1Q2022 Gross Domestic Product: Third Estimate

 

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In its third estimate of 1Q2022 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 -1.57% (-1.4% expected), down 0.06 percentage point (PP) from the second estimate (“1Qv2”) and -8.46PP from 4Q2021.

As with 1Qv2, two groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- were the drivers behind the 1Q contraction; personal consumption expenditures (PCE) and private domestic investment (PDI) blunted some of the headline decline. The update primarily reflected a downward revision to PCE that was partly offset by an upward revision to private inventory investment (a component of PDI). 

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As for details (all relative to 1Qv2):

PCE. The downward revision to consumer spending (-$49.6 billion, nominal) was led by health care (-$17.9B) and financial services and insurance (-$17.7B). Downward revisions to goods spending (-$4.6B) was widespread among almost all categories; the only increase occurred in gasoline and other energy goods (+$4.2B).

PDI. Upward revisions (+$48.4B) to PDI were again dominated by the change in private nonfarm inventories (+$44.2B). Residential fixed investment was revised up by $0.2B.

NetX. Exports of goods were boosted by $7.4B while goods imports were revised down by $8.5B.

GCE. Defense-related gross investment (-$2.9B) dominated revisions in this category, which were partially offset by state and local gross investment (+$1.3B).

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

-- Neither the softening of spending on services nor the upward revision to inventories bode particularly well for the economy.

-- The ongoing downward revisions to real household disposable income is problematic.

-- The economy is likely far worse than recorded in this release, due to the BEA's drastic underreporting of inflation.

“Unfortunately, it is probable that none of the key factors that caused the U.S. economy to contract during 1Q2022 have improved materially in the interim,” Davis concluded. “The 1Q downturn was not a ‘one-off’ anomaly that will be totally forgotten long before the fall elections.”

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.

May 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in May 2022 were at a seasonally adjusted annual rate (SAAR) of 696,000 units (587,000 expected). This is 10.7% (±18.9%)* above the revised April rate of 629,000 (originally 591,000 units), but 5.9% (±22.0%)* below the May 2021 SAAR of 740,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -3.1%. For longer-term perspectives, NSA sales were 49.9% below the “housing bubble” peak but 20.5% above the long-term, pre-2000 average.

The median sales price of new houses sold in May slipped (-1.3% or $5,700) to $449,000.  The average sales price tumbled (-10.2% or $58,100) to $511,400. Homes priced at/above $750,000 were 14.3% of sales, up from the year-earlier 9.2%.

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

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As mentioned in our post about housing permits, starts and completions in May, single-unit completions rose by 28,000 units (+2.8%). Sales also advanced (67,000 units; +10.7%), resulting in inventory for sale expanding in absolute terms (7,000 units) but declining in months-of-inventory (-0.6 month) terms. 

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Existing home sales retreated for a fourth month in May (190,000 units or -3.4%) to a SAAR of 5.41 million units (-4.5% expected). Inventory of existing homes for sale expanded in both absolute (+13,000 units) and months-of-inventory (+0.4 month) terms. Because resales retreated while new home sales, the share of total sales comprised of new homes rose to 11.4%. The median price of previously owned homes sold in May advanced to a record $407,600 ($12,100 or +3.1% MoM).

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Housing affordability dropped (15.0 index points) as the median price of existing homes for sale in April rose by $16,300 (+4.3% MoM; +14.8 YoY) to $397,600. 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 +2.1% (+20.4% YoY).

“April 2022 showed initial (although inconsistent) signs of a deceleration in the growth rate of U.S. home prices,” said Craig Lazzara, Managing Director at S&P DJI. “The National Composite Index rose by 20.4% for the 12 months ended April 2022; this represents a slight deceleration from March’s 20.6% reading. The 10- and 20-City Composites were up 19.7% and 21.2%, respectively, modestly ahead of their gains in March. Despite the deceleration of the National Composite and the modest acceleration for the 10- and 20-City Composites, these growth rates are extremely strong by historical standards – at or above the 99th percentile in all three cases.

“We continue to observe very broad strength in the housing market, as all 20 cities notched double-digit price increases for the 12 months ended in April. April’s price increase ranked in the top quintile of historical experience for every city, and in the top decile for 19 of them. In contrast with the past five months, when prices in most cities accelerated, in April only nine cities saw prices rise faster than they had done in March. There’s a regional pattern among the nine, as all five cities in our South composite (Atlanta, Charlotte, Dallas, Miami, and Tampa) are represented there.

