4Q2022 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2022 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 +2.56% (+2.7% expected), down 0.12 percentage point (PP) from the second estimate (“4Qv2”) and -0.69PP from 3Q2022.

As with prior 4Q reports, 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. The updated estimates primarily reflected downward revisions to exports and consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down -- resulting in a larger contribution to the headline.

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As for details (all relative to 4Qv2):

PCE. The downward revision to consumer spending (-$11.9 billion, chained 2012 dollars) was led by services (-$16.7B). Final consumption expenditures of nonprofit institutions serving households (-$8.7B), financial services and insurance (-$6.6B), and other services (-$4.6B) dominated the services category. Upward revisions to spending on goods (+$6.7B) were concentrated primarily among recreational goods and vehicles (+$1.9B) and other nondurable goods (+$1.6B).

PDI. Upward revisions to nonresidential structures (+$7.2B) and residential fixed investment (+$1.4B) were partially offset by erosion in intellectual property products (-$3.7B). Private inventories were little changed (+$0.2B)

NetX. Exports were revised lower (-$13.8B), along with imports (-$13.5B). The net effect was a marginal reduction in this category’s contribution to the headline.

GCE. Upward revisions to state and local gross investment (+$1.1B) dominated this category; federal direct expenditures were little changed (-$0.2B).

Given that the contribution of private inventories to the headline was essentially unchanged, growth in real final sales of domestic product was revised down to +1.09% (-0.12PP from 4Qv2 and -3.35PP below 3Q). The pseudonymous New Deal Democrat considers this data point to be indicative of a pending recession.

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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.

February 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in February 2023 were at a seasonally adjusted annual rate (SAAR) of 640,000 units (645,000 expected). This is 1.1% (±15.3%)* above the revised January rate of 633,000 (originally 670,000 units) but 19.0% (±12.9%) below the February 2022 SAAR of 790,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -16.9%. For longer-term perspectives, NSA sales were 53.9% below the “housing bubble” peak and 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in February 2023 was $438,200 (+2.7%, or $11,700). The average sales price was $498,700 (+3.9%, or $18,900). Homes priced at/above $750,000 comprised 10.2% of sales, down from the year-earlier 11.3%.

* 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 February, single-unit completions climbed by 10,000 units (+1.0%). Sales also rose (7,000 units), resulting in inventory for sale shrinking in both absolute (-3,000 units) and months-of-inventory (-0.1 month) terms. 

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Existing home sales broke off their 12-month decline when jumping in February (+14.5% or 580,000 units) to a SAAR of 4.58 million units (4.17 million expected). Inventory of existing homes for sale was unchanged in absolute terms but shrank in months-of-inventory terms (-0.3 month). Because resales advanced more dramatically than new-home sales, the share of total sales comprised of new homes decreased to 12.3%. The median price of previously owned homes sold in February rose to $363,000 (+0.5% or $1,800).

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Housing affordability bumped higher (+3.5 index points) as the median price of existing homes for sale in January fell by $8,000 (-2.4% MoM; +0.7 YoY) to $363,100. 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 -0.5% (+3.8% YoY).

“2023 began as 2022 had ended, with U.S. home prices falling for the seventh consecutive month,” says Craig J. Lazzara, Managing Director at S&P DJI. “The National Composite declined by 0.5% in January, and now stands 5.1% below its peak in June 2022. On a trailing 12-month basis, the National Composite is only 3.8% ahead of its level in January 2022, a result also reflected in our 10- and 20-City Composites (both +2.5% year-over-year).

“January’s market weakness was broadly based. Before seasonal adjustment, 19 cities registered a decline; the seasonally adjusted picture is a bit brighter, with only 15 cities declining. With or without seasonal adjustment, most cities’ January declines were less severe than their December counterparts.

“Miami (+13.8% year-over-year) was the best performing city in January, extending its winning streak to six consecutive months. Tampa (+10.5%) and Atlanta (+8.4%) continued in second and third place, with Charlotte (+8.1%) not far behind. At the other end of the scale, one of the most interesting aspects of January’s report is the continued weakness in home prices on the West Coast, as San Diego and Portland joined San Francisco and Seattle in negative year-over-year territory. It’s therefore unsurprising that the Southeast (+10.2%) continues as the country’s strongest region, while the West (-1.5%) continues as the weakest.

