January 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2023 were at a seasonally adjusted annual rate (SAAR) of 670,000 units (617,000 expected). This is 7.2% (±20.4%)* above the revised December rate of 625,000 (originally 616,000 units), but 19.4% (±13.1%) below the January 2022 estimate of 831,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -15.7%. For longer-term perspectives, NSA sales were 51.8% below the “housing bubble” peak and 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in January 2023 was $427,500 (-8.2%, or $38,100). The average sales price was $474,400 (-12.0, or -$69,800). Homes priced at/above $750,000 comprised 10.2% of sales, up from the year-earlier 10.0%.

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

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As mentioned in our post about housing permits, starts and completions in January, single-unit completions climbed by 44,000 units (+4.4%). Sales also rose (45,000 units), resulting in inventory for sale shrinking in both absolute (-13,000 units) and months-of-inventory (-0.8 month) terms. 

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Existing home sales retreated for a twelfth month in January (-0.7% or 30,000 units) to a SAAR of 4.00 million units (4.10 million expected). Inventory of existing homes for sale expanded in absolute terms (+20,000 units) but was unchanged in months-of-inventory terms. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes increased to 14.3%. The median price of previously owned homes sold in January dropped to $359,000 (-2.0% or $7,500).

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Housing affordability bumped higher (+6.9 index points) as the median price of existing homes for sale in December fell by $6,000 (-1.6% MoM; +2.0 YoY) to $372,700. 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 -0.8% (+5.8% YoY).

“The cooling in home prices that began in June 2022 continued through year end, as December marked the sixth consecutive month of declines for our National Composite Index,” said Craig Lazzara, Managing Director at S&P DJI. “The National Composite declined by -0.8% in December, and now stands 4.4% below its June peak. For 2022 as a whole, the National Composite rose by 5.8%, the 15th best performance in our 35-year history, although obviously well below 2021’s record-setting 18.9% gain. We could record similar observations in the 10- and 20-City Composites.

“Prices fell in all 20 cities in December, with a median decline of -1.1%. Moreover, for all 20 cities, year-over-year gains in December (median 4.4%) were lower than those of November (median 6.4%). We noted last month that home prices in San Francisco had fallen on a year-over-year basis. San Francisco’s decline worsened in December (-4.2% year-over-year); its west coast neighbors Seattle (- 1.8%) and Portland (+1.1%) once again form the bottom of the league table.

“As was the case last month, December’s best performers were all in the Southeast, with Miami (+15.9%) in the lead for the fifth straight month. Tampa (+13.9%) and Atlanta (+10.4%) continued in second and third place, with Charlotte (+9.9%) not far behind. Unsurprisingly, the Southeast (+12.5%) and South (+11.6%) were the strongest regions, and the West (+1.2%) continuing as the weakest.

“The prospect of stable, or higher, interest rates means that mortgage financing remains a headwind for home prices, while economic weakness, including the possibility of a recession, may 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: Second Estimate

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In its second estimate of 4Q2022 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 +2.68% (+2.9% expected), down 0.21 percentage point (PP) from the “advance” estimate (“4Qv1”) and -0.57PP from 3Q2022.

As with 4Qv1, 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 headline. This report reflected a sharp downward revision to consumer spending (both goods and services) that was partly offset by an upward revision to business investment. Also contributing to the lower headline number, the 4Q GDP price index was revised higher -- to +3.93% (from 4Qv1’s +3.5%).

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As for details (all relative to 4Qv1):

PCE. Consumer spending was revised down by $25.4 billion (chained-2012 dollars), with spending on goods (-$23.3B) -- primarily spread among recreation goods and vehicles (-$5.1B), motor vehicles and parts (-$4.8B), and other nondurable goods (-$4.1B) -- leading the way. Spending on services underwent a smaller revision (-$4.7B), in which a $12.3B jump in health care spending was more than offset by other line items (especially a $9.7B revision to nonprofit institutions serving households).

PDI. Fixed investment was revised up (+$19.6B), led by nonresidential structures (+$8.6B) and intellectual property products (+$6.4B); residential investment contributed a relatively paltry +$1.7B. Private inventories were also boosted by $6.4B.

NetX. Downward revisions to goods exports (-$2.3B) combined with upward revisions to imported goods (+$1.0B) and services (+$2.4B) to push net exports lower.