“Tampa (+35.8%) was the fastest growing city for the second consecutive month, with Miami (+33.3%) and long-time leader Phoenix (+31.3%) in second and third positions. Prices were strongest in the South (+30.6%) and Southeast (+30.5%). Even the comparatively weak Midwest (+13.8%) and Northeast (+14.0%) showed double-digit gains.

“We noted last month that mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that had only just begun when April data were gathered. A more-challenging macroeconomic environment may not support extraordinary home price growth for much longer.”

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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.

May 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) moved up 0.2% in May (+0.4% expected). Output has increased in every month of the year so far, with an average monthly gain of nearly 0.8%. In May, manufacturing output declined 0.1% after three months when growth averaged nearly 1%; the indexes for utilities and mining rose 1.0% and 1.3%, respectively, in May. At 105.7% of its 2017 average, total IP in May was 5.8% above its year-earlier level.

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Industry Groups

Manufacturing output slipped 0.1% in May; even so, the index has advanced 4.8% over the past 12 months (NAICS manufacturing: -0.1% MoM; +4.9% YoY). In May, the index for nondurable manufacturing moved up 0.1%, while the indexes for durable manufacturing and for other manufacturing (publishing and logging) each moved down 0.2%. Among durables, the largest drops were in wood products (-2.6%) and machinery (-2.1%). Among nondurables, an increase of 2.5% in petroleum and coal products outweighed decreases of less than 1% in food, beverage, and tobacco products; paper (-0.3%); and printing and support.

May was the third consecutive month with gains of more than 1.0% in mining; over that period, the index for oil and gas extraction has averaged increases of 2.0% per month. Mining output has advanced 9.0% over the past 12 months. Unseasonably warm weather in May boosted the demand for air conditioning and lowered the demand for heating; the output of electric utilities gained 1.9%, while the output of natural gas utilities stepped back 4.5%.

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Capacity utilization (CU) edged up to 79.0%, 0.5 percentage point (PP) below its long-run (1972–2021) average.

Manufacturing CU edged down in May to 79.1%, 1.0PP above its long-run average (NAICS manufacturing: -0.1%, to 79.3%; wood products: -2.8%; paper: -0.2%). The operating rate for mining was 81.5% (4.4PP below its long-run average), while the operating rate for utilities was 76.4% (8.4PP below its long-run average).

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Capacity at the all-industries level increased by 0.1% MoM (+0.8% YoY) to 133.8% of 2017 output. NAICS manufacturing also edged up by less than 0.0% (+0.5% YoY) to 131.0%. Wood products: +0.2% (+1.0% YoY) to 124.3%; paper: -0.1% (+0.2% YoY) to 113.5%.

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.

May 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in May at a seasonally adjusted annual rate (SAAR) of 1,549,000 units (1.695 million expected).  This is 14.4% (±8.9%) below the revised April estimate of 1,810,000 (originally 1.724 million units) and 3.5% (±10.7%)* below the May 2021 SAAR of 1,605,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -5.1%. 

Single-family housing starts in May were at a rate of 1,051,000; this is 9.2% (±11.0%)* below the revised April figure of 1,157,000 units (-6.9% YoY). Multi-family: 496,000 units (-23.7% MoM; -1.1% 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 1,465,000 units.  This is 9.1% (±22.6%)* above the revised April estimate of 1,343,000 (originally 1.295 million units) and 9.3% (±19.0%)* above the May 2021 SAAR of 1,340,000 units; the NSA comparison: +10.4% YoY. 

Single-family completions were at a SAAR of 1,043,000; this is 2.8% (±13.6 percent)* above the revised April rate of 1,015,000 units (+8.2% YoY). Multi-family: 422,000 units (+28.7% MoM; +15.8% YoY).

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Total permits were at a SAAR of 1,695,000 units (1.780 million expected).  This is 7.0% below the revised April rate of 1,823,000 (originally 1.819 million units) but 0.2% above the May 2021 SAAR of 1,691,000 units; the NSA comparison: +3.0% YoY. 

Single-family permits were at a SAAR of 1,048,000 units; this is 5.5% below the revised April figure of 1,109,000 units (-4.7% YoY). Multi-family: 647,000 units (-9.4% MoM; +20.3% YoY).

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Rising inflation and higher mortgage rates are slowing traffic of prospective home buyers and putting a damper on builder sentiment. In a troubling sign for the housing market, builder confidence in the market for newly built single-family homes posted its sixth straight monthly decline in June, falling two points to 67, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the lowest HMI reading since June 2020.

“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” said NAHB Chairman Jerry Konter. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates. Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb.”

