4Q2021 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2021 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +6.89% (+7.1% expected), down 0.10 percentage point (PP) from the second estimate (“4Qv2”) but +4.58PP from 3Q2021.

As with 4Qv2, two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- were the drivers behind the 4Q expansion; net exports (NetX) and government consumption expenditures (GCE) detracted from the headline. Overall, the update primarily reflected downward revisions to consumer spending and exports that were partly offset by an upward revision to inventory investment. Imports (a subtraction in the calculation of GDP) were also revised up. As for details (all relative to 4Qv2):

PCE (-0.37PP). The downward revision to consumer spending (-$21.3 billion, nominal) was led by health care (-$10.6B) and transportation services (-$10.2B). Downward revisions to goods spending (-$5.4B) was concentrated in food and beverage purchases (-$2.9B), other nondurable goods (-$1.2B) and motor vehicles and parts (-$1.1B).

PDI (+0.44PP). Upward revisions (+$26.1B) to PDI were dominated by the change in private nonfarm inventories (+$24.2B). Residential fixed investment was revised up by $2.5B.

NetX (-0.16PP). Exports of services were cut by $7.5B while goods imports were revised up by $3.1B.

GCE (-0.01PP). Virtually all revisions to this category (-$1.1B) occurred in state and local level consumption expenditures (-$1.6B).

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

-- The headline number “grossly” misrepresents 4Q2021 U.S. economic growth.

-- With this revision, the BEA’s own bottom-line number (Real Final Sales) is less than a quarter of the grossly inflated headline at 1.57% (down 0.52PP from 4Qv2), and even that is significantly boosted by under-reported inflation. (The BEA assumed an effective annualized deflator of 7.14%, far lower than the Bureau of Labor Statistics’ CPI of 8.91%.)

-- Our repeated story for 4Q2021 has been that, although inventory growth may pad the headline number, it does not signal a healthy consumer sector. And sadly, inventories are a long-term zero-sum series, so that what they add to the headline in one quarter will certainly be subtracted away in future quarters. And according to the Atlanta Fed’s GDPNow forecasts, that day of reckoning is only about 30 days out -- arriving with BEA’s preliminary report for 1Q2022.

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.

February 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in February 2022 were at a seasonally adjusted annual rate (SAAR) of 772,000 units (810,000 expected).  This is 2.0% (±11.9%)* below the revised January rate of 788,000 (originally 801,000 units) and 6.2% (±13.7%)* below the February 2021 SAAR of 823,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -7.1%. For longer-term perspectives, NSA sales were 44.4% below the “housing bubble” peak but 24.3% above the long-term, pre-2000 average.

The median sales price of new houses sold in February 2022 fell by 6.3% (-$26,800), to $400,600.  The average sales price rose by 3.4% (+$17,000), to a record-high $511,000. Homes priced at/above $750,000 were 9.2% of sales, up from the year-earlier 7.1%. 

* 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 February, single-unit completions jumped by 112,000 units (+12.1%). Sales retreated (16,000 units; -2.0%), resulting in inventory for sale expanding in both absolute (9,000 units) and months-of-inventory (+0.2 month) terms. 

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Existing home sales declined in February (470,000 units or -7.2%), to a SAAR of 6.02 million units (6.170 million expected). Inventory of existing homes for sale expanded in absolute (+20,000 units) and months-of-inventory (+0.1 month) terms. Because new home sales retreated by a smaller margin than resales, the share of total sales comprised of new homes rose to 11.4%. The median price of previously owned homes sold in February advanced to $357,300 ($7,300 or +2.1% MoM).

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Housing affordability fell (3.9 index points) even though the median price of existing homes for sale in January retreated by $4,200 (-1.2% MoM; +15.9 YoY), to $357,100. 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 +1.1% (+19.2% YoY).

“Home price changes in January 2022 continued the strength we had observed for much of the prior year,” said Craig Lazzara. “The National Composite Index recorded a gain of 19.2% for the 12 months ended in January 2022; the 10- and 20-City Composites rose 17.5% and 19.1%, respectively. All three composites reflect a small acceleration of price growth for January 2022.

