2Q2022 Gross Domestic Product: Third Estimate

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Along with revisions to data extending back through 1Q2017, in its third estimate of 2Q2022 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 -0.58% (-0.6% expected), essentially unchanged from the second estimate (“2Qv2”) and +1.06 percentage points (PP) from the revised 1Q2022.

As with prior 2Q reports, 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). The update primarily reflected an upward revision to consumer spending that was countered by further deterioration in PDI and a moderation in NetX.

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As for details (all relative to 2Qv2):

PCE. The upward revision to consumer spending (+$168.0 billion, real) was led by services (+$126.3B). Other services (+$65.7B), health care (+$29.3B), and recreation services (+$27.8B) dominated the services category. Spending on goods also increased (+$33.0B); recreational goods and vehicles (+$55.3B), furnishings and durable household equipment (+$28.5B), and gasoline and other energy goods (+$17.9B) were the top three movers in this category.

PDI. Equipment fixed investment (-$92.8B) dominated the downward revision to PDI. This was partially offset by upward revisions to residential investment (+$2.4B) and inventories (+$26.3B).

NetX. Exports were boosted by $58.0B while imports were revised up by $14.0B.

GCE. Upward revisions to nondefense federal consumption expenditures (+$42.7B) and state and local consumption expenditures (+$5.0B) made this category’s contribution to headline GDP change less negative relative to both 2Qv2 and 1Q.

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

-- The headline number probably benefits substantially from under reporting of inflation. For this estimate the BEA assumed an effective annualized deflator of 9.10%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in its CPI-U index (quarter average over quarter average) was significantly higher at 10.5%. Underestimating inflation results in optimistic growth rates, and if the BEA’s nominal data was deflated using CPI-U inflation information the headline growth number would have been -1.86%.

-- Although the BEA’s “bottom line” number (real final sales, which excludes inventories) is positive, there is weakness in consumer spending on goods and commercial fixed investments.

-- Household real disposable income continues to get hammered. The most telling number is household savings, which is plunging as household budgets continue to get squeezed.

“The next report, covering the third quarter, will be released just prior to the mid-term elections,” Davis observed. “It should 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.

August 2022 Residential Sales, Inventory and Prices

 

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Sales of new single-family houses in August 2022 were at a seasonally adjusted annual rate (SAAR) of 685,000 units (498,000 expected). This is 28.8% (±18.3%) above the revised July rate of 532,000 (originally 511,000 units), but 0.1% (±16.5%)* below the August 2021 SAAR of 686,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was 0.0%. For longer-term perspectives, NSA sales were 50.7% below the “housing bubble” peak and 5.2% above the long-term, pre-2000 average.

The median sales price of new houses sold in August 2022 was $436,800 (-6.3%, or $29,500).  The average sales price was $521,800 (-6.3% or $34,900). Homes priced at/above $750,000 were 12.7% of sales, up from the year-earlier 9.1%. 

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

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As mentioned in our post about housing permits, starts and completions in August, single-unit completions ticked up by 4,000 units (+0.4%). Sales jumped (153,000 units), resulting in inventory for sale expanding on an absolute basis (+2,000 units) but shrinking in months-of-inventory terms (-2.3 months). 

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Existing home sales retreated for a seventh month in August (-0.4% or 20,000 units) to a SAAR of 4.80 million units (4.70 million expected). Inventory of existing homes for sale contracted in absolute terms (-20,000 units) but was unchanged on a months-of-inventory basis. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes jumped to 12.5%. The median price of previously owned homes sold in August fell to $389,500 (-2.4% or $9,700).

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Housing affordability nudged higher (+3.1 index points) as the median price of existing homes for sale in July fell by $10,300 (-2.4% MoM; +10.6 YoY) to a new record of $410,600. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices declined at a not-seasonally adjusted monthly change of -0.3% (+15.8% YoY) -- the first MoM drop since January 2019.

“Although U.S. housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration,” said Craig Lazzara, Managing Director at S&P DJI. “For example, while the National Composite Index rose by 15.8% in the 12 months ended July 2022, its year-over-year price rise in June was 18.1%. The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index. We saw similar patterns in our 10-City Composite (up 14.9% in July vs. 17.4% in June) and our 20-City Composite (up 16.1% in July vs. 18.7% in June). On a month-over-month basis, all three composites declined in July.

“The theme of strong but decelerating prices was reflected across all 20 cities. July’s year-over-year price change was positive for each one of the 20 cities, with a median gain of 15.0%, but in every case July’s gain was less than June’s. Prices declined in 12 cities on a month-to-month basis. Tampa (+31.8%) narrowly edged Miami (+31.7%) to remain at the top of the league table for the fifth consecutive month, with Dallas (+24.7%) holding on to third place. As has been the case for the last several months, price growth was strongest in the Southeast (+27.5%) and South (+26.9%).