“The housing market faces both demand-side and supply-side challenges,” said NAHB Chief Economist Robert Dietz. “Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown. On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”

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.

May 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 1.0% in May (+0.7% expected) after rising 0.3% in April. The increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9% over the month with the gasoline index rising 4.1% and the other major component indexes also increasing. The food index rose 1.2% in May as the food at home index increased 1.4%. 

The index for all items less food and energy rose 0.6% in May, the same increase as in April. While almost all major components increased over the month, the largest contributors were the indexes for shelter, airline fares, used cars and trucks, and new vehicles. The indexes for medical care, household furnishings and operations, recreation, and apparel also increased in May.

The all-items index increased 8.6% for the 12 months ending May, the largest 12-month increase since the period ending December 1981. The index of all items less food and energy rose 6.0% over the last 12 months. The energy index rose 34.6% over the last year, the largest 12-month increase since the period ending September 2005. The food index increased 10.1% for the 12 months ending May, the first increase of 10% or more since the period ending March 1981.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.8% in May (+0.8% expected). This rise followed advances of 0.4% in April and 1.6% in March. On an unadjusted basis, final demand prices moved up 10.8% for the 12 months ended in May.

In May, nearly two-thirds of the rise in the index for final demand was due to a 1.4% advance in prices for final demand goods. The index for final demand services increased 0.4%.

Prices for final demand less foods, energy, and trade services moved up 0.5% in May after increasing 0.4% in April. For the 12 months ended in May, the index for final demand less foods, energy, and trade services rose 6.8%.

Final Demand

Final demand goods: The index for final demand goods moved up 1.4% in May, the fifth consecutive rise. Over 70% of the increase in May can be traced to a 5.0% advance in prices for final demand energy. The index for final demand goods less foods and energy moved up 0.7%, while prices for final demand foods were unchanged.

Product detail: Forty percent of the May increase in prices for final demand goods can be attributed to an 8.4% advance in the index for gasoline. Prices for jet fuel, residential natural gas, steel mill products, diesel fuel, and processed young chickens also moved higher. Conversely, the index for beef and veal fell 9.5%. Prices for iron and steel scrap and for commercial electric power also decreased.

Final demand services: The index for final demand services moved up 0.4% in May following a 0.2% decrease in April. Over half of the broad-based advance can be traced to a 2.9% rise in prices for final demand transportation and warehousing services. The indexes for final demand trade services and for final demand services less trade, transportation, and warehousing also moved higher, 0.4% and 0.1%, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Nearly 30% of the May increase in the index for final demand services can be attributed to prices for truck transportation of freight, which rose 2.9%. The indexes for services related to securities brokerage and dealing (partial), machinery and equipment wholesaling, chemicals and allied products wholesaling, automobiles and automobile parts retailing, and transportation of passengers (partial) also advanced. In contrast, margins for fuels and lubricants retailing declined 21.7%. The indexes for portfolio management and for guestroom rental also moved lower.

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The not-seasonally adjusted price indexes we track all rose MoM; only softwood lumber fell YoY.

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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.

April 2022 International Trade (Softwood Lumber)

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With April exports of goods and services at $252.6 billion (+3.5% MoM; +21.7% YoY) and imports at $339.7 billion (-3.4% MoM; +24.3% YoY), the net trade deficit was $87.1 billion (-19.1% MoM; +32.5% YoY). 

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Softwood lumber exports fell slightly (5 MMBF or -4.4%) in April, along with imports (58 MMBF or -4.2%). Exports were 13 MMBF (-11.1%) below year-earlier levels; imports were 137 MMBF (-9.3%) lower. As a result, the year-over-year (YoY) net export deficit was 124 MMBF (-9.2%). Also, the average net export deficit for the 12 months ending April 2022 was 4.2% lower than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (61.8% of total softwood lumber exports; of which Mexico: 32.0%; Canada: 29.8%), Asia (13.4%; especially Japan: 4.2%; and Pakistan: 1.6%), and the Caribbean: 17.6% especially the Dominican Republic: 5.2%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (2.9% of U.S. total) were -48.2% relative to the same month of the prior year. Meanwhile, Canada was the source of most (83.2%) softwood lumber imports into the United States. Imports from Canada were 9.9% lower YTD/YTD. Overall, YTD exports were up 4.0% compared to the prior year; imports: -6.8%.

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U.S. softwood lumber export activity through the West Coast customs region represented 34.9% of the U.S. total; Gulf: 32.1%, and Eastern: 21.4%. Seattle (19.5% of the U.S. total), Mobile (12.6%), San Diego (13.0%) and Laredo (13.0%) were among the most active districts. At the same time, Great Lakes customs region handled 54.5% of softwood lumber imports -- most notably the Duluth, MN district (22.5%) -- coming into the United States. 