GCE. Federal defense (-$0.4B) and nondefense (-$0.5B) expenditures dominated this category.

The BEA’s real final sales of domestic product -- which ignores inventories -- was revised to +1.21% (-0.22PP from 4Qv1), a level 3.23PP below the 3Q estimate. 

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“Although the U.S. economy is still growing, it is losing steam,” said the Economist Intelligence Unit’s Cailin Birch.

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.

January 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in January at a seasonally adjusted annual rate (SAAR) of 1,309,000 units (1.365 million expected). This is 4.5% (±15.9%)* below the revised December estimate of 1,371,000 (originally 1.382 million units) and 21.4% (±10.6%) below the January SAAR rate of 1,666,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -21.0%..

Single-family housing starts in January were at a SAAR of 841,000; this is 4.3% (±16.4%)* below the revised December figure of 879,000 units (-27.2% YoY). Multi-family: 468,000 units (-4.9% MoM; -8.1% YoY).

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

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Total completions were at a SAAR of 1,406,000. This is 1.0% (±9.8%)* above the revised December estimate of 1,392,000 (originally 1.411 million units) and 12.8% (±13.0%)* above the January 2022 SAAR of 1,247,000 units; the NSA comparison: +10.4% YoY..

Single-family housing completions in January were at a SAAR of 1,040,000; this is 4.4% (±10.4%)* above the revised December rate of 996,000 units (+9.1% YoY). Multi-family: 366,000 units (-7.6% MoM; +14.4% YoY).

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Total permits were at a SAAR of 1,339,000 units (1.350 million expected). This is 0.1% above the revised December rate of 1,337,000 (originally 1.330 million units) but 27.3% below the January 2022 SAAR of 1,841,000 units; the NSA comparison: -23.8% YoY.

Single-family authorizations were at a SAAR of 718,000; this is 1.8% below the revised December figure of 731,000 units (-36.8% YoY). Multi-family: 621,000 units (+2.5% MoM; -1.6% YoY).

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Press release from NAHB’s Robert Dietz:

Two consecutive solid monthly gains for builder confidence, spurred in part by easing mortgage rates, signal that the housing market may be turning a corner even as builders continue to contend with high construction costs and building material supply chain logjams.

Builder confidence in the market for newly built single-family homes in February rose seven points to 42, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the strongest reading since September of last year.

With the largest monthly increase for builder sentiment since June 2013 (excluding the period immediately after the onset of the pandemic), the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market. The nation continues to face a sizeable housing shortage that can only be closed by building more affordable, attainable housing.

The average 30-year fixed rate mortgage rate peaked at 7.08% in October, according to Freddie Mac. Although rates declined to approximately 6.1% at the start of February, the 10-year Treasury rate has moved up more than 30 basis points during the past two weeks, indicating an increase for mortgage rates lies ahead.

While the HMI remains below the breakeven level of 50, the increase from 31 to 42 from December to February is a positive sign for the market. Even as the Federal Reserve continues to tighten monetary policy conditions, forecasts indicate that the housing market has passed peak mortgage rates for this cycle. And while we expect ongoing volatility for mortgage rates and housing costs, the building market should be able to achieve stability in the coming months, followed by a rebound back to trend home construction levels later in 2023 and the beginning of 2024.

While builders continue to offer a variety of incentives to attract buyers during this housing downturn, recent data indicate that the housing market is showing signs of stabilizing off a cyclical low:

* 31% of builders reduced home prices in February, down from 35% in December and 36% in November.

* The average price drop in February was 6%, down from 8% in December, and tied with 6% in November.

* 57% offered some kind of incentive in February, down from 62% in December and 59% in November.

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.

January 2023 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 0.5% in January (+0.4% expected) after increasing 0.1% in December (originally -0.1%). The index for shelter was by far the largest contributor to the monthly all-items increase, accounting for nearly half of the monthly all-items increase, with the indexes for food, gasoline, and natural gas also contributing. The food index increased 0.5% over the month with the food at home index rising 0.4%. The energy index increased 2.0% over the month as all major energy component indexes rose over the month.

The index for all items less food and energy rose 0.4% in January. Categories which increased in January include the shelter, motor vehicle insurance, recreation, apparel, and household furnishing s and operations indexes. The indexes for used cars and trucks, medical care, and airline fares were among those that decreased over the month.

