July 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2022 were at a seasonally adjusted annual rate (SAAR) of 511,000 units (575,000 expected). This is 12.6% (±16.9%)* below the revised June rate of 585,000 (originally 590,000 units) and 29.6% (±10.9%) below the July 2021 SAAR of 726,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -32.3%. For longer-term perspectives, NSA sales were 63.2% below the “housing bubble” peak and 19.7% below the long-term, pre-2000 average.

The median sales price of new houses sold in July 2022 was $439,400 (+5.9%, or $24,500).  The average sales price was $546,800 (+19.6% or $89,500). Homes priced at/above $750,000 were 11.9% of sales, up from the year-earlier 9.7%. 

* 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 July, single-unit completions fell by 8,000 units (-0.8%). Sales also retreated (74,000 units), resulting in inventory for sale expanding in absolute (+14,000 units) and months-of-inventory (+1.7 months) terms. 

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Existing home sales retreated for a sixth month in July (-5.9% or 300,000 units) to a SAAR of 4.81 million units (on par with expectations). Inventory of existing homes for sale expanded in both absolute (+60,000 units) and months-of-inventory (+0.4 month) terms. Because resales retreated at a slower rate than new-home sales, the share of total sales comprised of new homes slipped to 9.6%. The median price of previously owned homes sold in July fell to $403,800 (-2.4% or $10,000).

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Housing affordability dropped (3.7 index points) as the median price of existing homes for sale in June rose by $7,900 (+1.9% MoM; +13.3 YoY) to a new record of $423,300. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.6% (+18.0% YoY).

“The deceleration in U.S. housing prices that we began to observe several months ago continued in June 2022, as the National Composite Index rose by 18.0% on a year-over-year basis,” said Craig Lazzara, Managing Director at S&P DJI. “Relative to May’s 19.9% gain (and April’s 20.6%), prices are clearly increasing at a slower rate. This pattern is consistent with our 10-City Composite (up 17.4% in June vs. 19.1% in May) and our 20-City Composite (up 18.6% in June vs. 20.5% in May). It’s important to bear in mind that deceleration and decline are two entirely different things, and that prices are still rising at a robust clip. June’s growth rates for all three composites are at or above the 95th percentile of historical experience. For the first six months of 2022, in fact, the National Composite is up 10.6%. In the last 35 years, only four complete years have witnessed increases that large.

“The market’s strength continues to be broadly based, as all 20 cities recorded double-digit price increases for the 12 months ended in June. In 19 out of 20 cases, however, June’s reading was less than May’s, showing the impact of deceleration at the regional level. Tampa (+35.0%) was the fastest growing city for the fourth consecutive month, with Miami (+33.0%) and Dallas (+28.2%) holding on to silver and bronze positions. Prices continued strongest in the Southeast (+29.6%) and South (+29.3%).

“We’ve noted previously that mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that continued as our June data were gathered. As the macroeconomic environment continues to be challenging, home prices may well continue to decelerate.”

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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.

2Q2022 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2022 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -0.58% (-0.9% expected), up 0.35 percentage point (PP) from the “advance” estimate (“2Qv1”) and +0.99PP from 1Q2022.

As with 2Qv1, two groupings of GDP components -- private domestic investment (PDI) and government consumption expenditures (GCE) -- pulled the headline estimate “into the red;” those negative contributions were partially offset by personal consumption expenditures (PCE) and net exports (NetX). 

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As for details (all relative to 2Qv1):

PCE. Consumer spending was revised up by $18.6 billion (nominal). That gain primarily occurred in purchases of goods (+$31.7B), led by recreational goods and vehicles (+$8.5B) and other nondurable goods (+$7.7B). Spending on services was revised lower (-$13.0B), led by health care (-$13.8B).

PDI. Upward revisions to private nonfarm inventories (+$12.1B) dominated this category. Notable downward revisions to fixed investment occurred in nonresidential structures (-$2.1B), software (-$4.3B), and residential investment (-$3.5B).