“Financial news this month has been dominated by ructions in the commercial banking industry, as some institutions’ risk management functions proved unequal to the rising level of interest rates. Despite this, the Federal Reserve remains focused on its inflation-reduction targets, which suggest that rates may remain elevated in the near-term. Mortgage financing and the prospect of economic weakness are therefore likely to remain a headwind for housing prices for at least the next several months.”

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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.

February 2023 Industrial Production, Capacity Utilization and Capacity

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After revision of January’s estimate from unchanged to +0.3%, total industrial production (IP) was unchanged in February (+0.4% expected), and manufacturing output edged up 0.1%. The index for mining fell 0.6%, while the index for utilities rose 0.5%. At 102.6% of its 2017 average, total IP in February was 0.2% below its year-earlier level -- the first year-over-year decline since February 2021. 

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Market Groups

The major market groups posted mixed results in February. Gains were recorded by consumer goods, defense and space equipment, and materials, while losses were recorded by business equipment, construction supplies, and business supplies. Defense and space equipment registered the largest increase (1.2%), while construction supplies registered the largest decrease (0.5%). Within consumer goods, the index for consumer durables fell primarily as a result of a drop for automotive products, the index for non-energy nondurables was unchanged, and the index for consumer energy products moved up. Within materials, the indexes for both durable and nondurable materials increased modestly, while the index for energy materials declined slightly for its fifth consecutive monthly decrease.

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Industry Groups

Manufacturing output increased 0.1% in February but was 1.0% below its year-earlier level (NAICS manufacturing: +0.1% MoM; -0.9% YoY). In February, the indexes for durable manufacturing and nondurable manufacturing moved up 0.1% and 0.2%, respectively, while the index for other manufacturing (publishing and logging) fell 1.5%. Within durables, computer and electronic products recorded the largest gain (1.2%), while nonmetallic mineral products recorded the largest loss (0.5%). Within nondurables, decreases of at least 1% were registered by textile and product mills and by plastics and rubber products; only chemicals recorded an increase of more than 1%. Wood products: +1.1%; paper products: -0.9%.

Mining output fell 0.6% in February; the indexes for oil and gas extraction, for mining except oil and gas, and for support activities all decreased. The output of utilities rose 0.5%, with increases for both electric and natural gas utilities.

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Capacity utilization was unchanged in February at 78.0%, a rate that is 1.6 percentage points (PP) below its long-run (1972–2022) average.

Manufacturing CU slipped 0.1PP in February to 77.6%, a rate that is 0.6PP below its long-run average (NAICS manufacturing: 0.0% MoM; wood products: +1.0%; paper: -0.8%). The operating rate for mining fell 0.6PP to 87.3%, while the operating rate for utilities increased 0.2PP to 68.9%. The rate for mining was 1.0PP 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 131.7% of 2017 output. Manufacturing also edged up by 0.1% (+1.2% YoY) to 129.8%. Wood products: +0.1% (+1.0% YoY) to 127.0%; paper: -0.1% (-0.7% YoY) to 109.6%.

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.

February 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in February at a seasonally adjusted annual rate (SAAR) of 1,450,000 units (1.315 million expected). This is 9.8% (±15.5%)* above the revised January estimate of 1,321,000 (originally 1.309 million units), but 18.4% (±8.9%) below the February 2022 SAAR of 1,777,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -16.8%.

Single-family housing starts in February were at a SAAR of 830,000; this is 1.1% (±13.9%)* above the revised January figure of 821,000 units (-31.1% YoY). Multi-family: 620,000 units (+24.0% MoM; +12.7% 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 1,557,000 units. This is 12.2% (±15.0%)* above the revised January estimate of 1,388,000 (originally 1.406 million units) and 12.8% (±16.2%)* above the February 2022 SAAR of 1,380,000 units; the NSA comparison: +12.3% YoY.

Single-family completions were at a SAAR of 1,037,000; this is 1.0% (±15.0%)* above the revised January rate of 1,027,000 units (-1.9% YoY). Multi-family: 520,000 units (+44.0% MoM; +68.0% YoY).

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Total permits were at a SAAR of 1,524,000 units (1.340 million expected). This is 13.8% above the revised January rate of 1,339,000 (originally 1.339 million units) but 17.9% below the February 2022 SAAR of 1,857,000 units; the NSA comparison: -16.7% YoY.