The all-items index increased 6.4% for the 12 months ending January; this was the smallest 12-month increase since the period ending October 2021. The index for all items less food and energy rose 5.6% over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 8.7% for the 12 months ending January, and the food index increased 10.1% over the last year.

Starting with January 2023 data, BLS updated weights annually for the CPI based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using two years of expenditure data.

Each year with the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. This routine annual recalculation resulted in revisions to seasonally adjusted indexes for the previous five years.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.7% in January (+0.4% expected). Final demand prices declined 0.2% in December 2022 (originally -0.5%) and advanced 0.3% in November. On an unadjusted basis, the index for final demand rose 6.0% for the 12 months ended January 2023.

In January, a 1.2% rise in prices for final demand goods led the advance in the final demand index. Prices for final demand services also moved higher, increasing 0.4%.

The index for final demand less foods, energy, and trade services rose 0.6% in January 2023, the largest advance since moving up 0.9% in March 2022. For the 12 months ended in January 2023, prices for final demand less foods, energy, and trade services increased 4.5%.

Final Demand

Final demand goods: The index for final demand goods moved up 1.2% in January, the largest increase since rising 2.1% in June 2022. Most of the January advance is attributable to a 5.0% jump in prices for final demand energy. The index for final demand goods less foods and energy increased 0.6%. In contrast, prices for final demand foods fell 1.0%.

Product detail: Nearly one-third of the January rise in the index for final demand goods can be traced to prices for gasoline, which increased 6.2%. The indexes for residential natural gas, diesel fuel, jet fuel, soft drinks, and motor vehicles also moved higher. Conversely, prices for fresh and dry vegetables decreased 33.5%. The indexes for residual fuels and for basic organic chemicals also declined.

Final demand services: The index for final demand services advanced 0.4% in January, the same as in December. Over 80% of the broad-based increase in January is attributable to prices for final demand services less trade, transportation, and warehousing, which rose 0.6%. Margins for final demand trade services moved up 0.2%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services also advanced 0.2%.

Product detail: A major factor in the January rise in prices for final demand services was the index for hospital outpatient care, which jumped 1.4%. The indexes for automobiles and automobile parts retailing; health, beauty, and optical goods retailing; portfolio management; chemicals and allied products wholesaling; and airline passenger services also moved higher. In contrast, margins for fuels and lubricants retailing fell 17.5%. Prices for long-distance motor carrying and for securities brokerage, dealing, and investment advice also declined. 

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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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Effective with the release of data for January 2023, the PPI includes data for 25 resampled industries classified according to the 2022 North American Industry Classification System (NAICS). The BLS periodically updates the sample of producers providing data for the PPI to reflect current conditions more accurately when the structure, membership, technology, or product mix of an industry shifts.

In addition, seasonal adjustment factors have been recalculated to reflect price-movement patterns during 2022 for the Final Demand-Intermediate Demand (FD-ID) system and commodity-grouping indexes. This routine annual recalculation may affect previously published seasonally adjusted indexes and percent changes for January 2018 through December 2022.

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.

January 2023 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) was unchanged in January (+0.5% expected) after falling 0.6% and 1.0% in November and December, respectively. In January, manufacturing output moved up 1.0% (+0.4% expected) and mining output rose 2.0% following two months with substantial decreases for each sector. The output of utilities fell 9.9% in January, as a swing from unseasonably cool weather in December to unseasonably warm weather in January depressed the demand for heating. At 103.0% of its 2017 average, total industrial production in January was 0.8% above its year-earlier level. 

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Market Groups

Consumer energy products, commercial energy products, and energy materials all recorded substantial decreases because of the drop in the output of utilities. The output of most other market groups advanced. The indexes for consumer non-energy nondurables, business equipment, defense and space equipment, and nondurable materials all rose more than 1%; the indexes for consumer durables, construction supplies, non-energy business supplies, and durable materials increased between 1/2 and 1%.

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Industry Groups

Manufacturing output rose 1.0% in January (NAICS manufacturing: +0.9% MoM; +0.3% YoY). Durable, nondurable, and other manufacturing recorded advances of 0.8%, 1.1%, and 2.2%, respectively. Within durables, gains of at least 1% were recorded by nonmetallic mineral products, by machinery, by computer and electronic products, by electrical equipment, appliances, and components, and by aerospace and miscellaneous transportation equipment; wood products (-1.0%) and furniture posted the only losses. Gains of more than 1-1/2% were posted by chemicals and by food, beverage, and tobacco products, the two largest industry groups within nondurables (paper: +0.6%); declines in printing and support, in petroleum and coal products, and in plastics and rubber products tempered the overall gain for the sector.

