December 2022 Residential Sales, Inventory and Prices

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Sales of new single-family houses in December 2022 were at a seasonally adjusted annual rate (SAAR) of 616,000 units (614,000 expected). This is 2.3% (±18.5%)* above the revised November rate of 602,000, but 26.6% (±13.2%) below the December 2021 estimate of 839,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -23.0%. For longer-term perspectives, NSA sales were 55.7% below the “housing bubble” peak and 10.1% below the long-term, pre-2000 average.

An estimated 645,000 new homes were sold in 2022. This is 16.3% (±3.8%) below the 2021 figure of 771,000.

The median sales price of new houses sold in December 2022 was $442,100 (-3.7%, or $16,900). The average sales price was $528,400 (essentially unchanged at -$200). Homes priced at/above $750,000 comprised 8.5% of sales, down from the year-earlier 11.5%.

* 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 November, single-unit completions fell by 87,000 units (-8.0%). Sales rose (14,000 units), resulting in inventory for sale unchanged in absolute terms but shrinking in months-of-inventory (-2.0 months) terms. 

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Existing home sales retreated for an eleventh month in December (-1.5% or 60,000 units) to a SAAR of 4.02 million units (3.97 million expected). Inventory of existing homes for sale contracted in both absolute (-50,000 units) and months-of-inventory (-0.4 month) terms. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes increased to 13.3%. The median price of previously owned homes sold in November dropped to $366,900 (-1.5% or $5,700).

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Housing affordability bumped modestly higher (+4.2 index points) as the median price of existing homes for sale in November fell by $7,900 (-2.1% MoM; +3.2 YoY) to $376,700. 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 -0.6% (+7.7% YoY).

“November 2022 marked the fifth consecutive month of declining home prices in the U.S.,” said Craig Lazzara, Managing Director at S&P DJI. “For example, the National Composite Index fell -0.6% for the month, reflecting a -3.6% decline since the market peaked in June 2022. We saw comparable patterns in our 10- and 20-City Composites, both of which stand more than -5.0% below their June peaks. These declines, of course, came after very strong price increases in late 2021 and the first half of 2022. Despite its recent weakness, on a year-over-year basis the National Composite gained 7.7%, which is in the 74th percentile of historical performance levels.

“All 20 cities in our November report showed price declines on a month-over-month basis, with a median decline of -0.8%. Moreover, for all 20 cities, year-over-year gains in November were lower than those of October, with a median year-over-year increase of 6.4%. Interestingly, home prices in San Francisco were down by -1.6% year-over-year, the first negative result for any city since San Francisco’s -0.4% decline in October 2019. This is the worst year-over-year result for San Francisco in more than 10 years (since a -3.0% result in March 2012). West coast weakness was not limited to California, as San Francisco was followed by Seattle (+1.5%) and Portland (+3.9%) at the bottom of the league table.

“In contrast, November’s best-performing cities were clustered in the Southeast. Miami (+18.4%) was the best performer, followed by Tampa (+16.9%). November is the eighth consecutive month that one of our Florida cities has been the national leader. The month’s bronze medal went to Atlanta (+12.7%), narrowly edging out Charlotte (+12.6%). Unsurprisingly, the Southeast (+15.1%) and South (+14.3%) were the strongest regions and the West (+4.0%) was the weakest.

“As the Federal Reserve moves interest rates higher, mortgage financing continues to be a headwind for home prices. Economic weakness, including the possibility of a recession, would also constrain potential buyers. Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”

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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.

4Q2022 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 4Q2022 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +2.89% (+2.7% expected), down 0.36 percentage point (PP) from 3Q2022’s +3.25%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 4Q2022 was 0.96% higher than in 4Q2021; that growth rate was noticeably slower (-0.98PP) than 3Q2022’s +1.94% relative to 3Q2021.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the 4Q headline. 

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As for details (all comparisons to 3Q2022) --

PCE:

* Goods. Spending on durable goods nudged higher (+$2.9 billion, chained 2012 dollars), led by motor vehicles and parts (+$10.1B) but largely offset by a drop-off in other durable goods (-$9.1B). Spending on non-durable goods rose (+$12.4B), led by other nondurable goods (+$5.6B).