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Southern yellow pine comprised 21.1% of all softwood lumber exports; Douglas-fir (17.8%), treated lumber (15.2%), other pine (8.7%) and finger-jointed (9.9%) were also significant. Southern pine exports were down 15.2% YTD/YTD, while Doug-fir: +25.4%; and treated: +22.0%.

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.

May 2022 Currency Exchange Rates

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In May, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+1.8%), the euro (+2.2%), and the Japanese yen (+2.0%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 2.2% 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.

May 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 390,000 jobs in May, exceeding the 325,000 expected. However, March and April employment changes were revised down by a combined 22,000 (March: -30,000; April: +8,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was stable at 3.6%, as the change in the number of employed (+321,000) roughly matched the expansion of the civilian labor force (+330,000). 

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Observations from the employment reports include:

* For a change, the correspondence between the establishment (+390,000 jobs) and household surveys (+321,000 employed) was good.

* Goods-producing industries added 59,000 jobs; service-providers: +331,000. Notable job gains occurred in leisure and hospitality (+84,000), professional and business services (+75,000), and transportation and warehousing (+47,000). Employment in retail trade declined (-60,700). Nonfarm employment is down by 822,000 (-0.5%) from its pre-pandemic level in February 2020. Employment is also 8.2 million below its working-age population-adjusted level relative to January 2006.

Manufacturing added 18,000 jobs. That result is at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which retreated into contraction in May. Wood products employment rose by 3,800 (ISM was unchanged); paper and paper products: +1,100 (ISM unchanged); construction: +36,000 (ISM increased).

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* The number of employment-age persons not in the labor force receded (-211,000) 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 60.1%; also, the EPR is 1.1PP below the February 2020 level. 

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* Because the civilian labor force grew by 363,000 in May, the labor force participation rate advanced to 62.3%. Average hourly earnings of all private employees increased by $0.10 (to $31.95), and the year-over-year increase decelerated to +5.2%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.15, to $27.33 (+6.5% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.6 hours, average weekly earnings rose (+$3.46) to $1,105.47 (+4.3% YoY). With the consumer price index running at an annual rate of +8.3% in April, the average worker keeps losing purchasing power. In fact, average hourly wages have lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs jumped (+733,000) to 132.8 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 -- rose by 295,000, while those working part time for non-economic reasons dipped (-20,000); multiple-job holders fell by 237,000.

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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 May decreased by $17.2 billion, to $246.7 billion (-2.9% MoM; +17.2% 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 May was 11.0% 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.

May 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for May 2022 reflected a slightly larger proportion of U.S. manufacturers reporting expansion. The PMI registered 56.1%, an increase of 0.7 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 customer inventories (-4.4PP), inventories (+4.3PP), and order backlogs (+2.7PP) exhibited the largest changes. Input price increases decelerated slightly (-2.4PP).

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The services sector -- which accounts for 80% of the economy and 90% of employment -- declined in May (-1.2PP, to 55.9%). Order backlogs (-7.4PP), business activity (-4.6PP) and slow deliveries (-3.8PP) saw the largest changes. Service input-price increases also decelerated (-2.5PP).

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Of the industries we track, Wood Products and Ag & Forestry did not expand. Respondent comments included the following:

Construction. “Demand seems to be very high for all of the high-voltage electric products we purchase. Lead times are quadruple what they normally are.”

Paper Products. “We’ve continued to transition to North American sales to avoid ocean vessels, and we are apprehensive about the West Coast ports’ labor contract negotiations. A challenge of doing more business by rail is the backlog of rail cars and embargos.”

 

IHS Markit‘s survey headline results were mixed relative to their ISM counterparts -- manufacturing: ISM rose while Markit fell; services: both ISM and Markit retreated. Perhaps the biggest divergence was in input prices; ISM reflected decelerating price increases while Markit reported “soaring” prices.

Manufacturing. Manufacturing upturn slows amid cooling demand, surging costs and material shortages.

Key findings:

* Production and new orders increase at slower rates
* Cost inflation fastest since November 2021’s series peak
* Business confidence drops to lowest since October 2020

 

Services. Business activity growth eases amid series-record rise in costs and softer demand conditions.

Key findings:

* Output expansion softens amid slower growth in new business
* Input prices rise at fastest pace on record
* Sharp increase in employment

 

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

Manufacturing. “A solid expansion of manufacturing output in May should help drive an increase in GDP during the second quarter, with production growth running well above the average seen over the past decade. However, the rate of growth has slowed as producers report ongoing issues with supply chain delays and labor shortages, as well as slower demand growth.