Mining output rose 2.0% in January, with gains in most of its components other than oil and gas well drilling; the output of mines was 8.6% above its reading of 12 months earlier. The output of utilities dropped 9.9% in January, with decreases for both electric and natural gas utilities.

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Capacity utilization (CU) declined 0.1 percentage point (PP) in January to 78.3%, a rate that is 1.3PP below its long-run (1972–2022) average.

Manufacturing CU increased 0.6PP in January to 77.7%, a rate that is 0.5PP below its long-run average (wood products: -1.2%; paper: +0.7%). The operating rate for mining rose 1.6PP to 89.0%, while the operating rate for utilities fell 7.8PP to 68.6%. The rate for mining was 2.7PP above its long-run average. The rate for utilities was the lowest in the history of the index (since 1972).

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Capacity at the all-industries level increased by 0.1% MoM (+1.6% YoY) to 131.5% of 2017 output. Manufacturing also edged up by 0.1% (+1.2% YoY) to 129.6%. Wood products: +0.2% (+0.9% YoY) to 126.9%; paper: -0.1% (-0.7% YoY) to 109.7%.

The data in this release include preliminary estimates of industrial capacity for 2023. Measured from 4Q to 4Q, total industrial capacity is projected to rise 1.4% this year, a slightly slower increase compared with 2022. Manufacturing capacity is expected to move up 1.2% in 2023 after increasing 1.0% in 2022. Capacity in the mining sector is estimated to rise 0.5% in 2023 after jumping 3.5% in 2022. Capacity at electric and natural gas utilities is projected to increase 3.0% in 2023 after expanding 2.6% in 2022.

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 International Trade (Softwood Lumber)

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With December exports of goods and services at $250.2 billion (-0.9% MoM; +7.6% YoY) and imports at $317.6 billion (+1.3% MoM; +2.0% YoY), the net trade deficit was $67.4 billion (+10.5% MoM; -14.5% YoY). 

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Softwood lumber exports fell (6 MMBF or -6.2%) in December, along with imports (99 MMBF or -8.1%). Exports were 19 MMBF (-16.3%) below year-earlier levels; imports: 90 MMBF (-7.4%) lower. As a result, the year-over-year (YoY) net export deficit was 72 MMBF (-6.5%) smaller. Also, the average net export deficit for the 12 months ending December 2022 was 2.3% 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 (60.5% of total softwood lumber exports; of which Mexico: 39.5%; Canada: 21.0%), Asia (12.7%; especially Japan: 3.4%), and the Caribbean: 20.2% especially the Dominican Republic: 11.1%) were the primary destinations for U.S. softwood lumber exports in December. Year-to-date (YTD) exports to China (2.6% of U.S. total) were -58.3% relative to the same month of the prior year. Meanwhile, Canada was the source of most (75.1%) softwood lumber imports into the United States. Imports from Canada were 6.6% lower YTD/YTD. Overall, YTD exports were down 8.6% compared to the prior year; imports: -2.8%.

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U.S. softwood lumber export activity through the West Coast customs region represented 33.1% of the U.S. total; Gulf: 40.7%, and Eastern: 17.8%. Seattle (12.8% of the U.S. total), Mobile (17.3%), San Diego (16.4%) and Laredo (17.7%) were the most active districts. At the same time, the Great Lakes customs region handled 54.3% of softwood lumber imports -- most notably the Duluth, MN district (18.0%) -- coming into the United States. 

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Southern yellow pine comprised 30.7% of all softwood lumber exports; Douglas-fir (14.3%), treated lumber (12.0%), other pine (11.5%) and finger-jointed (7.5%) were also significant. Southern pine exports were down 15.1% YTD/YTD, while Doug-fir: +2.3%; treated: +11.5%; other pine: (+16.6%); and finger-jointed: -17.3%.

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.

January 2023 Currency Exchange Rates

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In January, the monthly average value of the U.S. dollar (USD) depreciated against all currencies we track: Canada’s “loonie” (-1.2%), euro (-1.7%), and Japanese yen (-3.3%). On the broad trade-weighted index basis (goods and services) the USD weakened by 2.0% 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.