“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day. Given the prospects for a more challenging macroeconomic environment, 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.

August 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in August at a seasonally adjusted annual rate (SAAR) of 1,575,000 units (1.440 million expected).  This is 12.2% (±14.9%)* above the revised July estimate of 1,404,000 (originally 1.446 million units, but 0.1% (±9.6%)* below the August 2021 SAAR of 1,576,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +0.4%.. 

Single-family housing starts in August were at a SAAR of 935,000; this is 3.4% (±10.1%)* above the revised July figure of 904,000 units (-15.2% YoY). Multi-family: 640,000 units (+28.0% MoM; +36.7% 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 1,342,000.  This is 5.4% (±12.1%)* below the revised July estimate of 1,419,000 (originally 1.424 million units), but 3.1% (±10.5%)* above the August 2021 SAAR of 1,302,000 units; the NSA comparison: +2.7% YoY. 

Single-family completions were at a SAAR of 1,017,000; this is 0.4% (±12.8%)* above the revised July rate of 1,013,000 units (+7.1% YoY). Multi-family: 325,000 units (-20.0% MoM; -7.8% YoY).

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Total permits were at a SAAR of 1,517,000 units (1.621 million expected).  This is 10.0% below the revised July rate of 1,685,000 (originally 1.674 million units) and 14.4% below the August 2021 SAAR of 1,772,000 units; the NSA comparison: -13.0% YoY. 

Single-family permits were at a SAAR of 899,000; this is 3.5% below the revised July figure of 932,000 units (-14.1% YoY). Multi-family: 618,000 units (-17.9% MoM; -11.3% YoY).

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In another sign that the slowdown in the housing market continues, builder sentiment fell for the ninth straight month in September as the combination of elevated interest rates, persistent building material supply chain disruptions and high home prices continue to take a toll on affordability.

Builder confidence in the market for newly built single-family homes fell three points in September to 46, the lowest level since May 2014 with the exception of the spring of 2020, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter. “In another indicator of a weakening market, 24% of builders reported reducing home prices, up from 19% last month.”

“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6% last week, the highest level since 2008,” said NAHB Chief Economist Robert Dietz. “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions.”

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.

August 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.2% in August (+0.2% expected). Manufacturing output edged up 0.1% after increasing 0.6% in July. The index for mining was unchanged, and the index for utilities decreased 2.3%. At 104.5% of its 2017 average, total IP in August was 3.7% above its year-earlier level.

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Market Groups

The indexes for the major market groups were mixed in August. Modest losses were registered by consumer goods, construction supplies, and materials, while gains were posted by business equipment, defense and space equipment, and business supplies. The cutback for consumer goods was concentrated in consumer energy products, whereas the decline for materials was fairly widespread. The largest decrease among materials groups, 2.0%, was in consumer parts. Within business equipment, the largest increase came in information processing and related equipment.

Industry Groups

Manufacturing output moved up 0.1% in August and was 3.3% above its year-earlier level. The index for durable manufacturing was unchanged, the index for nondurable manufacturing rose 0.2%, and the index for other manufacturing (publishing and logging) edged down 0.1%.

Within durables, gains of at least 1.0% were recorded by machinery, by computer and electronic products, by aerospace and miscellaneous transportation equipment, and by miscellaneous manufacturing. Losses of more than 1% were registered by wood products (-1.7%), by motor vehicles and parts, and by furniture and related products. Within nondurables, increases for petroleum and coal products, paper (+0.9%), and chemicals offset decreases for most other industries.

Mining output was unchanged in August after posting five consecutive monthly gains. The decrease of 2.3% for utilities reflected a decline for electric utilities moderated by a small increase for natural gas utilities.

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Capacity utilization (CU) declined 0.2 percentage point (PP) in August to 80.0%, a rate that is 0.4PP above its long-run (1972–2021) average.

Manufacturing CU was unchanged in August at 79.6%, a rate that is 1.4PP above its long-run average (wood products: -1.8%; paper: +0.9%). The operating rate for mining fell 0.3PP to 88.1%, while the operating rate for utilities fell 1.9PP to 72.8%. Capacity utilization for mining was nearly 2PP above its long-run average, but the rate for utilities remained substantially below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.4% YoY) to 130.7% of 2017 output. Manufacturing edged up by 0.1% (+1.0% YoY) to 129.0%. Wood products: 0.0% (+1.3% YoY) at 126.3%; paper: -0.1% (-0.3% YoY) to 110.1%.