“Last fall we observed that home prices, although continuing to rise quite sharply, had begun to decelerate. Even that modest deceleration was on pause in January. The 19.2% year-over-year change for January was the fourth-largest reading in 35 years of history.

“The strength in home prices continues to be very broadly based. All 20 cities saw price increases in January 2022, with prices in 16 cities accelerating relative to December’s report. January’s price increase ranked in the top quintile of historical experience for 19 cities, and in the top decile for 17 of them.

“Phoenix’s 32.6% price increase led all cities for the 32nd consecutive month. Tampa (+30.8%) and Miami (+28.1%) continued in silver and bronze positions in January. Prices were strongest in the South (+26.6%) and Southeast (+26.5%), but every region continued to log impressive gains.

“The macroeconomic environment is evolving rapidly. Declining COVID cases and a resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response. We may soon begin to see the impact of increasing mortgage rates on home prices.”

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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.

February 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in February at a seasonally adjusted annual rate (SAAR) of 1,769,000 units (1.700 million expected).  This is 6.8% (±14.9%)* above the revised January estimate of 1,657,000 (originally 1.638 million units) and 22.3% (±14.3%) above the February 2021 SAAR of 1,447,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +22.0%. 

Single-family housing starts in February were at a SAAR of 1,215,000; this is 5.7% (±11.8%)* above the revised January figure of 1,150,000 units (+12.1% YoY). Multi-family: 554,000 units (+9.3% MoM; +49.1% 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 1,309,000 units.  This is 5.9% (±13.3%)* above the revised January estimate of 1,236,000 (originally 1.246 million units), but 2.8% (±12.0%)* below the February 2021 SAAR of 1,347,000 units; the NSA comparison: -0.8% YoY. 

Single-family completions were at a SAAR of 1,034,000; this is 12.1% (±14.7%)* above the revised January rate of 922,000 units (+4.6% YoY). Multi-family: 275,000 units (-12.4% MoM; -18.6% YoY).

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Total permits were at a SAAR of 1,859,000 units (1.850 million expected).  This is 1.9% below the revised January rate of 1,895,000 (originally 1.899 million units) but 7.7% above the February 2021 SAAR of 1,726,000 units; the NSA comparison: +9.1% YoY. 

Single-family permits were at a SAAR of 1,207,000; this is 0.5% below the revised January figure of 1,213,000 units (+7.5% YoY). Multi-family: 652,000 units (-4.4% MoM; +12.3% YoY).

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Ongoing lumber and building material supply side constraints, rising construction costs and expectations of higher interest rates continue to negatively affect builder sentiment even as buyer demand remains relatively solid.

Builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the NAHB/Wells Fargo Housing Market Index (HMI). This is the third straight month that builder sentiment has declined and the first time the HMI has dipped below the 80-point mark since last September.

“While builders continue to report solid buyer traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence,” said NAHB Chairman Jerry Konter. “We call upon policymakers to act now to ease supply-chain woes. Improving access to lumber, OSB and other materials will help builders increase the supply of badly needed housing and fight inflation.”

“The March HMI recorded the lowest future sales expectations in the survey since June 2020,” said NAHB Chief Economist Robert Dietz. “Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

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.

February 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.5% in February (+0.5% expected) to a level that is 103.6% of its 2017 average. Manufacturing output increased 1.2% after having been little changed in each of the previous two months. In February, the index for utilities declined 2.7%, and the output of mines edged up 0.l%.

Total industrial production in February was 7.5% higher than its year-earlier level, but severe winter weather in February 2021 significantly suppressed industrial activity that month. A more useful comparison shows that the index has advanced a still-strong 4.2% since January 2021. 

