energy, and trade services increased 0.9% in January 2022, the largest increase since rising 1.0% in January 2021. For the 12 months ended January 2022, the index for final demand less foods, energy, and trade services moved up 6.9%.

Final Demand

Final demand services: Prices for final demand services advanced 0.7% in January, the same as in December. Three-fourths of the rise in January can be traced to a 0.9% increase in the index for final demand services less trade, transportation, and warehousing. Likewise, margins for final demand trade services moved up 0.6%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services were unchanged. 

Product detail: A major factor in the January increase in the index for final demand services was hospital outpatient care prices, which rose 1.6%. The indexes for machinery and vehicle wholesaling; apparel, jewelry, footwear, and accessories retailing; traveler accommodation services; portfolio management; and truck transportation of freight also moved higher. Conversely, margins for fuels and lubricants retailing fell 9.7%. The indexes for transportation of passengers (partial) and for physician care also decreased.

Final demand goods: Prices for final demand goods advanced 1.3% in January after declining 0.1% in December. Over 40% of the broad-based increase can be traced to a 0.8% rise in the index for final demand goods less foods and energy. Prices for final demand energy and for final demand foods also moved higher, 2.5% and 1.6%, respectively.

Product detail: Within the final demand goods category in January, the index for motor vehicles and equipment rose 0.7%. Prices for diesel fuel, gasoline, beef and veal, dairy products, and jet fuel also increased. In contrast, the index for iron and steel scrap decreased 10.7%. Prices for unprocessed finfish and for natural gas also moved lower.

Click image for larger version

The not-seasonally adjusted price indexes we track all advanced 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.

December 2021 International Trade (Softwood Lumber)

Click image for larger view

Click image for larger view

Softwood lumber exports fell (17 MMBF or -12.8%) in December, along with imports (59 MMBF or -4.6%). Exports were 20 MMBF (21.3%) above year-earlier levels; imports were 201 MMBF (-14.2%) lower. As a result, the year-over-year (YoY) net export deficit was 221 MMBF (-16.8%) smaller. However, the average net export deficit for the 12 months ending December 2021 was 3.2% 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 (58.7% of total exports; of which Mexico: 37.5%; Canada: 21.3%), Asia (19.1%; especially China: 3.2%; and Japan: 5.4%), and the Caribbean: 9.6% especially the Dominican Republic: 2.0%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -16.7% relative to the same months of the prior year. Meanwhile, Canada was the source of most (81.9%) softwood lumber imports into the United States. Imports from Canada were 4.4% higher YTD/YTD. Overall, YTD exports were up 29.1% compared to the prior year; imports: +5.1%.

Click image for larger view

Click image for larger view

U.S. softwood lumber export activity through the West Coast customs region represented 40.9% of the U.S. total; Gulf: 31.1%, and Eastern: 19.4%. Seattle (17.2% of the U.S. total), Mobile (9.5%), Laredo (12.9%) and San Diego (16.0%) were among the most active districts. At the same time, Great Lakes customs region handled 56.4% of softwood lumber imports -- most notably the Duluth, MN district (20.7%) -- coming into the United States. 

Click image for larger view

Click image for larger view

Southern yellow pine comprised 18.1% of all softwood lumber exports; Douglas-fir (14.4%), treated lumber (10.0%), other pine (11.1%) and finger-jointed (11.0%) were also significant. Southern pine exports were up 11.5% YTD/YTD, while Doug-fir: +16.0%; and treated: +19.5%.

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.

January 2022 Currency Exchange Rates

Click image for larger view

In January, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-1.4%) and the euro (-0.1%) but appreciated against the Japanese yen (+0.9%). On the broad trade-weighted index basis (goods and services) the USD weakened by 0.6% 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.

January 2022 Employment Report

Click image for larger view

The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added a 467,000 jobs in January (more than triple the 150,000 expected). In addition, as part of the BLS’s annual benchmark process, November and December employment changes were revised up by a combined 709,000 (November: +398,000; December: +311,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged up fractionally, to 4.0%, as the number of people who found work (+1.199 million) lagged the number of (re)entrants to the civilian labor force (+1.393 million). 