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.

August 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) rose 0.1% in August (-0.1% expected) after being unchanged in July. Over the last 12 months, the all-items index increased 8.3% before seasonal adjustment.

Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all-items increase. These increases were mostly offset by a 10.6% decline in the gasoline index. The food index continued to rise, increasing 0.8% over the month as the food at home index rose 0.7%. The energy index fell 5.0% over the month as the gasoline index declined, but the electricity and natural gas indexes increased.

The index for all items less food and energy rose 0.6% in August, a larger increase than in July. The indexes for shelter, medical care, household furnishings and operations, new vehicles, motor vehicle insurance, and education were among those that increased over the month. There were some indexes that declined in August, including those for airline fares, communication, and used cars and trucks.

The all-items index increased 8.3% for the 12 months ending August, a smaller figure than the 8.5% increase for the period ending July. The all-items index less food and energy rose 6.3% over the last 12 months. The energy index increased 23.8% for the 12 months ending August, a smaller increase than the 32.9% increase for the period ending July. The food index increased 11.4% 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 0.1% in August (-0.1% expected). Final demand prices decreased 0.4% in July and advanced 1.0% in June. On an unadjusted basis, the index for final demand moved up 8.7% for the 12 months ended in August.

In August, the decrease in the index for final demand is attributable to a 1.2% decline in prices for final demand goods. In contrast, the index for final demand services advanced 0.4%.

Prices for final demand less foods, energy, and trade services moved up 0.2% in August following a 0.1% rise in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services increased 5.6%.

Final Demand

Final demand goods: The index for final demand goods fell 1.2% in August after declining 1.7% in July. The August decrease can be traced to a 6.0% drop in prices for final demand energy. Conversely, the index for final demand goods less foods and energy rose 0.2%, while prices for final demand foods were unchanged.

Product detail: In August, over three-quarters of the decrease in prices for final demand goods is attributable to the index for gasoline, which fell 12.7%. Prices for diesel fuel, jet fuel, chicken eggs, primary basic organic chemicals, and home heating oil also declined. In contrast, the index for construction machinery and equipment increased 2.6%. Prices for beverages and beverage materials and for electric power also rose.

Final demand services: The index for final demand services moved up 0.4% in August, the fourth consecutive rise. Sixty percent of the August advance can be traced to a 0.8% increase in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing also moved higher, rising 0.3%. Conversely, the index for final demand transportation and warehousing services decreased 0.2%.

Product detail: Forty percent of the increase in prices for final demand services can be attributed to margins for fuels and lubricants retailing, which rose 14.2%. The indexes for securities brokerage, dealing, investment advice, and related services; loan services (partial); transportation of passengers (partial); portfolio management; and chemicals and allied products wholesaling also moved higher. In contrast, prices for truck transportation of freight decreased 1.9%. The indexes for guestroom rental and for food and alcohol retailing also fell.

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Most of the not-seasonally adjusted price indexes we track retreated MoM, but all advanced 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.

July 2022 International Trade (Softwood Lumber)

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With July exports of goods and services at $259.3 billion (+0.2% MoM; +21.1% YoY) and imports at $329.9 billion (-2.9% MoM; +16.4% YoY), the net trade deficit was $70.7 billion (-12.6% MoM; +1.8% YoY). 

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Softwood lumber exports fell (17 MMBF or -13.1%) in July, along with imports (121 MMBF or -8.5%). Exports were 16 MMBF (-12.6%) below year-earlier levels; imports: 64 MMBF (+5.1%) higher. As a result, the year-over-year (YoY) net export deficit was 81 MMBF (+7.2%) larger. However, the average net export deficit for the 12 months ending July 2022 was 9.1% 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 (60.9% of total softwood lumber exports; of which Mexico: 35.1%; Canada: 25.8%), Asia (13.7%; especially Japan: 4.1%), and the Caribbean: 17.5% especially the Dominican Republic: 4.9%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (3.6% of U.S. total) were -47.9% relative to the same month of the prior year. Meanwhile, Canada was the source of most (81.5%) softwood lumber imports into the United States. Imports from Canada were 7.5% lower YTD/YTD. Overall, YTD exports were up 4.2% compared to the prior year; imports: -4.7%.

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U.S. softwood lumber export activity through the West Coast customs region represented 33.3% of the U.S. total; Gulf: 34.5%, and Eastern: 20.9%. Seattle (17.1% of the U.S. total), Mobile (14.4%), San Diego (14.9%) and Laredo (13.6%) were among the most active districts. At the same time, Great Lakes customs region handled 56.1% of softwood lumber imports -- most notably the Duluth, MN district (22.1%) -- coming into the United States. 

