1Q2022 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2022 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of -1.41% (+1.1% expected), down 8.31 percentage points (PP) from 4Q2021’s +6.89%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2022 was 3.6% higher than in 1Q2021; that growth rate was slightly slower (-2.0PP) than 4Q2021’s +5.5% relative to 4Q2020.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- contributed positively to the 1Q headline. However, that was more than offset by net exports (NetX) and government consumption expenditures (GCE).

As for details --

PCE (Contributed 1.83PP to the headline, up 0.07PP from 4Q):

* Goods (-0.31PP from 4Q). Spending on non-durable goods (+$103.4 billion, nominal) was nearly double that of durable goods (+$54.1B), led by gasoline and other energy goods (+$35.3B).

* Services (+0.38PP from 4Q). Gains (+$233.4B) were broad-based, led by housing and utilities (+$64.4B).

PDI (Added 0.43PP, down 5.39PP from 4Q):

* Fixed investment (+0.77PP from 4Q). Gains in investment (+$177.0B) were led by equipment (+$69.7B) and residential (+$53.0B).

* Inventories (-6.16PP from 4Q). Nonfarm inventories shrank by $40.1B; farm: -$2.8B.

NetX (Detracted 3.20PP, down 2.97PP from 4Q):

* Exports (-2.92PP from 4Q). Goods exports rose by $50.1B; services: +$18.5B.

* Imports (-0.07PP from 4Q). Goods imports rose $263.6B; services: +$11.8B.

GCE (Detracted 0.48PP, down 0.02PP from 4Q). Although GCE fell on a QoQ percentage basis, the category saw gains in absolute terms -- primarily in state and local consumption expenditures (+$56.8B)

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was -0.58% (down 2.15PP from 4Q).

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

-- The report heralds a “sea change” in the state of the U.S. economy, from being barely propped up by pandemic relief packages to something far closer to free fall.

-- This particular report is mostly about domestic household income and retail inventories normalizing. The residual minor growth in consumer spending was funded entirely from reduced savings.

-- Critically, from the perspective of this report, the impact of economic distortions caused by Russia’s Ukrainian invasion and Federal Reserve rate hikes (and “quantitative tightening”) are merely ominous clouds gathering on the horizon. Those specific shocks are waiting for the next quarter’s reports.

-- From the Fed’s perspective, “StagFlation” is really bad. But the upcoming “ContractiFlation” is a whole new level of nightmare.

“The BEA’s ‘live’ reporting on past economic downturns (e.g., 2007-2009) have been plagued by significant lags. Their antiquated methodologies simply cannot accurately capture the state of an economy in rapid transition. It is highly likely that the first and second quarters of 2022 will be far worse in the next several annual revisions,” Davis concluded.

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

March 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in March 2022 were at a seasonally adjusted annual rate (SAAR) of 763,000 units (772,000 expected). This is 8.6% (±12.9%)* below the revised February rate of 835,000 (originally 772,000 units) and 12.6% (±11.3%) below the March 2021 SAAR of 873,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -13.3%. For longer-term perspectives, NSA sales were 45.1% below the “housing bubble” peak but 37.7% above the long-term, pre-2000 average.

The median sales price of new houses sold in March 2022 jumped by 3.6% (+$15,100), to a new record of $436,700.  The average sales price rose by 3.1% (+$15,800), to a record-high $523,900. Homes priced at/above $750,000 were 11.1% of sales, up from the year-earlier 6.0%.

* 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 March, single-unit completions declined by 58,000 units (-6.4%). Sales retreated (72,000 units; -8.6%), resulting in inventory for sale expanding in both absolute (15,000 units) and months-of-inventory (+0.8 month) terms. 

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Existing home sales tumbled in March (470,000 units or -2.7%) to a SAAR of 5.77 million units (5.86 million expected). Inventory of existing homes for sale expanded in absolute (+100,000 units) and months-of-inventory (+0.3 month) terms. Because new home sales retreated by a larger margin than resales, the share of total sales comprised of new homes fell to 11.7%. The median price of previously owned homes sold in March advanced to a record $375,300 ($16,000 or +4.5% MoM).