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Industry Groups

Manufacturing output rose 1.2% in February (NAICS manufacturing: +1.2% MoM; +7.8% YoY). The indexes for durable and nondurable manufacturing moved up 1.3% and 1.1%, respectively, while the output of other manufacturing (publishing and logging) moved down 0.4%. Most major durable and nondurable goods industry groups posted gains (wood products: +2.6%; paper: +1.6%). An exception was the output of motor vehicles and parts, which declined 3.5% and continued to be restrained by a shortage of electronic components. In February, the indexes for most industry groups were higher than in the beginning of 2021; notable exceptions were the indexes for motor vehicles and parts and for other manufacturing (publishing and logging).

The decrease of 2.7% in the output of utilities in February reflected a return to more seasonable weather following a colder-than-average January. In February, the index for mining was little changed, as a decline in oil and gas extraction was offset by an increase in support activity for oil and gas operations. The index for mining in February was about 7% above its level at the beginning of last year but still about 7% below its pre-pandemic (February 2020) reading.

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) in February to 77.6%, a rate that is 1.9PP below its long-run (1972–2021) average.

Manufacturing CU increased 0.9PP in February to 78.0%, 2.5PP higher than its pre-pandemic level but 0.1PP below its long-run average (NAICS manufacturing: +1.2%, to 78.2%; wood products: +2.4%; paper: +1.6%). The operating rate for mining edged down 0.1PP to 78.0%, and the operating rate for utilities declined 2.2PP to 75.7%. Both rates remained well below their long-run averages.

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Capacity at the all-industries level increased by 0.1% MoM (+0.6% YoY) to 133.4% of 2017 output. NAICS manufacturing also edged up 0.1% (+0.4% YoY) to 130.8%. Wood products: +0.1% (+0.5% YoY) to 123.6%; paper: 0.0% (+0.7% YoY) at 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.

February 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) increased 0.8% in February (+0.7% expected) after rising 0.6% in January. Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all-items increase. The gasoline index rose 6.6% in February and accounted for almost a third of the all-items monthly increase; other energy component indexes were mixed. The food index rose 1.0% as the food at home index rose 1.4%; both were the largest monthly increases since April 2020. 

The index for all items less food and energy rose 0.5% in February following a 0.6% increase the prior month. The shelter index was by far the biggest factor in the increase, with a broad set of indexes also contributing, including those for recreation, household furnishings and operations, motor vehicle insurance, personal care, and airline fares.  

The all-items index rose 7.9% for the 12 months ending February. The 12-month increase has been steadily rising and is now the largest since the period ending January 1982. The index of all items less food and energy rose 6.4%, the largest 12-month change since the period ending August 1982. The energy index rose 25.6% over the last year, and the food index increased 7.9%, the largest 12-month increase since the period ending July 1981.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.8% in February (+1.0% expected). This rise followed advances of 1.2% in January and 0.4% in December 2021. On an unadjusted basis, final demand prices moved up 10.0% for the 12 months ended in February.

In February, the advance in the index for final demand can be attributed to prices for final demand goods, which rose 2.4%. The index for final demand services was unchanged.

Prices for final demand less foods, energy, and trade services rose 0.2% in February following a 0.8% increase in January. For the 12 months ended in February, the index for final demand less foods, energy, and trade services moved up 6.6%.

Final Demand

Final demand goods: Prices for final demand goods jumped 2.4% in February, the largest advance since data were first calculated in December 2009. Two-thirds of the broad-based increase can be traced to an 8.2% rise in the index for final demand energy. Prices for final demand goods less foods and energy and for final demand foods also moved higher, 0.7% and 1.9%, respectively.

Product detail: Nearly 40% of the February increase in prices for final demand goods can be attributed to the index for gasoline, which rose 14.8%. Prices for diesel fuel, electric power, jet fuel, motor vehicles and equipment, and dairy products also advanced. In contrast, the index for fresh and dry vegetables decreased 9.4%. Prices for beef and veal and for hot rolled steel sheet and strip also moved lower.