NetX. Downward revisions to goods exports (-$3.0B) combined with upward revisions to goods imports (+$3.3B) to pull net exports lower.

GCE. The state and local subcategory (+$8.6B) dominated this line item and was nearly evenly split between consumption expenditures (+$4.7B) and gross investment (+$3.8B).

The BEA’s real final sales of domestic product -- which ignores inventories -- was revised to +1.25% (+0.17PP from 2Qv1), a level 2.47PP above the 1Q estimate. 

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Consumer Metric Institute’s Rick Davis provided key takeaways of the report:

-- This report's headline number benefits significantly from the BEA's under recognition of inflation. For this report the BEA assumed annualized QoQ inflation of +9.02% whereas the concurrent change in CPI was +10.53%; had the BEA used the CPI deflator, real 2Q GDP change would have been -1.94%.

-- Households continue to be hammered by incomes that are failing to keep up with that inflation.

“This report shows an economy likely transitioning towards a recession,” Davis concluded. “It is being pummeled by non-traditional inflation that policy makers are fighting using traditional tools. The next few quarters will at least be interesting.”

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.

July 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in July at a seasonally adjusted annual rate (SAAR) of 1,446,000 units (1.540 million expected). This is 9.6% (±8.6%) below the revised June estimate of 1,599,000 (originally 1.559 million units) and 8.1% (±11.9%)* below the July 2021 SAAR of 1,573,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -9.2%.

Single-family housing starts in July were at a SAAR of 916,000; this is 10.1% (±10.8%)* below the revised June figure of 1,019,000 units (-18.8% YoY). Multi-family: 530,000 units (-8.6% MoM; +16.3% YoY).

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

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Total completions were at a SAAR of 1,424,000 units.  This is 1.1% (±14.8%)* above the revised June estimate of 1,409,000 (originally 1.365 million units) and 3.5% (±15.5%)* above the July 2021 SAAR of 1,376,000 units; the NSA comparison: +2.8% YoY. 

Single-family completions were at a SAAR of 1,009,000; this is 0.8% (±12.2%)* below the revised June rate of 1,017,000 units (+6.2% YoY). Multi-family: 415,000 units (+5.9% MoM; -3.5% YoY).

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Total permits were at a SAAR of 1,674,000 units (1.650 million expected). This is 1.3% below the revised June rate of 1,696,000 (originally 1.666 million units), but 1.1% above the July 2021 SAAR of 1,655,000 units; the NSA comparison: -5.5% YoY. 

Single-family permits were at a SAAR of 928,000; this is 4.3% below the revised June figure of 970,000 units (-18.8% YoY). Multi-family: 746,000 units (+2.8% MoM; +20.0% YoY).

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Builder confidence fell for the eighth straight month in August as elevated interest rates, ongoing supply chain problems and high home prices continue to exacerbate housing affordability challenges. In another sign that a declining housing market has failed to bottom out, builder confidence in the market for newly built single-family homes fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” said NAHB Chairman Jerry Konter. “And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit.”

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”

Roughly one-in-five (19%) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations. The median price reduction was 5% for those reporting using such incentives. Meanwhile, 69% of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey.

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.

July 2022 Industrial Production, Capacity Utilization and Capacity

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In July, total industrial production (IP) increased 0.6% (+0.3% expected). Manufacturing output gained 0.7% after having fallen 0.4% in each of the two previous months. The production of motor vehicles and parts rose 6.6%, while factory output elsewhere moved up 0.3%. The index for mining increased 0.7%, while the index for utilities decreased 0.8%. At 104.8% of its 2017 average, total IP in July was 3.9% above its year-earlier level. 

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Industry Groups

Manufacturing output rose 0.7% in July and was 3.2% above its year-earlier level. The indexes for durable and nondurable manufacturing increased 1.3% and 0.1%, respectively, while the output of other manufacturing (publishing and logging) rose 0.4%.