“A cooling in new orders growth was in part linked to customers pushing back on high prices, though also reflected shortages and growing concern about the outlook.

“Input cost pressures meanwhile intensified further during the month. Although delivery delays were the least widespread for 16 months, pricing power remained firmly in the hands of the supplier, with rising energy, wage and transportation costs adding to firms’ cost burdens. The result was the steepest rise in costs since November, feeding through to yet another near-record factory gate price increase and serving as a reminder that inflationary pressures remain worryingly elevated.”

 

 Services. “Alongside the slowing in the manufacturing sector, the cooling pace of expansion in the service sector takes the pace of US economic growth down to the weakest so far in the pandemic recovery with the sole exception of January’s slowdown at the height of the Omicron wave. While the survey readings are consistent with GDP growing at an annualized rate of just under 2%, supporting the view that GDP will return to growth in the second quarter, it is worrying that growth momentum is being lost so quickly. Businesses report ongoing difficulties finding staff and souring raw materials, while demand growth measured by inflows of new orders for goods and services is expanding at the slowest rate for almost one-and-a-half years, as spending power is reduced by soaring inflation.

“The inflation surge meanwhile shows no signs of abating, with firms’ costs soaring higher at yet another survey record rate in May, reflecting rising energy, materials and staff costs.”

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.

April 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 April increased $0.9 billion or 0.2 percent to $532.1 billion. Durable goods shipments increased $0.4 billion or 0.1 percent to $264.4 billion, led by primary metals. Meanwhile, nondurable goods shipments increased $0.5 billion or 0.2 percent to $267.7 billion, led by food products. Shipments of wood products fell 0.3%; paper: -0.1%.

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Inventories increased $4.4 billion or 0.6 percent to $786.1 billion. The inventories-to-shipments ratio was 1.48, up from 1.47 in March. Inventories of durable goods increased $3.9 billion or 0.8 percent to $479.7 billion, led by transportation equipment. Nondurable goods inventories increased $0.4 billion or 0.1 percent to $306.4 billion, led by chemical products. Inventories of wood products expanded by 1.4%; paper: +0.5%.

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New orders increased $1.8 billion or 0.3 percent to $533.2 billion. Excluding transportation, new orders rose by $1.2 billion or 0.3% (+11.5% YoY). Durable goods orders increased $1.3 billion or 0.5 percent to $265.5 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by $0.3 billion or 0.4% (+6.4% YoY). New orders for nondurable goods increased $0.5 billion or 0.2 percent to $267.7 billion.

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Unfilled durable-goods orders increased $6.0 billion or 0.5 percent to $1,106.8 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.07, up from 6.06 in March. Real (inflation-adjusted) unfilled orders, which -- prior to the pandemic -- had been a good litmus test for potential sector growth, show a less-positive picture; in real terms, unfilled orders in June 2014 were back to 103% of their December 2008 peak. Real unfilled orders then jumped to 110% of the prior peak in November 2014, thanks to the largest-ever batch of aircraft orders. However, real unfilled orders have been trending lower since November 2014.

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

May 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose by $7.77 (+7.6%) to $109.55 per barrel in May. That increase occurred within the context of a somewhat stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of March’s rise of 76,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.5 million BPD, and accumulated oil stocks that have edged higher while remaining well below the bottom of the five-year-average range (May average: 420 million barrels).

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Selected highlights from the 31 May 2022 issue of OilPrice.com‘s Intelligence Report include:

“Oil prices are climbing once again on the news that the EU has agreed to a partial ban on Russian oil imports,” wrote Tom Kool. “Whilst Russia will almost inevitably see its production decline as a result of the ban, the general anticipation is that Asia, and especially China, will ramp up its purchases. The sanctions deal steepened backwardation in the markets, with the ICE Brent six-month spread shooting up $15 per barrel again -- not a good time to be hoarding inventories.”

The EU Creates Pipeline Exemption for Russia Sanctions. The European Union finally reached an agreement on Russian oil sanctions, aiming for a six-month phase-in period, giving a temporary waiver for crude oil delivered by pipeline, without specifying their wind-down period.

Russian Crude Production Rises Despite Sanctions Pressure. Media reports are suggesting that Russian oil production increased by 1% month-on-month and rose to 10.17 million b/d this month so far, implying that the 10 million b/d trough last month might be the low point of output.

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For other oil-related headlines, see the 1 June 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.