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Southern yellow pine comprised 22.9% of all softwood lumber exports; Douglas-fir (16.1%), treated lumber (12.8%), other pine (13.0%) and finger-jointed (8.0%) were also significant. Southern pine exports were down 6.8% YTD/YTD, while Doug-fir: +22.5%; treated: +15.3%; other pine: (+5.2%); and finger-jointed: +23.2%.

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.

August 2022 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil slid by $7.95 (-7.8%) to $93.67 per barrel in August. That decrease occurred within the context of a marginally weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of June’s increase of 695,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.8 million BPD), and accumulated oil stocks that have finally coincided with levels of a year earlier (August average: 432 million barrels). 

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Selected highlights from the 2 September 2022 issue of OilPrice.com’s Oil & Energy Insider include:

"Chinese weakness has become the key talking point of the past week," wrote editor Tom Kool. "First, the country’s PMI index for August recorded a mere 49.4, roughly in line with July, indicating that the much-anticipated economic activity rebound is still far from becoming real. Second, the return of lockdowns in multi-million megapolises such as Shenzhen or Chengdu will inevitably weigh on oil demand as (once again) no one really knows how long the restrictions will last. Political instability in Iraq has failed to bring about any bullish trend, just as the prospect of an Iran nuclear deal keeps on lingering around without anyone seeing the smaller picture of political guarantees. Until OPEC+ meets on September 05, China-driven demand fears will lead the market narrative, seeing ICE Brent down at $92 per barrel."

EU Tries Its Luck with Power Price Cap. Brussels is working on an electricity price cap that would limit the maximum price for generators who run on wind, solar or nuclear – under current EU rules the market price is set by the last power plant needed to meet demand, most often a gas one, allowing lower-cost generators to cash in. 

Germany Charters Fifth FLNG Terminal. The German government intends to charter another floating LNG terminal for the winter season of 2023/24, planning to place the 5 bcm per year FSRU off the northern coast in Wilhelmshaven and have it operated by E.ON, Engie, and Tree Energy Solutions.

Gazprom Savors the Turbine Blame Game. With Russia’s Gazprom halting gas flows via Nord Stream 1 for another round of maintenance, the company CEO took to the media, saying that “sanctions confusion” resulted in Siemens Energy not being able to service the pipeline’s turbines, potentially pointing towards further disruptions.

Chinese Coal Stocks Shine as Power Supply Stays in Limelight. Betting on China’s authorities prioritizing economic growth over environmental concerns, investors have been mopping up Chinese coal stocks recently, with the country’s coal index surging some 50% in 2022 to date already, spearheaded by top producer Shenhua Energy.

Venezuela Softens Tone for Chevron Role Revamp. Venezuela’s oil minister Tareck El Aissami said that the relaunching of Chevron’s operations in the Latin American country depends largely on the terms and conditions of new U.S. licenses, hinting that it does not see an issue with the US oil major taking a larger role.

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For other oil-related headlines, see the 6 September 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.

August 2022 Currency Exchange Rates

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In August, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.1%) and the Japanese yen (-1.0%) but appreciated against the euro (+0.4%). On the broad trade-weighted index basis (goods and services) the USD weakened by 0.3% 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.

August 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for August 2022 reflected no change among U.S. manufacturers reporting expansion. The PMI registered 52.8%, unchanged from July. (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. Subindexes with the largest changes include input prices (-7.5PP), employment (+4.3PP), inventories (-4.2PP), and new orders (+3.3PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated slightly in August (+0.2PP, to 56.9%). Order backlogs (-4.4PP), slow deliveries (-3.3PP), inventory sentiment (-3.0PP), and export orders (+2.4PP) exhibited the largest changes.

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

Construction. “Some pullback on projects by clients, but activity is still strong for our company. This has alleviated some labor availability issues. Generally, there has been improvement in lead times and prices, but still longer and higher, respectively, than in 2021.”

 

IHS Markit‘s survey headline results were more pessimistic than their ISM counterparts -- both Markit PMIs declined.

Manufacturing. PMI drops to lowest since July 2020 amid further loss of new orders.

Key findings:

* Output and new sales fall further
* Input cost inflation slowest since January 2021
* Delivery delays least extensive since October 2020

 

Services. Business activity contracts at sharpest pace since May 2020 amid solid fall in new orders.