* Services. Gains (+$56.2B) were led by health care (+$21.0B).

PDI:

* Fixed investment. This decline (-$60.9B) was led by residential investment (-$46.4B), and partially offset by expenditures on software (+$20.8B).

* Inventories. Nonfarm inventories ballooned by $89.9B; farm: +$1.1B.

NetX:

* Exports. Goods exports dipped by $34.0B; services: +$21.5B.

* Imports. Goods imports fell $47.8B; services: +$0.6B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE: Federal nondefense consumption expenditures (+$11.2B) led this line item, followed by state and local consumption expenditures (+$9.2B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +1.43% (down 3.01PP from 3Q).

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

-- The headline number seems to be close enough to 3% to be respectable. This masks relatively weak growth in consumer spending and materially contracting fixed investments.

-- The contraction in fixed investments can be found in IT spending and residential construction, two sectors that we might expect to be driving a healthy economy.

-- Household disposable income did tick upward, although savings rates remain near record lows. Households remain cautious in their spending, as the lackluster consumer goods and services growth rates and growing inventories confirm.

“This is yet another case where the headline number is better than the underlying details might warrant,” Davis concluded, adding, “This report simply does not show an economy that is ready for explosive growth.”

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.

December 2022 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in December at a seasonally adjusted annual rate (SAAR) of 1,382,000 units (1.362 million expected). This is 1.4% (±16.9%)* below the revised November estimate of 1,401,000 (originally 1.427 million units) and 21.8% (±11.2%) below the December 2021 SAAR of 1,768,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -21.6%.  An estimated 1,553,300 housing units were started in 2022; this is 3.0% (±2.4%) below the 2021 figure of 1,601,000 units.

Single-family housing starts in December were at a rate of 909,000; this is 11.3% (±20.7%)* above the revised November figure of 817,000 units (-24.3% YoY). Multi-family: 473,000 units (-19.0% MoM; -15.9% 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 1,411,000. This is 8.4% (±16.5%)* below the revised November estimate of 1,540,000 (originally 1.490 million units), but is 6.4% (±11.4%)* above the December 2021 SAAR of 1,326,000 units; the NSA comparison: +5.4% YoY. An estimated 1,392,300 housing units were completed in 2022, 3.8% (±3.3%) above the 2021 figure of 1,341,000 units.

Single-family housing completions in December were at a SAAR of 1,005,000; this is 8.0% (±11.6%)* below the revised November estimate of 1,092,000 units (-2.0% YoY). Multi-family: 406,000 units (-9.4% MoM; +31.7% YoY).

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Total permits were at a SAAR of 1,330,000 units (1.380 million expected). This is 1.6% below the revised November estimate of 1,351,000 (originally 1.342 million units) and 29.9% below the December 2021 SAAR of 1,896,000 units; the NSA comparison: -33.2% YoY. The Census Bureau estimates 1,649,400 housing units were authorized by building permits in 2022, 5.0% below the 2021 figure of 1,737,000; using not-seasonally adjusted data, we estimate 1.626 million units permitted during 2022, down 6.4%.

Single-family permits were at a SAAR of 730,000; this is 6.5% below the revised November figure of 781,000 units (-39.0% YoY). Multi-family: 600,000 units (+5.3% MoM; -26.8% YoY).

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A modest drop in interest rates helped to end a string of 12 straight monthly declines in builder confidence levels, although sentiment remains in bearish territory as builders continue to grapple with elevated construction costs, building material supply chain disruptions and challenging affordability conditions.

Builder confidence in the market for newly built single-family homes in January rose four points to 35, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“It is possible that the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” wrote NAHB’s Robert Dietz. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.

“While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead. In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability. Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”

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.

December 2022 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.7% in December (-0.1% expected) and 1.7% at an annual rate in 4Q; for 2022 overall, total IP was 3.9% above its average 2021 rate. In December, manufacturing output fell 1.3% amid widespread declines across the sector. The index for utilities jumped 3.8%, as cold temperatures boosted the demand for heating, while the index for mining moved down 0.9%. At 103.4% of its 2017 average, total IP in December was 1.6% above its year-earlier level. 