Final demand services: Prices for final demand services were unchanged in February after a 1.0% increase in January. In February, a 1.9% rise in the index for final demand transportation and warehousing services and a 0.2% advance in margins for final demand trade services offset a 0.4% decrease in the index for final demand services less trade, transportation, and warehousing. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Within the index for final demand services in February, prices for truck transportation of freight moved up 2.0%. The indexes for food and alcohol retailing, machinery and vehicle wholesaling, transportation of passengers (partial), and outpatient care (partial) also rose. Conversely, prices for portfolio management decreased 4.2%. The indexes for guestroom rental; apparel, jewelry, footwear, and accessories retailing; automobile retailing (partial); and residential real estate loans (partial) also declined.

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

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

January 2022 International Trade (Softwood Lumber)

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Softwood lumber exports edged down (14 MMBF or -12.5%) in January, along with imports (-138 MMBF or -11.4%). Exports were 6 MMBF (6.0%) above year-earlier levels; imports were 226 MMBF (-17.4%) lower. As a result, the year-over-year (YoY) net export deficit was 232 MMBF (-19.2%) smaller. Also, the average net export deficit for the 12 months ending January 2022 was 0.5% lower 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 (55.1% of total exports; of which Mexico: 33.3%; Canada: 21.8%), Asia (18.8%; especially Japan: 6.9%; and Pakistan: 3.4%), and the Caribbean: 20.6% especially the Dominican Republic: 9.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (1.4% of U.S. total) were -75.5% relative to the same month of the prior year. Meanwhile, Canada was the source of most (85.4%) softwood lumber imports into the United States. Imports from Canada were 18.8% lower YTD/YTD. Overall, YTD exports were up 6.0% compared to the prior year; imports: -17.4%.

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U.S. softwood lumber export activity through the West Coast customs region represented 35.6% of the U.S. total; Gulf: 35.7%, and Eastern: 21.0%. Seattle (19.1% of the U.S. total), Mobile (16.0%), San Diego (14.3%) and Laredo (10.5%) were among the most active districts. At the same time, Great Lakes customs region handled 55.5% of softwood lumber imports -- most notably the Duluth, MN district (20.2%) -- coming into the United States.

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Southern yellow pine comprised 18.3% of all softwood lumber exports; Douglas-fir (17.4%), treated lumber (17.4%), other pine (8.7%) and finger-jointed (8.7%) were also significant. Southern pine exports were down 18.8% YTD/YTD, while Doug-fir: +12.4%; and treated: +29.7%.

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.

February 2022 Currency Exchange Rates

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In February, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+0.7%) and the Japanese yen (+0.4%) but depreciated against the euro (-0.3%). On the broad trade-weighted index basis (goods and services) the USD weakened by less than 0.1% 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.

February 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added a 678,000 jobs in February (exceeding the 390,000 expected). In addition, December and January employment changes were revised up by a combined 92,000 (December: +78,000; January: +14,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged back down to 3.8%, as the number of unemployed fell (-243,000) despite the number of (re)entrants to the civilian labor force rising (+304,000). 

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Observations from the employment reports include:

* The correspondence between the establishment (+678,000 jobs) and household surveys (+548,000 employed) was much better this month than has often been the case.

* Goods-producing industries added 105,000 jobs; service-providers: +573,000. Job gains occurred in temporary help services (+36,000), management of companies and enterprises (+12,000), management and technical consulting services (+10,000), and scientific research and development services (+8,000). The only industry showing a significant job loss was motor vehicles and parts (-18,000), likely a result of the ongoing chip shortage.

Manufacturing added 36,000 jobs (compared to January’s +16,000). That result is somewhat at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded more slowly in February. Wood products employment rose by 2,100 (ISM was unchanged); paper and paper products: +3,100 (ISM was unchanged); construction: +60,000 (ISM rose).

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* The number of employment-age persons not in the labor force declined (-183,000) to 99.3 million; that level is 4.3 million higher than in February 2020. With the labor force expanding, the employment-population ratio (EPR) edged up to 60.0%, another pandemic high; even so, the EPR is 1.3PP below the February 2020 level. 