Within durable manufacturing, motor vehicles and parts posted the largest gain (6.6%), but fabricated metal products, aerospace and miscellaneous transportation equipment, and miscellaneous manufacturing all recorded gains of more than 1% (wood products: +0.7%); losses of more than 1% were registered by electrical equipment, appliances, and components and by furniture and related products. Within nondurable manufacturing, gains for apparel and leather, for chemicals, and for plastics and rubber products countervailed declines for most other industries (paper: -0.6%).

Mining output rose for the third consecutive month, increasing 0.7%, and was 7.9% above its year-earlier level. The improvement in July resulted from gains in coal mining and in oil and gas well drilling and servicing. The decrease of 0.8% for utilities reflected declines for both electric utilities and natural gas utilities.

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Capacity utilization (CU) moved up 0.4 percentage point (PP) in July to 80.3%, a rate that is 0.7PP above its long-run (1972–2021) average.

Manufacturing CU increased 0.5PP in July to 79.8%, 1.6PP above its long-run average (wood products: +0.7%; paper: -0.6%). The operating rate for mining rose 0.3PP to 88.0%, 1.7PP above its long-run average. In contrast, the operating rate for utilities fell 0.8PP to 74.5% and was 10.2PP below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.3% YoY) to 130.6% of 2017 output. Manufacturing edged up by 0.1% (+0.9% YoY) to 128.9%. Wood products: +0.1% (+1.5% YoY) to 126.3%; paper: -0.1% (-0.2% YoY) to 110.2%.

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.

July 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) was unchanged in July (+0.2% expected) after rising 1.3% in June. The gasoline index fell 7.7% in July and offset increases in the food and shelter indexes, resulting in the all-items index being unchanged over the month. The energy index fell 4.6% over the month as the indexes for gasoline and natural gas declined, but the index for electricity increased. The food index continued to rise, increasing 1.1% over the month as the food at home index rose 1.3%. 

The index for all items less food and energy rose 0.3% in July, a smaller increase than in April, May, or June. The indexes for shelter, medical care, motor vehicle insurance, household furnishings and operations, new vehicles, and recreation were among those that increased over the month. There were some indexes that declined in July, including those for airline fares, used cars and trucks, communication, and apparel.

The all-items index increased 8.5% for the 12 months ending July, a smaller figure than the 9.1% increase for the period ending June. The all items less food and energy index rose 5.9% over the last 12 months. The energy index increased 32.9% for the 12 months ending July, a smaller increase than the 41.6% increase for the period ending June. The food index increased 10.9% over the last year, the largest 12-month increase since the period ending May 1979.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) fell 0.5% in July (+0.3% expected). This decline followed advances of 1.0% in June and 0.8% in May. On an unadjusted basis, final demand prices moved up 9.8% for the 12 months ended in July.

In July, the decrease in the index for final demand is attributable to a 1.8% decline in prices for final demand goods. In contrast, the index for final demand services advanced 0.1%.

Prices for final demand less foods, energy, and trade services moved up 0.2% in July following a 0.3% rise in June. For the 12 months ended in July, the index for final demand less foods, energy, and trade services increased 5.8%.

Final Demand

Final demand goods: The index for final demand goods fell 1.8% in July, the largest decline since moving down 2.7% in April 2020. The July decrease can be traced to a 9.0% drop in prices for final demand energy. Conversely, the indexes for final demand foods and for final demand goods less foods and energy rose 1.0% and 0.2%, respectively.

Product detail: Eighty percent of the July decline in the index for final demand goods is attributable to gasoline prices, which fell 16.7%. The indexes for diesel fuel, gas fuels, oilseeds, iron and steel scrap, and grains also moved lower. In contrast, prices for chicken eggs jumped 43.1%. The indexes for industrial chemicals and for electric power also increased.