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Market Groups

The indexes for all major market groups except defense and space equipment decreased for a second consecutive month in December. Business equipment recorded the largest drop (2.0%), followed by construction supplies (1.4%) and business supplies (1.3%). The index for materials fell 0.7%, as a loss for non-energy materials offset a modest gain for energy materials. The index for consumer goods edged down 0.1%, with an increase for consumer energy products mostly offsetting decreases for durable and non-energy nondurable goods. The index for defense and space equipment rose 1.0% in December and increased 14.0% at an annual rate in 4Q.

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Industry Groups

Manufacturing output fell 1.3% in December and moved down 2.5% at an annual rate in 4Q. In December, the indexes for durable and nondurable manufacturing dropped 1.1% and 1.5%, respectively, while the index for other manufacturing (publishing and logging) stepped down 0.9%. Within durables, most major industries posted declines of at least 1%; machinery (-3.4%) and wood products (-2.1%) recorded the largest declines. Within nondurables, the indexes for all major industries declined, with the indexes for printing and support and for petroleum and coal products contracting more than 3% (paper: -1.6%).

Mining output declined 0.9% in December; the index edged up 0.7% at an annual rate in 4Q, a notable step-down from its rates of increase in 2-3Q. The output of utilities jumped 3.8% in December, driven by increases for both electric and natural gas utilities.

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Capacity utilization (CU) dropped 0.6 percentage point (PP) in December to 78.8%, a rate that is 0.8PP below its long-run (1972–2021) average.

Manufacturing CU decreased 1.0PP in December to 77.5%, a rate that is 0.7PP below its long-run average (wood products: -2.1%; paper: -1.5%). The operating rate for mining fell 0.9PP to 87.7%, while the operating rate for utilities jumped 2.7PP to 76.8%. The rate for mining was 1.4PP above its long-run average, while 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 (+1.6% YoY) to 131.3% of 2017 output. Manufacturing also edged up by 0.1% (+1.2% YoY) to 129.5%. Wood products: +0.1% (+0.9% YoY) to 126.6%; paper: -0.1% (-0.6% YoY) to 109.9%.

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

December 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) declined 0.1% in December (0.0% expected) after increasing 0.1% in November. The index for gasoline was by far the largest contributor to the monthly all-items decrease, more than offsetting increases in shelter indexes. The food index increased 0.3% over the month with the food at home index rising 0.2%. The energy index decreased 4.5% over the month as the gasoline index declined while other major energy component indexes increased.

The index for all items less food and energy rose 0.3% in December, after rising 0.2% in November. Indexes which increased in December include the shelter, household furnishings and operations, motor vehicle insurance, recreation, and apparel indexes. The indexes for used cars and trucks, and airline fares were among those that decreased over the month.

The all-items index increased 6.5% for the 12 months ending December; this was the smallest 12-month increase since the period ending October 2021. The index for all items less food and energy rose 5.7% over the last 12 months. The energy index increased 7.3% for the 12 months ending December, and the food index increased 10.4% over the last year; all of these increases were smaller than for the 12-month period ending November.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) declined 0.5% in December (-0.1% expected), reversing advances of 0.2% in November and 0.4% in October. December’s decrease in the final demand index can be attributed to a 1.6% decline in prices for final demand goods. In contrast, the index for final demand services rose 0.1%.

On an unadjusted basis, the index for final demand increased 6.2% in 2022 after rising 10.0% in 2021. Prices for final demand less foods, energy, and trade services edged up 0.1% in December after increasing 0.3% in November. The index for final demand less foods, energy, and trade services advanced 4.6% in 2022 following a 7.0% rise in 2021.

Final Demand

Final demand goods: Prices for final demand goods moved down 1.6% in December, the largest decrease since falling 1.8% in July. Leading the December decline, the index for final demand energy dropped 7.9%. Prices for final demand foods decreased 1.2%. Conversely, the index for final demand goods less foods and energy advanced 0.2%.

Product detail: Nearly half of the December decrease in the index for final demand goods can be traced to a 13.4% decline in prices for gasoline. The indexes for diesel fuel; jet fuel; fresh and dry vegetables; canned, cooked, smoked, or prepared poultry; and basic organic chemicals also fell. In contrast, prices for carbon steel scrap increased 8.3%. The indexes for chicken eggs and for electric power also moved higher.