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Housing affordability dropped (7.7 index points) as the median price of existing homes for sale in February rose by $7,100 (+2.0% MoM; +15.5 YoY), to $363,800. 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 +1.7% (+19.8% YoY).

“U.S. home prices continued to advance at a very rapid pace in February,” said Craig Lazzara, Managing Director at S&P DJI. “The National Composite Index recorded a gain of 19.8% for the 12 months ended February 2022; the 10- and 20-City Composites rose 18.6% and 20.2%, respectively. All three composites reflect an acceleration of price growth relative to January’s level.

“The National Composite’s 19.8% year-over-year change for February was the third-highest reading in 35 years of history. That level of price growth suggests broad strength in the housing market, which is exactly what we continue to observe. All 20 cities saw double-digit price increases for the 12 months ended in February, and price growth in all 20 cities accelerated relative to January’s report. February’s price increase ranked in the top quartile of historical experience for every city, and in the top decile for 18 of them.

“Phoenix’s 32.9% price increase led all cities for the 33rd consecutive month, with Tampa (+32.6%) and Miami (+29.7%) close behind. Prices were strongest in the South (+28.1%) and Southeast (+27.9%), but every region continued to show impressive gains.

“The macroeconomic environment is evolving rapidly and may not support extraordinary home price growth for much longer. The post-COVID 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.

March 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in March at a seasonally adjusted annual rate (SAAR) of 1,793,000 units (1.750 million expected). This is 0.3% (±12.3%)* above the revised February estimate of 1,788,000 (originally 1.769 million units) and 3.9% (±8.9%)* above the March 2021 SAAR of 1,725,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +4.8%.

Single-family housing starts in March were at a SAAR of 1,200,000; this is 1.7% (±12.3%)* below the revised February figure of 1,221,000 units (-3.6% YoY). Multi-family: 593,000 units (+4.6% MoM; +27.8% 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 1,303,000 units. This is 4.5% (±11.3%)* below the revised February estimate of 1,365,000 (originally 1.309 million units) and 13.0% (±9.8%) below the March 2021 SAAR of 1,497,000 units; the NSA comparison: -11.3% YoY. 

Single-family completions were at a SAAR of 1,000,000; this is 6.4% (±10.7%)* below the revised February rate of 1,068,000 units (-1.3% YoY). Multi-family: 303,000 units (+2.0% MoM; -34.2% YoY).

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Total permits were at a SAAR of 1,873,000 units (1.830 million expected). This is 0.4% above the revised February rate of 1,865,000 (originally 1.859 million units) and 6.7% above the March 2021 SAAR of 1,755,000 units; the NSA comparison: +7.5% YoY. 

Single-family permits were at a SAAR of 1,147,000; this is 4.8% below the revised February figure of 1,205,000 units (-3.3% YoY). Multi-family: 726,000 units (+10.0% MoM; +33.1% YoY).

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Rapidly rising interest rates combined with ongoing home price increases and higher construction costs continue to take a toll on builder confidence and housing affordability. Builder confidence in the market for newly built single-family homes moved two points lower to 77 in April, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fourth straight month that builder sentiment has declined.

“Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” said NAHB Chairman Jerry Konter. “Policymakers must take proactive steps to fix supply chain issues that will reduce the cost of development, stem the rise in home prices and allow builders to increase production.”

“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.

Mortgage interest rates have jumped more than 1.9 percentage points since the start of the year and currently stand at 5%, the highest level in more than a decade.

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.

March 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) advanced 0.9% in March (+0.4% expected) and rose at an annual rate of 8.1% during 1Q. Manufacturing output gained 0.9% in March (+0.6% expected); the output of motor vehicles and parts jumped 7.8%, while factory output elsewhere moved up 0.4%. The index for utilities increased 0.4%, and the index for mining advanced 1.7%. At 104.6% of its 2017 average, total IP in March was 5.5% above its year-earlier level. 