Final demand services: The index for final demand services inched up 0.1% in July, the third consecutive increase. Leading the July advance, margins for final demand trade services rose 0.3%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services moved up 0.4%. Conversely, final demand services less trade, transportation, and warehousing decreased 0.1%.

Product detail: Leading the July increase in prices for final demand services, margins for fuels and lubricants retailing rose 12.3%. The indexes for services related to securities brokerage and dealing (partial), hospital outpatient care, automobiles and automobile parts retailing, and transportation of passengers (partial) also moved higher. In contrast, prices for portfolio management declined 7.9%. The indexes for securities brokerage, dealing, and investment advice; food and alcohol retailing; and long-distance motor carrying also fell.

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The not-seasonally adjusted price indexes we track were mixed both MoM and YoY.

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

June 2022 International Trade (Softwood Lumber)

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With June exports of goods and services at $260.8 billion (+1.7% MoM; +22.8% YoY) and imports at $340.4 billion (-0.3% MoM; +20.0% YoY), the net trade deficit was $79.6 billion (-6.2% MoM; +11.6% YoY). 

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Softwood lumber exports rose (11 MMBF or +9.3%) in June, along with imports (20 MMBF or +1.4%). Exports were 19 MMBF (+17.3%) above year-earlier levels; imports were 20 MMBF (-1.4%) lower. As a result, the year-over-year (YoY) net export deficit was 39 MMBF (-2.9%) smaller. Also, the average net export deficit for the 12 months ending June 2022 was 9.7% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (61.1% of total softwood lumber exports; of which Mexico: 34.2%; Canada: 26.9%), Asia (10.6%; especially Japan: 3.3%), and the Caribbean: 21.7% especially the Dominican Republic: 6.9%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (2.1% of U.S. total) were -44.9% relative to the same month of the prior year. Meanwhile, Canada was the source of most (82.2%) softwood lumber imports into the United States. Imports from Canada were 8.8% lower YTD/YTD. Overall, YTD exports were up 7.7% compared to the prior year; imports: -6.2%.

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U.S. softwood lumber export activity through the West Coast customs region represented 33.4% of the U.S. total; Gulf: 37.4%, and Eastern: 18.6%. Seattle (17.4% of the U.S. total), Mobile (17.4%), San Diego (14.3%) and Laredo (14.7%) were among the most active districts. At the same time, Great Lakes customs region handled 54.4% of softwood lumber imports -- most notably the Duluth, MN district (21.6%) -- coming into the United States. 

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Southern yellow pine comprised 24.5% of all softwood lumber exports; Douglas-fir (15.1%), treated lumber (14.0%), other pine (9.4%) and finger-jointed (7.5%) were also significant. Southern pine exports were down 5.2% YTD/YTD, while Doug-fir: +27.0%; treated: +20.2%; and finger-jointed: +52.4%.

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.

July 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 528,000 jobs in July, which “blew past” the 258,000 expected. Moreover, May and June employment changes were revised up by a combined 28,000 (May: +2,000; June: +26,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down by 0.1 percentage point, to 3.5%, as the change in the number of employed (+179,000) compounded the effect of contraction in the civilian labor force (-63,000). Since the number of unemployed also shrank by 242,000 it appears most people no longer working left the labor force entirely.

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Observations from the employment reports include:

* The correspondence between the establishment (+528,000 jobs) and household surveys (+175,000 employed) was poor.

* Goods-producing industries added 68,000 jobs; service-providers: +459,000. Job growth was widespread in July, led by gains in leisure and hospitality (+96,000), professional and business services (+89,000), and health care (+69,600). Total nonfarm employment (152.5 million) is now back on par with its pre-pandemic level in February 2020. Private-sector employment has recovered the net job losses due to the pandemic and is 629,000 higher than in February 2020, while government employment is 597,000 lower. Employment is also perhaps 7.6 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 30,000 jobs. That result may be at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which contracted -- albeit more slowly -- in July. Wood products employment expanded by 200 (ISM was unchanged); paper and paper products: -1,200 (ISM fell); construction: +32,000 (ISM rose).