Final demand services: Prices for final demand services edged up 0.1% in December after rising 0.2% in November. The December increase can be traced to margins for final demand trade services, which advanced 0.3%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, the index for final demand transportation and warehousing services fell 0.2%, while prices for final demand services less trade, transportation, and warehousing were unchanged.

Product detail: A major factor in the December increase in prices for final demand services was a 17.6% jump in margins for fuels and lubricants retailing. The indexes for deposit services (partial), airline passenger services, inpatient care, and professional and commercial equipment wholesaling also moved higher. In contrast, prices for truck transportation of freight decreased 1.7%. The indexes for residential real estate loans (partial), machinery and vehicle wholesaling, and guestroom rental also fell.

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

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

December 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 further, by $7.93 (-9.4%) to $76.44 per barrel in December. That decrease occurred within the context of a noticeably weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of October’s decrease of 55,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.4 million BPD), and accumulated oil stocks that continued along the bottom of the five-year average range (December 2022 average: 419 million barrels). 

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Selected highlights from the 29 December 2022 issue of OilPrice.com’s Oil & Energy Insider include:

“Commodity trading in the festive week between Christmas and New Year has always been very light,” wrote editor Tom Kool, “however be it for oil markets or for metals at large, China continues to set the tone for overall sentiment. Soaring coronavirus cases (assumed but unreported) as well as the United States’ gradual recovery from the past week’s polar freeze have been marginally weighing on prices, bringing WTI below $80 per barrel again.”

U.S. Gas Output Takes Time to Recover. As swathes of gas-producing basins have cut production by as much as 30% during the severe cold, prime amongst them the Appalachian Basin, it seems the rebound to pre-freeze levels will take several weeks if not months as U.S. production seasonally dips in the new year.

Russia Bans Oil Exports to Price Cap Coalition. Russia's President Vladimir Putin signed a decree this week that bans the supply of oil and products for nations that abide by the oil price cap, with the measure applying to all stages of supply up to the end buyer and coming to effect 1 February 2023.

Quantitative Tightening Delays Wind Projects. The consortium of Shell, EDP Renewables and Engie have asked U.S. regulators for a delay in planning the 804 MW Mayflower Wind farm south of Martha's Vineyard, saying spiking interest rates present significant challenges to power purchase agreements.

China to Receive More U.S. LNG. U.S. LNG developer NextDecade said it will increase the volume of liquefied gas provided under a term agreement with China's ENN Natural Gas from 0.5mtpa to 2mtpa, to be sourced from the upcoming RGLNG project. 

Indian Coal Demand to Peak in 10 Years. Seeing coal consumption increase by 10% year-on-year so far to almost 1.2 billion tonnes, India's demand for the fossil fuel is expected to rise for the next ten years until it peaks at some point between 2030-2035, according to the Ministry of Coal and Mines.

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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.

December 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 223,000 jobs in December, better than the 200,000 expected. However, October and November employment changes were revised down by a combined 28,000 (October: -21,000; November: -7,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 3.5%, as change in the number of employed (+717,000) vastly outpaced expansion of the labor force (+439,000).

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Observations from the employment reports include:

* The seasonal adjustment was largely responsible for the positive headline value; we are somewhat skeptical whenever the seasonal adjustment dwarfs the initial value.

* Goods-producing industries added 40,000 jobs; service providers: +183,000. Notable job gains occurred in leisure and hospitality (+67,000), health care (+54,700), construction (+28,000), and social assistance (+19,700). Industries with sizable job losses included temporary help services (-35,000) and state government education (-23,800). Total nonfarm employment (153.7 million) is now 1.2 million jobs above its pre-pandemic level in February 2020. Private-sector employment is 1.7 million higher than in February 2020, while government employment is 438,000 lower. That said, employment is also perhaps nearly 7.1 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 8,000 jobs. That result seems consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which resumed expanding in December. Wood products employment rose by 700 (ISM shrank); paper and paper products: -1,700 (ISM was unchanged); construction: +28,000 (ISM was unchanged).