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Industry Groups

Manufacturing output rose 0.9% in March and was 4.9% above its year-earlier level (NAICS manufacturing: +0.9% MoM; +5.2% YoY). For 1Q, factory output advanced at an annual rate of 5.4%. In March, the indexes for durable and nondurable manufacturing increased 1.3% and 0.4%, respectively, while the output of other manufacturing (publishing and logging) moved up 0.2%.

Excluding the large gain in motor vehicles and parts, the output of durable goods increased 0.4% in March, with most industries posting gains; only nonmetallic mineral products, primary metals, and furniture and related products recorded decreases (wood products: +0.4%). Increases were posted by all nondurable goods industries except for textile and product mills, paper (-0.7%), and printing and support; the largest rise (1.1%) was registered by plastics and rubber products.

The gain in utilities reflected an increase of 0.9% for electric utilities, partly offset by a drop of 2.9% for natural gas utilities. Mining output rose for the third consecutive month, boosted by strength in the oil and gas sector; the index for mining advanced at an annual rate of 8.0% in 1Q.

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Capacity utilization (CU) for the industrial sector climbed to 78.3%, a rate that is 1.2 percentage points (PP) below its long-run (1972–2021) average.

Manufacturing CU increased 0.6PP in March to 78.7% (NAICS manufacturing: +0.8%, to 79.0%; wood products: +0.22%; paper: -0.6%). The factory operating rate was above its long-run average of 78.1% for the first time since August 2018. The operating rate for mining jumped 1.2PP to 79.5%, and the operating rate for utilities edged up to 75.1%. Both rates remained well below their long-run averages.

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Capacity at the all-industries level increased by 0.1% MoM (+0.7% YoY) to 133.6% of 2017 output. NAICS manufacturing also edged up by less than 0.1% (+0.5% YoY) to 130.9%. Wood products: +0.2% (+0.7% YoY) to 123.8%; paper: -0.1% (+0.6% YoY) to 113.8%.

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

March 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 1.2% in March (+1.1% expected) after rising 0.8% in February. Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all-items increase. The gasoline index rose 18.3% in March and accounted for over half of the all-items monthly increase; other energy component indexes also increased. The food index rose 1.0% and the food at home index rose 1.5%.

The index for all items less food and energy rose 0.3% in March following a 0.5% increase the prior month. The shelter index was by far the biggest factor in the increase, with a broad set of other indexes also contributing, including those for airline fares, household furnishings and operations, medical care, and motor vehicle insurance. In contrast, the index for used cars and trucks fell 3.8% over the month.

The all-items index continued to accelerate, rising 8.5% for the 12 months ending March, the largest 12-month increase since the period ending December 1981. The all items less food and energy index rose 6.5%, the largest 12-month change since the period ending August 1982. The energy index rose 32.0% over the last year, and the food index increased 8.8%, the largest 12-month increase since the period ending May 1981.

Producer Price Index

The Producer Price Index for final demand increased 1.4% in March (+1.1% expected). This rise followed advances of 0.9% in February and 1.2% in January. On an unadjusted basis, final demand prices moved up 11.2% for the 12 months ended in March, the largest increase since 12-month data were first calculated in November 2010.

In March, the rise in the index for final demand was led by a 2.3% advance in prices for final demand goods. The index for final demand services increased 0.9%.

Prices for final demand less foods, energy, and trade services moved up 0.9% in March, the largest advance since rising 1.0% in January 2021. For the 12 months ended in March, the index for final demand less foods, energy, and trade services increased 7.0%.

Final Demand

Final demand goods: The index for final demand goods rose 2.3% in March, the same as in February. Over half of the broad-based advance in March can be traced to a 5.7% jump in prices for final demand energy. The indexes for final demand goods less foods and energy and for final demand foods also moved higher, 1.1% and 2.4%, respectively.