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* Because the civilian labor force expanded by 304,000 in February, the labor force participation rate rose fractionally to 62.3%. Average hourly earnings of all private employees increased by $0.01 (to $31.58), and the year-over-year increase decelerated to +5.1%. For all production and nonsupervisory employees (shown above), the tale was a bit better: hourly wages rose by $0.8, to $26.94 (+6.7% YoY). Since the average workweek for all employees on private nonfarm payrolls expanded by 0.1 hour, to 34.7 hours, average weekly earnings rose (+$3.51) to $1,095.83 (+5.4% YoY). With the consumer price index running at an annual rate of +7.5% in January, the average worker continues to lose purchasing power.

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* Full-time jobs rose (+642,000) to 131.8 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 -- advanced by 418,000, along with those working part time for non-economic reasons (+469,000); multiple-job holders edged down by 55,000.

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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 February dropped by $15.0 billion, to $258.2 billion (-5.5% MoM; +11.6% 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 February was 25.4% above the year-earlier average. One might have expected taxes to rise in concert with the improved hiring, but February's employment taxes are not due until March 15.

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.

February 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for February 2022 reflected a slightly larger proportion of U.S. manufacturers reporting expansion. The PMI registered 58.6%, an increase of 1.0 percentage point (PP). (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 order backlogs (+8.6PP), new orders (+3.8PP), and exports (+3.4PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment -- retreated further in February (-3.4PP, to 56.5%). Exports (+7.1PP) order backlogs (+6.8PP), and new orders (-5.6PP) saw the largest changes. Input prices again pushed higher (+0.8PP).

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Of the industries we track, Paper Products and Construction expanded, while the rest contracted. Respondent comments included the following:

Construction. “We are getting price increases with no notice. For example, our engineered wood products supplier gave us a 10-to-20%...increase, effective immediately. We are also struggling to get materials. Suppliers cite poor employee attendance, elevated employee turnover and positions open longer than normal as they struggle to fill them.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM and Markit both rose; services: ISM fell while Markit rose.

Manufacturing. Output growth picks up amid stronger demand and easing supply disruption

Key findings:

* Sharper new sales growth supports upturn in output
* Deterioration in supplier performance the least marked since May 2021
* Cost pressures soften but output charges rise at faster pace

 

Services. Sharp upturn in activity amid stronger demand conditions, but selling price inflation reaches new high

Key findings:

* New business growth accelerates to seven-month high
* Output charges rise at fastest pace on record
* Rate of job creation quickens to sharpest since May 2021

 

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

Manufacturing. “The U.S. manufacturing sector rebounded in February after the Omicron wave brought production close to a standstill in January. However, output remains heavily constrained both by ongoing raw material supply bottlenecks and labor shortages, albeit with some signs that the supply chain crisis has continued to ease. The decline in virus case numbers should also help alleviate labor shortages as we head into the spring.

“Demand is clearly continuing to run well ahead of supply, meaning it is a sellers’ market for a wide variety of goods. Although the survey’s price gauges covering companies’ costs and selling prices are off the peaks seen last year, they remain very high by historical standards and point to persistent elevated inflation in coming months. With rising oil prices adding further to soaring costs, and the Ukraine crisis likely to add to global supply disruptions, the inflation outlook is an increasing concern.

“With the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data. Supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure. Perhaps most important will be the effect on business optimism and whether the improvement in prospects seen in February will be reversed, which could lead to reduced spending and investment.”

 

Services. “U.S. service sector companies reported a strong rebound in business activity during February as virus containment measures were eased to the loosest since November. The data add to evidence from manufacturing surveys that the Omicron wave appears to have had only a modest and short-lived impact on the economy.

“February’s PMI surveys are broadly consistent with GDP rising at an annualized rate of 3.5%, representing a substantial improvement on the 0.9% rate signaled by the January surveys. First quarter GDP growth is therefore currently averaging just over 2%.

“Supply chain bottlenecks and poor labor availability remain widespread constraints on output, however, limiting economic growth in manufacturing and services, meaning demand continues to rise faster than output, resulting in unprecedented price pressures.