Key findings:

* Renewed decline in new orders drives faster fall in output
* Rates of input cost and output charge inflation ease further
* Employment growth slowest since January

 

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

Manufacturing. “US factory production was down for a second month running in August, with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.

“Barring the initial pandemic lockdowns months, this is the steepest downturn in US manufacturing seen since the global financial crisis in 2009.

“Worryingly, the sharpest drop in demand was recorded for business equipment and machinery, which points to falling investment spending and heightened risk aversion. Similarly, payroll growth slowed close to stalling, reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.

“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”

 

Services. “August saw the US economy slide into a steepening downturn, underscoring the rising risk of a deepening recession as households and business grapple with the rising cost of living and tightening financial conditions.

“Businesses are reporting a deterioration in output and order books of a degree exceeded since the global financial crisis only by that seen during the initial pandemic lockdowns.

“While orders are being lost across the board as a result of rising prices and the cost-of-living squeeze, the steepest downturn is being recorded in the financial services sector, reflecting the additional impact of higher interest rates and worsening financial conditions.

“Jobs growth has meanwhile cooled as companies grow increasingly reluctant to expand in the face of falling demand and an uncertain outlook, which will serve to further dampen growth in the coming months.

“One positive form the survey was a substantial fall in the rate of input cost inflation, which should help to moderate consumer price growth in the months ahead, albeit with the rate of increase remaining stubbornly elevated.”

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 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 July decreased $4.7 billion or 0.9% to $545.5 billion. Durable goods shipments increased $0.6 billion or 0.2% to $270.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $5.3 billion or 1.9% to $275.4 billion, led by petroleum and coal products. Shipments of wood products slipped by 0.5%; paper: -1.0%.

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Inventories increased $0.5 billion or 0.1% to $802.0 billion. The inventories-to-shipments ratio was 1.47, up from 1.46 in June. Inventories of durable goods increased $1.2 billion or 0.3% to $486.4 billion, led by machinery. Nondurable goods inventories decreased $0.8 billion or 0.2% to $315.6 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.1%; paper: +0.7%.

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New orders decreased $5.7 billion or 1.0% to $548.5 billion. Excluding transportation, new orders fell by $5.0 billion or 1.1% (+10.4% YoY). Durable goods orders decreased $0.4 billion or 0.1% to $273.2 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 0.3% (+7.2% YoY). New orders for nondurable goods decreased $5.3 billion or 1.9% to $275.4 billion.

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Unfilled durable-goods orders increased $7.9 billion or 0.7% to $1,126.7 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.04, up from 6.03 in June. 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.

August 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 315,000 jobs in August, slightly better than the 293,000 expected. However, June and July employment changes were revised down by a combined 107,000 (June: -105,000; July: -2,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up by 0.2 percentage point, to 3.7% even though most (+442,000) of the people who contributed to the expansion of the labor force (+786,000) found work.

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Observations from the employment reports include:

* The correspondence between the establishment (+315,000 jobs) and household surveys (+442,000 employed) was better than usual.

* Goods-producing industries added 45,000 jobs; service-providers: +270,000. Notable job gains occurred in professional and business services (+68,000), health care (+48,200), and retail trade (+44,000). Total nonfarm employment (152.7 million) is now 240,000 jobs above its pre-pandemic level in February 2020. Private-sector employment is 885,000 higher than in February 2020, while government employment is 645,000 lower. Employment is also perhaps nearly 7.6 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 22,000 jobs. That result seems to be consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which moved back into expansion in August. Wood products employment contracted by 100 (ISM fell); paper and paper products: -700 (ISM fell); construction: +16,000 (ISM not yet reported).

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* The number of employment-age persons not in the labor force fell (-613,000) to 99.4 million; that level is 4.3 million higher than in February 2020. Given the above-mentioned job gains, the employment-population ratio (EPR) edged up to 60.1%; the EPR is 1.1PP below the February 2020 level. 

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* Because the civilian labor force expanded by 786,000 in August, the labor force participation rate rebounded to 62.4%. Average hourly earnings of all private employees increased by $0.10 (to $32.36), and the year-over-year increase was unchanged at +5.2%. However, since the average workweek for all employees on private nonfarm payrolls slipped to 34.5 hours, average weekly earnings were virtually unchanged (+$0.22) to $1,116.20 (but slumped to just +2.6% YoY). With the consumer price index running at an annual rate of +8.5% in July, 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 fell (-242,000) to 132.3 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 225,000, while those working part time for non-economic reasons slipped (-59,000); multiple-job holders: +114,000.

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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 August increased by $11.0 billion, to $253.4 billion (+11.0% MoM; +10.2% 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 August was 5.3% 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.