Product detail: Leading the March increase in the index for final demand goods, diesel fuel prices jumped 20.4%. The indexes for gasoline, fresh and dry vegetables, jet fuel, iron and steel scrap, and electric power also moved higher. In contrast, prices for beef and veal fell 7.3%. The indexes for natural gas and for cold rolled steel sheet and strip also declined.

Final demand services: Prices for final demand services moved up 0.9% in March following a 0.3% increase in February. Over 40% of the March advance can be traced to a 1.2% rise in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services and for final demand services less trade, transportation, and warehousing also moved higher, climbing 5.5% and 0.3%, respectively.

Product detail: A 22.7% jump in margins for fuels and lubricants retailing was a major factor in the March advance in prices for final demand services. The indexes for truck transportation of freight; traveler accommodation services; airline passenger services; inpatient care; and hardware, building materials, and supplies retailing also increased. Conversely, prices for securities brokerage, dealing, and investment advice decreased 5.4%. The indexes for portfolio management and for automobile retailing (partial) also moved lower.

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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.

February 2022 International Trade (Softwood Lumber)

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Softwood lumber exports edged up (9 MMBF or +9.0%) in February, along with imports (134 MMBF or +12.5%). Exports were 18 MMBF (19.6%) above year-earlier levels; imports were 66 MMBF (5.8%) higher. As a result, the year-over-year (YoY) net export deficit was 48 MMBF (4.6%) larger. Also, the average net export deficit for the 12 months ending February 2022 was 0.7% 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 (55.4% of total exports; of which Mexico: 26.2%; Canada: 25.3%), Asia (22.4%; especially Japan: 10.7%; and Pakistan: 3.8%), and the Caribbean: 20.9% especially the Dominican Republic: 3.8%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (2.9% of U.S. total) were -53.0% relative to the same month of the prior year. Meanwhile, Canada was the source of most (82.0%) softwood lumber imports into the United States. Imports from Canada were 10.7% lower YTD/YTD. Overall, YTD exports were up 12.7% compared to the prior year; imports: -6.6%.

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U.S. softwood lumber export activity through the West Coast customs region represented 40.2% of the U.S. total; Gulf: 29.7%, and Eastern: 21.2%. Seattle (20.4% of the U.S. total), Mobile (14.7%), San Diego (11.6%) and Laredo (8.5%) were among the most active districts. At the same time, Great Lakes customs region handled 54.7% of softwood lumber imports -- most notably the Duluth, MN district (20.3%) -- coming into the United States. 

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Southern yellow pine comprised 15.8% of all softwood lumber exports; Douglas-fir (18.5%), treated lumber (16.0%), other pine (9.7%) and finger-jointed (9.9%) were also significant. Southern pine exports were down 20.0% YTD/YTD, while Doug-fir: +28.6%; and treated: +35.0%.

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.

March 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil jumped by $16.86 (+18.4%) to $108.50 per barrel in March. That increase occurred within the context of a marginally stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of January’s drop of 1.03 million barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 19.7 million BPD, and accumulated oil stocks that has essentially “flat lined” below the bottom of the five-year-average range (March average: 413 million barrels).

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Selected highlights from the 1 April 2022 issue of OilPrice.com’s Oil & Energy Insider include:

In a week that saw OPEC+ implementing its latest production increases and the United States announcing an unprecedented Strategic Petroleum Reserve (SPR) release, oil prices saw their largest weekly decline in more than two years. While the OPEC+ decision was far from a surprise, the readiness of the Biden administration to tame runaway fuel prices pushed Brent futures closer to the $100 per barrel mark. Despite the scope and ambition of Biden's latest move, it might not be enough to keep WTI below $100 per barrel as the sheer size of Russia’s potentially sanctionable 3 million b/d seaborne flow still looms over markets.

OPEC+ Sticks to Modest Oil Output Increases. In a meeting that lasted a mere 12 minutes, OPEC+ countries agreed to add 432,000 b/d of production in May 2022 despite prospects of Russian production faltering, resisting calls from the IEA and US to ramp up production.