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* The number of employment-age persons not in the labor force rose (+239,000) to 100.1 million; that level is 5.0 million higher than in February 2020. Despite the labor force contracting, the employment-population ratio (EPR) edged up to 59.9%; also, the EPR is 1.2PP below the February 2020 level. 

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* Because the civilian labor force shrank by 63,000 in July, the labor force participation rate decreased fractionally to 62.1%. Average hourly earnings of all private employees increased by $0.15 (to $32.27), and the year-over-year increase was unchanged +5.2%. Since the average workweek for all employees on private nonfarm payrolls held at 34.6 hours, average weekly earnings rose (+$5.19) to $1,116.54 (+4.7% YoY). With the consumer price index running at an annual rate of +9.1% in June, 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 slipped (-71,000) to 132.6 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 303,000, while those working part time for non-economic reasons jumped (+501,000); multiple-job holders: +92,000.

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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 July decreased by $14.1 billion, to $228.2 billion (-5.8% MoM; +5.4% 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 July was 7.3% 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.

July 2022 ISM and Markit Surveys

 

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for July 2022 reflected a smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 52.8%, a decrease of 0.2 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. Changes among the subindexes seem to reflect continued improvement in supply-chain bottlenecks (but, also a slowing economy). Input prices (-18.5PP), customer inventories (+4.3PP), imports (+3.7PP), and slow deliveries (-2.1PP) exhibited the largest changes. 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated slightly in July (+1.4PP, to 56.7%). Input-price increases (-7.8PP), new orders (+4.3PP) and slow deliveries (-4.1PP) saw the largest changes.

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Of the industries we track, only Real Estate and Construction expanded. Respondent comments included the following:

Construction. “Interest rates have significantly impacted the homebuilding market. Cancellation rates have increased, as homebuyers can no longer afford the monthly payment. Traffic to our communities is down. Inflation has sidelined many would-be buyers.”

 

IHS Markit‘s survey headline results were mixed relative to those of their ISM counterparts. Both reported weaker manufacturing activity. For services, ISM accelerated whereas Markit fell into contraction.

Manufacturing. PMI at lowest for two years as output and new orders fall in July.

Key findings:

* Production falls as demand conditions weaken
* Inflationary pressures ease further
* Labor and material shortages persist

 

Services. Business activity declines for first time in over two years amid soft demand conditions.

Key findings:

* Fastest fall in output since May 2020
* Cost pressures ease further
* Business confidence slumps to lowest in almost two years

 

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

Manufacturing. “With the exception of pandemic lockdown periods, July saw US manufacturers report the toughest business conditions since 2009. A growth spurt in the spring has quickly gone into reverse, with new orders for factory goods down for a second straight month in July, leading to the first drop in production for two years and sharply reduced employment growth.

“The rising cost of living is the most commonly cited cause of lower sales, as well as the worsening economic outlook.

“Companies are also taking an increasingly cautious approach to purchasing and inventories amid the gloomier outlook, and likewise appear to be cutting back on investment, with new orders falling especially sharply for business equipment and machinery in July.

“Supply chain problems remain a major concern but have eased, taking some pressure off prices for a variety of inputs. This has fed through to the smallest rise in the price of goods leaving the factory gate seen for nearly one and a half years, the rate of inflation cooling sharply to add to signs that inflation has peaked.”

 

Services. “US economic conditions worsened markedly in July, with business activity falling across both the manufacturing and service sectors. Excluding pandemic lockdown months, the overall fall in output was the largest recorded since the global financial crisis and signals a strong likelihood that the economy will contract for a third consecutive quarter.