“The Ukraine conflict is leading to further upward movements in energy and broader commodity prices, which will add further to U.S. inflationary pressures. More uncertain will be the extent to which business confidence is being affected by the war. Business optimism about the year ahead had surged across manufacturing and services in February to the highest for 15 months, as firms looked ahead to looser COVID-19 restrictions and saw signs of easing supply constraints. However, the resilience of this optimism will be tested by the conflict in Europe and will need to be monitored in the coming weeks as a barometer of risk appetite in terms of both spending and investment.”

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 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 January increased $6.2 billion or 1.2% to $536.9 billion. Durable goods shipments increased $2.9 billion or 1.1% to $270.3 billion, led by machinery. Meanwhile, nondurable goods shipments increased $3.3 billion or 1.2% to $266.7 billion, led by petroleum and coal products. Shipments of wood products rose by 1.2%; paper: +0.5%.

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Inventories increased $5.6 billion or 0.7% to $779.6 billion. The inventories-to-shipments ratio was 1.45, down from 1.46 in December. Inventories of durable goods increased $2.1 billion or 0.4% to $476.3 billion, led by machinery. Nondurable goods inventories increased $3.5 billion or 1.2% to $303.3 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.5%; paper: +0.9%.

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New orders increased $7.6 billion or 1.4% to $544.2 billion. Excluding transportation, new orders rose by $4.7 billion or 1.0% (+12.7% YoY). Durable goods orders increased $4.3 billion or 1.6% to $277.6 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.8 billion or 1.0% (+10.4% YoY). New orders for nondurable goods increased $3.3 billion or 1.2% to $266.7 billion.

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Unfilled durable-goods orders increased $11.7 billion or 0.9% to $1,283.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.74, down from 6.80 in December. 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 111% of the prior peak in November 2014, thanks to the largest-ever batch of aircraft orders. However, 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.

February 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil pushed higher (by $8.42 or +10.1%) to $97.13 per barrel in February. That increase occurred within the context of a virtually unchanged U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of December’s increase of 169,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.8 million BPD, and accumulated oil stocks that deviated below the bottom of the five-year-average range (February average: 413 million barrels).

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Selected highlights from the 1 March 2022 issue of OilPrice.com‘s Intelligence Report include:

Once again, a fairly sound idea of releasing 60 million barrels from strategic inventories held by International Energy Agency (IEA) members went almost completely unnoticed by the oil markets. Instead, Russia remains the number one topic on the agenda -- after its central bank was sanctioned, several banks cut off from SWIFT, new debt and equity was restricted even more than they used to be, and the prospect of seeing some 4.7 million BPD of crude flows (Russia's average crude exports this year so far) sealed off grows. Despite the heavy-hitting sanctions and a string of oil majors hurriedly leaving Russia, there are very few signs that the Kremlin's invasion of Ukraine will end soon. Uncertainty remains rife in oil markets and the price of both WTI and Brent are soaring.

IEA Greenlights 60 Million SPR Release. Facing the prospect of prolonged high oil prices, IEA members reportedly agreed on the release of 60 million barrels of oil from strategic storage, with half of the given volume coming from the United States.

Goldman Sachs Sees a Commodity Rally Developing. An analytical note by Goldman Sachs is predicting a tangible commodity spike for all things Russia-relevant starting as we speak, including oil, gas, palladium, nickel, wheat, and corn, lifting its one-month crude forecast to $115 per barrel already.

OPEC Defends African Oil Investments. OPEC secretary Mohammad Barkindo stated it would be a tragedy if African countries, still accounting for less than 3% of global emissions, would not be able to tap into their plentiful oil resources, saying the continent's development needs should take center stage.

EU to Connect Ukraine to Power Grid. The energy ministers of European Union members agreed to urgently link Ukraine's power grid to the EU, as the East European country decoupled its grid from Russia so that the former could not control technical aspects such as grid frequency.

U.S. Supreme Court Questions Federal Emission Regulations. The U.S. Supreme Court is weighing the authority of the Environmental Protection Agency (EPA) to regulate greenhouse gas emissions from coal- and gas-fired plants under the Biden Administration's Clean Air Act, potentially restricting its authority.

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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.