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* The number of employment-age persons not in the labor force fell (-303,000) to 99.7 million; that level is 4.7 million higher than in February 2020. Because of the above-mentioned job gains, the employment-population ratio (EPR) ticked up marginally to 60.1% -- still 1.0PP below the February 2020 level. 

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* Because the civilian labor force expanded by 439,0000 in December, the labor force participation rate also edged up fractionally to 62.3%. Average hourly earnings of all private employees increased by $0.09 (to $32.82), and the year-over-year increase decelerated to +4.6%. Because the average workweek for all employees on private nonfarm payrolls shrank to 34.3 hours, average weekly earnings nudged down (-$0.18) to $1,125.73 (+3.1% YoY). With the consumer price index running at an annual rate of +7.1% in November, 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 were virtually unchanged (-1,000) at 132.3 million; there are now 1.5 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 5.2 million during that period. 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 190,000, while those working part time for non-economic reasons jumped (+402,000); multiple-job holders: +370,000. Disturbingly, since March 2022, the number of full-time employees retreated by 288,000 while all part-time (+448,000) and multi-job holders (+684,000) jumped. One interpretation of those data is that net job gains since March have been dominated by those who have to hold down multiple jobs just to make ends meet, along with those who are only marginally attached to the labor force by virtue of their choice to work part time for non-economic reasons (+738,000).

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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 December jumped by $102.4 billion, to $339.9 billion (+43.1% MoM; -3.2% 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 December was 1.2% above the year-earlier average. Since there are many reasons why withholding is typically highest during December (e.g., self-employed workers reconciling withholding at year’s end), we think the YoY comparison of the three-month moving average better reflects present employment trends.

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.

December 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for December 2022 contracted further. The PMI registered 48.4%, down 0.6 percentage point (PP) from November’s reading. (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 included prices paid (-3.6PP), production (-3.0PP), employment (+3.0PP), and exports (-2.2PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- fell into contraction in December (-6.9PP, to 49.6%). Inventory sentiment (+11.7PP), new orders (-10.8PP), and exports (+9.3PP) exhibited the largest changes.

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Of the industries we track, only Ag & Forestry did not contract. Respondent comments included the following:

Construction. “Residential new construction continues to be hindered by higher interest rates, slowing sales dramatically. A shift to rental projects seems to be a trend for all builders.”

Real Estate. “We are optimistic, although concerned, about continued inflation pressures, lead times that remain well above typical and supply chain issues that just won't go away. Increasing interest rates are dampening the residential housing construction market, which only adds to the concerns.”

 

Changes in S&P Global’s survey headline results were consistent with those of ISM. Details from S&P Global’s surveys follow --

Manufacturing. US manufacturing operating conditions deteriorate at fastest rate since May 2020.

Key findings:
* Output falls at sharper rate amid faster drop in new orders
* Inflationary pressures ease notably
* Employment rises only fractionally

 

Services. Decline in business activity gains pace in December, as demand conditions worsen.

Key findings:
* Activity and new orders fall at sharper rates as demand wanes
* Cost burdens rise at softest pace for over two years
* Employment growth only marginal

 

Commentary by Siân Jones, S&P Global’s senior economist:

Manufacturing. “The manufacturing sector posted a weak performance as 2022 was brought to a close, as output and new orders contracted at sharper rates. Demand for goods dwindled as domestic orders and export sales dropped. Muted demand conditions also led to downward adjustments of stock holdings, as excess inventories built earlier in the year were depleted in lieu of further spending on inputs. With the exception of the initial pandemic period, stocks of purchases fell at the steepest rate since 2009.

“Concerns regarding the outlook for demand weighed on hiring decisions. Job creation was only slight, and largely linked to skilled hires, as firms displayed caution.

“Sinking demand for inputs and greater availability of materials at suppliers led to a further easing of inflationary pressures. In fact, the rate of input price inflation fell below the series trend. Selling price hikes also eased, albeit still rising steeply. Slower upticks in inflation signal the impact of Fed policy on prices, but growing uncertainty and tumbling demand suggest challenges for manufacturers will roll over into the new year.”