January 2023 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added a “blowout” 517,000 jobs in January, far exceeding the 185,000 expected. In addition, November and December employment changes were revised up by a combined 71,000 (November: +34,000; December: +37,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) edged down to 3.4%, as the number of unemployed appears to have declined while the labor force perhaps expanded. December - January changes in household data are not officially quantified due to the introduction of updated population controls.

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Observations from the employment reports include:

* As is the case every January, we once again caution against reading too much into this employment report. The BLS revised establishment survey data as part of the annual benchmarking process, the NAICS 2022 conversion (which caused approximately 10% of employment to be reclassified into different industries), and the updating of seasonal adjustment factors. Also, household survey data for January 2023 reflect updated population estimates. Revisions due to both the NAICS 2022 conversion and the benchmark process affected more historical data than is typical in the annual benchmark process. The NAICS revisions modified the entire history of affected industries for both seasonally and not seasonally adjusted data.

* Goods-producing industries added 46,000 jobs; service providers: +471,000. Job growth was widespread, led by gains in leisure and hospitality (+128,000), professional and business services (+82,000), and health care (+58,000). Employment also increased in government (+74,000), partially reflecting the return of workers from a strike. Total nonfarm employment (155.1 million) is now 2.7 million jobs above its pre-pandemic level in February 2020 (private sector: +3.2 million; public sector: -482,000). That said, employment is also perhaps nearly 5.9 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 19,000 jobs. That result may be consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which expanded -- albeit at a slower pace -- in January. Wood products manufacturing rose by 1,100 (ISM shrank); paper manufacturing: +800 (ISM shrank); construction: +25,000 (ISM was unchanged).

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* The number of employment-age persons not in the labor force rose (+252,000) to 100.1 million; that level is 5.0 million higher than in February 2020. The employment-population ratio (EPR) ticked up marginally to 60.2% -- still 0.9PP below its February 2020 level. 

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* With the labor force at 165.8 million, the labor force participation rate was 62.4%. Average hourly earnings of all private employees increased by $0.10 (to $33.03), and the year-over-year increase decelerated to +4.4%. Because the average workweek for all employees on private nonfarm payrolls expanded to 34.4 hours, average weekly earnings jumped (+$13.35) to $1,146.14 (+4.7% YoY). Nonetheless, with the consumer price index running at an annual rate of +6.5% in December, 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 ticked up (+278,000) at 132.6 million; there are now 1.8 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 6.3 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 172,000, while those working part time for non-economic reasons jumped (+455,000); multiple-job holders: -43,000. 

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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 January fell by $51.8 billion, to $288.0 billion (-15.2% 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 January was 0.3% below the year-earlier average. Again, more time is needed to determine 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.

January 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for January 2023 contracted further. The PMI registered 47.4%, down 1.0 percentage point (PP) from December’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 (+5.1PP), exports (+3.2PP), imports (+2.7PP), and new orders (-2.6PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- rebounded into expansion in January (+6.0PP, to 55.2%). New orders (+15.2PP), exports (+11.3PP), and inventories (+4.1PP) exhibited the largest changes.

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

Construction. “New residential housing market is still reeling from mortgage rate increases. Sales have fallen off dramatically at entry-level price points, as costs are trending flat.”

Real Estate. “We're still experiencing delivery delays, but fewer than the past two years. Hopefully, lead times will return close to pre-COVID-19 levels.”

 

Changes in S&P Global’s survey headline results were mixed relative to ISM’s. Both showed contraction in the manufacturing sector, but the contraction in S&P’s services survey disagreed with ISM’s expansion. Details from S&P Global’s surveys follow --

Manufacturing. Further solid decline in manufacturing performance at start of the year.

Key findings:
* Falls in output and new orders soften only slightly
* Price pressures regain momentum
* Job creation slows to only a fractional rate

 

Services. Business activity contraction eases at start of 2023, but cost pressures strengthen once again.

Key findings:
* Demand conditions deteriorate at slower pace
* Input price inflation accelerates for first time since May 2022...
* ...but selling prices rise at slowest rate since October 2020

 

Commentary by Chris Williamson, S&P Global’s chief business economist:

Manufacturing. “Despite rising in January, the PMI remains at one of the lowest levels recorded since the global financial crisis, indicating a worryingly steep rate of decline in the health of the goods producing sector. Production has now fallen for three successive months, signaling a sharp fall in output which is now becoming increasingly evident in the official statistics and suggesting that the manufacturing sector has become a major drag on GDP.