Click image for larger view

Observations from the employment reports include:

* There were numerous anomalies in the data. For example --

- The number of people who found work (+1.199 million) were 2.5 times the number of jobs created (+467,000).
- The seasonally adjusted jobs gain was +467,000 whereas the unadjusted data showed a loss of 2.7 million jobs.
- To achieve the reported headline jobs gain, the BLS deployed the largest seasonal adjustment ever for the month of January (+3.291 million).
- A significant proportion of the change in the number of employed persons (+1.199 million) derives from estimates of changes in population. If one controls for the population effect, the number of employed would have fallen by 272,000 rather than rising by 1.199 million.

* As reported, goods-producing industries added just 4,000 jobs; service-providers: +463,000. Employment growth continued in leisure and hospitality (+151,000), in professional and business services (+86,000), in retail trade (+61,000), and in transportation and warehousing (+54,200).

Manufacturing added 13,000 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 January. Wood Products employment rose by 2,000 (ISM was unchanged); Paper and Paper Products: +700 (ISM fell); Construction: -5,000 (ISM rose).

Click image for larger view

* The number of employment-age persons not in the labor force tumbled (-326,000) to 99.5 million; that is 4.5 million higher than in February 2020. With the labor force expanding, the employment-population ratio (EPR) edged up to 59.7%, another pandemic high; even so, the EPR is 1.5PP below the February 2020 level. 

Click image for larger view

* Because the civilian labor force expanded by 1.393 million in January, the labor force participation rate rose to 62.2%. Average hourly earnings of all private employees increased by $0.23 (to $31.63), and the year-over-year increase accelerated to +5.7%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.17, to $26.92 (+6.9% YoY). Since the average workweek for all employees on private nonfarm payrolls fell by 0.2 hour, to 34.5 hours, average weekly earnings rose (+$1.66) to $1,091.24 (+6.2% YoY). With the consumer price index running at an annual rate of +7.0% in December, the average worker continues to lose purchasing power.

Click image for larger view

* Full-time jobs jumped (+973,000) to 131.2 million; with that increase, there are now 325,000 more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 3.6 million during that period. 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 212,000, along with those working part time for non-economic reasons (-117,000); multiple-job holders rose by 91,000.

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 January dropped by $77.9 billion, to $273.2 billion (-22.2% MoM; +21.2% YoY). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year; the average of the three months ending January was 30.1% above the year-earlier average. There has been disagreement in the past between the jobs and withholding-tax reports, but this is the second month of truly eye-catching disparities.

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.

January 2022 ISM and Markit Surveys

Click image for larger version

The Institute for Supply Management‘s (ISM) monthly sentiment survey began 2022 with a smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 57.6%, a decrease of 1.2 percentage points (PP) from the December 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 subindexes for input prices (+7.9PP), order backlogs (-6.4PP), and new orders (-3.1PP) exhibited the largest changes. 

Click image for larger version

The services sector -- which accounts for 80% of the economy and 90% of employment -- also retreated further in January (-2.4PP, to 59.9%). The retreat was primarily driven by exports (-15.6PP) and business activity (-8.4PP), but partially offset by inventory sentiment (+9.2PP). Input prices (-1.6PP) again hovered near the subindex’s record high.

Click image for larger version

Of the industries we track, Real Estate and Construction expanded, Paper Products and Ag & Forestry contracted, while Wood Products was unchanged. Respondent comments included the following:

Construction. “Costs have escalated to what we believe are unsustainable levels. Available labor is nonexistent, so we have cut staffing and are taking on fewer projects temporarily in an attempt to reduce cost. Outsourcing where possible. We are not optimistic at this time.”

 

IHS Markit‘s survey headline results paralleled their ISM counterparts.

Manufacturing. PMI drops to lowest since October 2020 amid soft demand conditions and labor shortages

Key findings:

* Output and new order growth slow amid supply and labor shortages
* Rate of job creation eases to softest in 18-month sequence of growth
* Business confidence picks up to 14-month high

 

Services. Business activity growth slows notably amid Omicron outbreak and softer demand conditions

Key findings:

* Output expansion slowest in 18-month sequence of growth
* Pressure on capacity wanes as employment rises at faster pace
* Output charges increase at second-quickest rate on record

 

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

Manufacturing. “The Omicron outbreak has hit manufacturing hard, exacerbating existing headwinds by subduing demand, creating further supply chain issues and causing widespread staff shortages, often through absenteeism due to the surge in COVID-19 infections. The steep downturn in the survey data are indicative of manufacturing production falling in January.