 

Services. “U.S. private sector firms brought 2022 to a close signaling marked obstacles to overcome with relation to the health of the economy. Contractions in output and new business were broad-based and gathered pace in December as customer unease led to dwindling demand and order postponements.

“Despite weak demand conditions, firms continued to hire staff. Nonetheless, the pace of job creation was only slight as some firms turned their focus to filling temporary worker and long-held skilled jobs vacancies, whilst others reported instances of employees being laid off.

“A notable development through the month was a stark easing in inflationary pressures across the private sector. Muted demand for inputs led to the least marked uptick in costs for over two years, while companies also saw a slower increase in selling prices in a bid to entice customers and boost sales. The pass through of cost savings in the form of customer discounts will likely signal further adjustments to inflation as we enter 2023.”

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.

November 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 November decreased $3.4 billion or 0.6% to $548.6 billion. Durable goods shipments increased $0.5 billion or 0.2% to $275.8 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $3.9 billion or 1.4% to $272.8 billion, led by petroleum and coal products. Shipments of wood products rose by 0.7%; paper: +0.4%.

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Inventories increased $0.1 billion or virtually unchanged to $804.7 billion. The inventories-to-shipments ratio was 1.47, up from 1.46 in October. Inventories of durable goods increased $0.3 billion or 0.1% to $489.6 billion, led by machinery. Nondurable goods inventories decreased $0.2 billion or 0.1% to $315.0 billion, led by chemical products. Inventories of wood products contracted by 0.2%; paper: 0.0%.

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New orders decreased $9.8 billion or 1.8% to $543.3 billion. Excluding transportation, new orders fell by $3.7 billion or 0.8% (+5.6% YoY). Durable goods orders decreased $5.9 billion or 2.1% to $270.5 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.1 billion or 0.1% (+5.1% YoY). New orders for nondurable goods decreased $3.9 billion or 1.4% to $272.8 billion.

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Unfilled durable-goods orders decreased $0.2 billion or virtually unchanged to $1,143.1 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.02, down from 6.03 in October. 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.

November 2022 International Trade (Softwood Lumber)

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With November exports of goods and services at $251.9 billion (-2.0% MoM; +10.4% YoY) and imports at $313.4 billion (-6.4% MoM; +2.4% YoY), the net trade deficit was $61.5 billion (-21.0% MoM; -21.1% YoY). 

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Softwood lumber exports fell (6 MMBF or +5.4%) in November, along with imports (99 MMBF or -7.5%). Exports were 29 MMBF (-22.3%) below year-earlier levels; imports: 50 MMBF (-3.9%) lower. As a result, the year-over-year (YoY) net export deficit was 21 MMBF (-1.8%) smaller. Also, the average net export deficit for the 12 months ending November 2022 was 3.2% 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 (58.8% of total softwood lumber exports; of which Mexico: 35.2%; Canada: 23.6%), Asia (9.3%; especially Japan: 2.3%), and the Caribbean: 24.9% especially the Dominican Republic: 8.6%) were the primary destinations for U.S. softwood lumber exports in November. Year-to-date (YTD) exports to China (2.2% of U.S. total) were -61.5% relative to the same month of the prior year. Meanwhile, Canada was the source of most (79.2%) softwood lumber imports into the United States. Imports from Canada were 6.0% lower YTD/YTD. Overall, YTD exports were down 7.9% compared to the prior year; imports: -2.5%.

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U.S. softwood lumber export activity through the West Coast customs region represented 33.8% of the U.S. total; Gulf: 39.0%, and Eastern: 18.1%. Seattle (14.3% of the U.S. total), Mobile (20.1%), San Diego (16.1%) and Laredo (13.2%) were the most active districts. At the same time, the Great Lakes customs region handled 55.7% of softwood lumber imports -- most notably the Duluth, MN district (17.3%) -- coming into the United States. 

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Southern yellow pine comprised 23.6% of all softwood lumber exports; Douglas-fir (12.3%), treated lumber (18.3%), other pine (9.5%) and finger-jointed (7.5%) were also significant. Southern pine exports were down 18.7% YTD/YTD, while Doug-fir: +4.0%; treated: +12.2%; other pine: (-16.9%); and finger-jointed: -14.9%.

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