“New orders are also slumping as demand from both domestic and export customers comes under increasing pressure from a mix of inflation and slower economic growth. The drop in orders also means that excess capacity is developing, which has in turn meant companies have scaled back their hiring and purchasing, and are also increasingly focusing on reducing their inventory levels.

“Improved supply chains and weaker demand should meanwhile help keep a lid on manufacturing price pressures in the months ahead, though a slight uptick in the survey’s input cost and selling price gauges in January suggests that the road to lower inflation could be bumpier than previously anticipated, reflecting still elevated prices for many raw materials relative to pre-pandemic levels and sustained upward wage pressures.”

 

Services. “Business activity in the vast U.S. services economy contracted in January as companies reported a further deterioration in new business inflows. Hiring has almost ground to halt as firms reassess their payroll needs in the light of the weaker demand environment.

“The downturn is being led by a slump in financial services activity, linked in turn to higher borrowing costs, with consumer-facing service providers also reporting especially tough business conditions amid the ongoing squeeze in spending due to the rising cost of living.

“Combined with the fall in manufacturing output recorded during the month, the service sector’s downturn at the start of the year adds to the risk that the U.S. economy could contract in the first quarter.

“The January survey meanwhile brought mixed messages on inflation. While costs were boosted in part by rising wage pressures, reflecting the tight labor market, tough competition once again limited scope to pass on these higher costs to customers in the form of higher prices.”

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 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 December decreased $4.0 billion or 0.7% to $543.3 billion. Durable goods shipments increased $1.2 billion or 0.4% to $277.4 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $5.2 billion or 1.9% to $265.9 billion, led by petroleum and coal products. Shipments of wood products fell by 0.6%; paper: +0.4%.

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Inventories increased $3.0 billion or 0.4% to $807.8 billion. The inventories-to-shipments ratio was 1.49, up from 1.47 in November. Inventories of durable goods increased $3.5 billion or 0.7% to $493.6 billion, led by transportation equipment. Nondurable goods inventories decreased $0.5 billion or 0.2% to $314.2 billion, led by chemical products. Inventories of wood products were unchanged; paper: -0.2%.

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New orders increased $10.0 billion or 1.8% to $552.5 billion. Excluding transportation, new orders fell by $5.6 billion or 1.2% (+2.2% YoY). Durable goods orders increased $15.2 billion or 5.6% to $286.6 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- retreated by $0.1 billion or 0.1% (+3.2% YoY). New orders for nondurable goods decreased $5.2 billion or 1.9% to $265.9 billion.

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Unfilled durable-goods orders increased $14.4 billion or 1.3% to $1,158.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.07, up from 6.01 in November. 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.

January 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil inched up, by $1.64 (+2.1%) to $78.08 per barrel in January. That increase occurred within the context of a noticeably weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of November’s increase of 178,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.6 million BPD), and accumulated oil stocks that launched into the middle of the five-year average range (January 2023 average: 447 million barrels). 

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Selected highlights from the 31 January 2023 issue of OilPrice.com‘s Intelligence Report include:

“While interest rates and Chinese demand are still big on the oil agenda, bumper profits reported by oil majors across the spectrum have been causing ripples in the markets, especially after Exxon reported a whopping $56 billion profit for the entire year of 2022,” wrote editor Josh Owen. “U.S. refiners such as Marathon and Philips66 both saw their profits rise by 50-60% compared to last year, and back then we thought 2021 was as profitable as good years can get.”

White House Does It Again. Just as oil firms started reporting their Q4 earnings, the Biden administration launched another tirade against U.S. oil companies, accusing them of “plowing windfall profits into the pockets of executives and shareholders” instead of increasing production. 

New Bill Limits Rights to Tap into SPR. The House of Representatives passed a bill that limits the ability of the US energy secretary to use the country's strategic oil reserve without increasing the amount of public lands available for oil drilling, however President Biden vowed to veto it

Oil is Back in Vogue Again. Portfolio investors and money managers have purchased the equivalent of 70 million barrels in key oil futures and options contracts, marking the second straight week with a huge influx of interest, with the ICE Brent contract seeing most of the increases (+40 million bbls last week). 

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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.