“However, the overall impact on supply chains from Omicron has been less marked than in prior covid waves, and raw material price pressures have come down as the global supply crunch appears to be improving. Hence manufacturers are upbeat about the outlook, with future output expectations rising to the highest for over a year to suggest that the current downturn may prove short-lived.”

 

Services. “The US economy has been hit hard by the Omicron variant at the start of 2022, with growth faltering to the weakest for 18 months to signal a near-stalling of the recovery. All broad sectors of the economy reported business activity to have been adversely affected by the surge in virus cases, though the slowdown was led by the sharpest drop in activity for consumer services recorded since December 2020 as virus-related health protection measures were tightened to the highest since May of last year.

“As well as the demand-dampening effect of the virus, businesses are facing multiple headwinds, including labor shortages, supply chain issues, rising costs and soaring inflation, combined with concerns over the future resilience of demand amid rising interest rates and reduced fiscal support, all of which point to economic growth slowing sharply in the first 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.

December 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 December increased $2.1 billion or 0.4% to $528.9 billion. Durable goods shipments increased $2.6 billion or 1.0% to $266.4 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $0.5 billion or 0.2% to $262.5 billion, led by petroleum and coal products. Shipments of wood products rose by 0.9%; paper: +0.1%.

Click image for larger view

Inventories increased $2.2 billion or 0.3% to $773.0 billion. The inventories-to-shipments ratio was 1.46, unchanged from November. Inventories of durable goods increased $3.5 billion or 0.8% to $473.9 billion, led by machinery. Nondurable goods inventories decreased $1.3 billion or 0.4% to $299.1 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.6%; paper: +0.1%.

Click image for larger view

New orders decreased $2.4 billion or 0.4% to $530.7 billion. Excluding transportation, new orders rose by $0.7 billion or 0.1% (+13.0% YoY). Durable goods orders decreased $1.9 billion or 0.7% to $268.2 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.2 billion or 0.3% (+11.5% YoY). New orders for nondurable goods nondurable goods decreased $0.5 billion or 0.2% to $262.5 billion.

Click image for larger view

Unfilled durable-goods orders increased $6.2 billion or 0.5% to $1,267.7 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.81, up from 6.79 in November. Real 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 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.

January 2022 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil jumped $11.51 (+16.1%), to $83.22 per barrel in January. That increase occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of November’s increase of 703,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.6 million BPD, and accumulated oil stocks wallowed at the bottom of the five-year-average range (January average: 415 million barrels).

Click image for larger view

Selected highlights from the 28 January 2022 issue of OilPrice.com’s Oil & Energy Insider include:

For the first time in seven years, Brent prices surged past $90 per barrel [during the week ending January 28], buoyed by a series of bullish factors. First, low inventories remain the number one reason underlying investment banks' $100 per barrel short-term forecasts. The fact that US commercial stocks just fell for the third time in a row has not helped that. Second, with much of Europe captivated by the prolonged Russia-Ukraine standoff, speculation that Russian oil might be embargoed from the market added another geopolitical premium to prices. Simultaneously, supply scarcity remains a global worry as corroborated by steep backwardation -- the Brent six-month market structure was almost at $7 per barrel this week -- with very little indication that OPEC+ would be willing to churn out more than it is supposed to under the terms of its agreement. Things are looking very bullish for oil markets indeed.

Saudi Aramco Hits Out at Energy Transition. Saudi Aramco CEO Amin Nasser said the current transition towards a sustainable energy future is not going smoothly, highlighting the need to invest in oil and gas if the markets are to avoid the current tightness seen right now in Europe and parts of Asia.

US Judge Annuals Gulf of Mexico Auction over Climate Concerns. A US federal judge annulled the latest Gulf of Mexico Lease Sale 257 held last November -- assumed to be the last under the Biden Administration -- arguing that the auction failed to assess the climate impact of prospective offshore drilling.

Key US Shale Pipeline Jeopardized. The US Court of Appeals has nixed the federal permit issued towards the Mountain Valley Pipeline, a key conduit that would send Appalachian gas to Virginia and is more than 90% complete, arguing that government approvals did not consider erosion impacts.

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.