US Launches the Largest-Ever SPR Release. The Biden Administration kickstarted the largest-ever release of SPR crude in an attempt to bring down gasoline prices, pledging to release 180 million barrels over the next six months, equivalent to a steady 1 million b/d stream of crude.

Russia Doubles Down on its Ruble Threat. Russian President Vladimir Putin signed a decree on Thursday (3/31) mandating buyers of Russian gas from ‘unfriendly countries’ to open ruble accounts in Russian banks and use those accounts to settle payments for gas delivered by Gazprom.

US Warns India Not to Buy Too Much Russian Oil. The US State Department started expressing its discontent over India’s buying spree of heavily discounted Russian barrels, saying that any tangible increase would put New Delhi at a ‘great risk’ as Washington will try to restrict other countries’ purchases.

US Authorities Want More Ethanol in Gasoline. The Biden Administration is considering the temporary removal of restrictions on summer sales of higher-ethanol gasoline as a means to decrease gasoline costs across the country, reversing a previous decision to ban E15 as it contributes to smog in hot weather.

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For other oil-related headlines, see the 4 April 2022 edition of The Energy Bulletin Weekly.

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.

March 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for March 2022 reflected a slightly smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 57.1%, a decrease of 1.5 percentage points (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 input prices (+11.5PP), new orders (-7.9PP), and order backlogs (-5.0PP) exhibited the largest changes. 

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The services sector -- which accounts for 80% of the economy and 90% of employment – advanced further in March (+1.8PP, to 58.3%). Inventory sentiment (-15.1PP), exports (+8.0PP), and imports (-6.7PP) saw the largest changes. Input prices again pushed higher (+0.7PP).

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Of the industries we track, Wood Products and Ag & Forestry contracted, while the rest expanded. Respondent comments included the following:

Construction. “Pricing pressures are stronger than ever due to the Russia-Ukraine [war], and energy costs are skyrocketing.”

 

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

Manufacturing. Output growth accelerates to fastest in seven months as supply disruption eases.

Key findings:

* Production and new orders rise steeply
* Smallest deterioration in vendor performance for 14 months
* Cost pressures gain renewed momentum

 

Services. Business activity growth quickens amid stronger demand conditions, but charge inflation reaches series high.

Key findings:

* New business expansion accelerates to fastest since June 2021
* Selling prices rise at sharpest pace on record
* Backlogs of work grow at series-record rate

 

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

Manufacturing. “US manufacturing growth accelerated in March as strong demand and improving prospects countered the headwinds of soaring cost pressures and the Russia-Ukraine war.

“Order book growth has picked up as customers look to the further reopening of the domestic and global economies amid signs that the disruptions from the pandemic continue to fade.

“While companies continued to report widespread production constraints due to supply chain bottlenecks, the incidence of such delays is now lower than at any time since January 2021. Jobs growth has also improved as fewer companies reported labor shortages.

“Similarly, although price pressures remain elevated, with surging energy costs pushing firms’ costs higher at an increased rate in March, rates of inflation of both input costs and average selling prices have fallen from the record highs seen late last year to hint that consumer price inflation could likewise soon peak.

“It was especially encouraging to see business optimism about the year ahead improve further in March, despite the new uncertainties, sanctions and geopolitical risks caused by the Ukraine invasion, with optimism among producers now the brightest since late-2020.”

 

Services. “Business activity in the vast service sector enjoyed a boost from the relaxation of virus-fighting restrictions in March, regaining strong momentum after the Omicron-induced slowdown seen at the start of the year. Demand for services is in fact growing so fast that companies are increasingly struggling to keep pace with customer orders, leading to the largest rise in backlogs of work recorded since the survey began in 2009.