“Tightening financial conditions mean the financial services sector is leading the downturn, with a further steep rise in interest rates from the FOMC since the survey data were collected likely to intensify the downturn. Higher interest rates, alongside the ongoing surge in inflation, have meanwhile spilled over to the consumer sector, meaning the surge in household spending on goods and activities such as travel, tourism, hospitality and recreation seen in the spring has now moved into reverse as household spending is diverted to essentials.

“Although employment continued to rise in July, the rate of job creation has also slowed sharply since the spring and looks set to weaken further in the coming months as firms cut operating capacity in line with weakening demand.

“The flip side of deterioration in demand is a welcome alleviation of price pressures, which hint at a peaking of inflation.”

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.

June 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 June increased $6.3 billion or 1.1% to $551.9 billion. Durable goods shipments increased $0.8 billion or 0.3% to $269.6 billion, led by computers and electronic products. Meanwhile, nondurable goods shipments increased $5.5 billion or 2.0% to $282.4 billion, led by petroleum and coal products. Shipments of wood products fell 1.3%; paper: -0.2%.

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Inventories increased $3.3 billion or 0.4% to $801.5 billion. The inventories-to-shipments ratio was 1.45, down from 1.46 in May. Inventories of durable goods increased $2.0 billion or 0.4% to $484.9 billion, led by machinery. Nondurable goods inventories increased $1.3 billion or 0.4% to $316.6 billion, led by chemical products. Inventories of wood products expanded by 0.3%; paper: +0.4%.

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New orders increased $10.8 billion or 2.0% to $555.2 billion. Excluding transportation, new orders rose by $6.2 billion or 1.4% (+13.9% YoY). Durable goods orders increased $5.4 billion or 2.0% to $272.9 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by $0.5 billion or 0.7% (+9.4% YoY). New orders for nondurable goods increased $5.5 billion or 2.0% to $282.4 billion.

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Unfilled durable-goods orders increased $8.3 billion or 0.7% to $1,118.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.03, up from 5.98 in May. 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.

July 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil fell by $13.22 (-11.5%) to $101.62 per barrel in July. That decrease occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of May’s increase of 120,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.1 million BPD), and accumulated oil stocks that have finally edged into the bottom of the five-year-average range (July average: 425 million barrels). 

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Selected highlights from the 2 August 2022 issue of OilPrice.com‘s Intelligence Report include:

“One oil major after another is announcing phenomenal quarterly earnings and revved-up share buyback programs, with the likes of BP, Marathon, and Devon Energy joining the list this week,” wrote Tom Kool. “Meanwhile, Brent prices have been bogged down at around the $100 per barrel mark so far this week. Should tomorrow's OPEC+ meeting devolve into another campaign of smoke and mirrors [OPEC+ decided to raise output by another 100,000 BPD starting in September], the structural weakness in demand coming from weak global manufacturing data and Europe's ongoing struggle to contain Russia's energy blackmail might reappear again, pushing oil further down into double-digit territory.”

Taxing of US Crude Imports Raises Questions. President Biden's $433 billion tax and climate bill, potentially seeing a Senate vote this week already, aims to slap a 16.4 cents-per-barrel tax on imported crude and products, raising fears that this would inadvertently boost inflation as USGC refiners rely on heavy crudes from Latin America and elsewhere.

US Targets Iranian Oil Trade Again. The US Treasury and State Department imposed sanctions on a further six companies, based in Hong Kong, Singapore, and the UAE, for allegedly facilitating trade in Iranian oil and petrochemical products, the third round of blacklisting in the last two months. 

OPEC Woos Russia to Stay in Oil Group. Haitham al-Ghais, OPEC's new secretary general, stated Russia's participation in OPEC+ is vital for the success of the agreement, adding that the group does not control oil prices but finetunes the market in terms of supply and demand.

Nord Stream Blame Game Never Stops. With markets still having no idea where the ominous Nord Stream 1 turbines are, Russia has said that there is little it can do to revamp pumping along the pipeline as it continues to supply only 20% of nameplate capacity with only one turbine working.

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