"However, while this suggests that companies have a healthy book of orders to sustain strong output in the coming months, the downside is further upward pressure on prices as demand exceeds supply. With firms' costs inflated by the soaring price of energy, fuel and other raw materials, as well as rising wages, prices charged for services are rising at an unprecedented rate. Consumer price inflation therefore looks likely to accelerate further as we head into the spring."

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.

March 2022 Currency Exchange Rates

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In March, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.4%) but appreciated against the euro (+3.0%) and the Japanese yen (+2.9%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 1.2% 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 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 February increased $3.1 billion or 0.6 percent to $541.0 billion. Durable goods shipments increased less than $0.1 billion or virtually unchanged to $270.7 billion, led by computers and electronic products. Meanwhile, nondurable goods shipments increased $3.1 billion or 1.2 percent to $270.3 billion, led by petroleum and coal products. Shipments of wood products rose by 2.9%; paper: +0.9%.

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Inventories increased $5.0 billion or 0.6 percent to $785.2 billion. The inventories-to-shipments ratio was 1.45, unchanged from January. Inventories of durable goods increased $2.3 billion or 0.5 percent to $479.1 billion, led by machinery. Nondurable goods inventories increased $2.8 billion or 0.9 percent to $306.2 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.7%; paper: +1.1%.

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New orders decreased $2.7 billion or 0.5 percent to $542.0 billion. Excluding transportation, new orders rose by $1.9 billion or 0.4% (+13.0% YoY). Durable goods orders decreased $5.8 billion or 2.1 percent to $271.7 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- declined by $0.2 billion or 0.2% (+10.7% YoY). New orders for nondurable goods increased $3.1 billion or 1.2 percent to $270.3 billion.

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Unfilled durable-goods orders increased $5.4 billion or 0.4 percent to $1,288.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.74, up from 6.72 in January. 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.

March 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed non-farm employers added 431,000 jobs in March, short of the 490,000 expected. However, January and February employment changes were revised up by a combined 95,000 (January: +23,000; February: +72,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) declined further (-0.2%) to 3.6%, as the number of unemployed fell (-318,000) despite an acceleration in the number of (re)entrants to the civilian labor force (+418,000). 

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Observations from the employment reports include:

* The correspondence between the establishment (+431,000 jobs) and household surveys (+736,000 employed) deteriorated somewhat, but at least were directionally consistent.

* Goods-producing industries added 60,000 jobs; service-providers: +371,000. Job gains continued in leisure and hospitality (+112,000), professional and business services (+102,000), and retail trade (+49,000). The only sector showing a significant job loss was state government (-14,000).

Manufacturing added 38,000 jobs. That result agrees with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded more quickly in March. Wood products employment rose by 2,000 (ISM declined); paper and paper Products: -700 (ISM rose); construction: +60,000 (ISM not yet published at the time of this writing).

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* The number of employment-age persons not in the labor force declined (-298,000) to 99.0 million; that level is 4.0 million higher than in February 2020. With the labor force expanding, the employment-population ratio (EPR) edged up to 60.1%, another pandemic high; even so, the EPR is 1.1PP below the February 2020 level. 

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* Because the civilian labor force expanded by 418,000 in March, the labor force participation rate rose fractionally to 62.4%. Average hourly earnings of all private employees increased by $0.13 (to $31.73), and the year-over-year increase accelerated to +5.6%. For all production and nonsupervisory employees (shown above), the tale was a bit better: hourly wages rose by $0.11, to $27.06 (+6.7% YoY). Since the average workweek for all employees on private nonfarm payrolls shrank by 0.1 hour, to 34.6 hours, average weekly earnings rose (+$1.34) to $1,097.86 (+4.6% YoY). With the consumer price index running at an annual rate of +7.9% in February, the average worker keeps losing purchasing power.

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* Full-time jobs jumped (+912,000) to 132.7 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 35,000, along with those working part time for non-economic reasons (+203,000); multiple-job holders retreated by 61,000.

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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 March increased by $46.2 billion, to $304.3 billion (+17.9% MoM; +6.2% 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 March was 12.4% above the year-earlier average.

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