Single-family authorizations were at a SAAR of 777,000; this is 7.6% above the revised January figure of 722,000 units (-33.2% YoY). Multi-family: 747,000 units (+21.1% MoM; +15.5% YoY).

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Press release from NAHB’s Robert Dietz:

Although high construction costs and elevated interest rates continue to hamper housing affordability, builders expressed cautious optimism in March as a lack of existing inventory is shifting demand to the new home market.

Builder confidence in the market for newly built single-family homes in March rose two points to 44, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third straight monthly increase in builder sentiment levels.

While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers. For example, 40% of builders in our March HMI survey currently cite lot availability as poor. And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.

Meanwhile, the HMI survey shows that builders had better than anticipated new home sales during the past two months because of continued use of incentives and price discounts. Thirty-one percent of builders said they reduced home prices in March, the same share as in February, but lower than the 36% that was reported last November. And 58% provided some type of incentive in March, about the same as the 57% who did in February, but lower than the 62% of builders who offered incentives in December.

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.

February 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 0.4% in February (+0.4% expected). The index for shelter (+0.8% MoM; +8.1% YoY) was the largest contributor to the monthly all-items increase, accounting for over 70% of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The food index increased 0.4% over the month with the food at home index rising 0.3%. The energy index decreased 0.6% over the month as the natural gas and fuel oil indexes both declined.

The index for all-items less food and energy rose 0.5% in February, after rising 0.4% in January. Categories which increased in February include shelter, recreation, household furnishings and operations, and airline fares. The index for used cars and trucks and the index for medical care were among those that decreased over the month.

The all-items index increased 6.0% for the 12 months ending February; this was the smallest 12-month increase since the period ending September 2021. The index for all items less food and energy rose 5.5% over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 5.2% for the 12 months ending February, and the food index increased 9.5% over the last year.

Producer Price Index

The Producer Price Index for Final Demand (PPI-FD) decreased 0.1% in February (+0.3% expected). Final demand prices advanced 0.3% in January and declined 0.2% in December 2022. On an unadjusted basis, the final demand index rose 4.6% for the 12 months ended in February.

In February, the decline in the final demand index was led by prices for final demand goods, which fell 0.2%. The index for final demand services edged down 0.1%.

The index for final demand less foods, energy, and trade services increased 0.2% in February after rising 0.5% in January. For the 12 months ended in February, prices for final demand less foods, energy, and trade services advanced 4.4%.

Final Demand

Final demand goods: The index for final demand goods fell 0.2% in February following a 1.2% advance in January. A 2.2% decline in prices for final demand foods was a major factor in the February decrease. The index for final demand energy moved down 0.2%. In contrast, prices for final demand goods less foods and energy rose 0.3%.

Product detail: Over 80% of the February decline in the index for final demand goods can be attributed to a 36.1% drop in prices for chicken eggs. The indexes for residential natural gas, fresh and dry vegetables, diesel fuel, home heating oil, and primary basic organic chemicals also fell. Conversely, prices for iron and steel scrap advanced 10.6%. The indexes for gasoline and for sugar and confectionery products also increased.

Final demand services: The index for final demand services inched down 0.1% in February, the same as in January. Leading the February decline, margins for final demand trade services fell 0.8%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand transportation and warehousing services decreased 1.1%. In contrast, the index for final demand services less trade, transportation, and warehousing advanced 0.3%.

Product detail: A major factor in the February decrease in prices for final demand services was margins for machinery and vehicle wholesaling, which fell 3.9%. The indexes for chemicals and allied products wholesaling, automobiles and automobile parts retailing, guestroom rental, and airline passenger services also declined. Conversely, prices for outpatient care (partial) rose 0.5%. The indexes for food and alcohol retailing; securities brokerage, dealing, investment advice, and related services; and loan services (partial) also increased.

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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.

February 2023 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 311,000 jobs in February, exceeding the 223,000 expected. December and January employment changes were revised down by a combined 34,000 (December: -21,000; January: -13,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) rose to 3.6%, as only 42% of the labor force (re)entrants found work. 

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Observations from the employment reports include:

* Over half of net jobs gain came from CES (business birth/death model) adjustments -- i.e., from jobs in firms formed recently enough they are not yet included in the survey “sampling frame.”

* Goods-producing industries added 20,000 jobs; service providers: +291,000. Notable job gains occurred in leisure and hospitality (+105,000), retail trade (+50,100), government (+46,000 -- half of which were local teachers), and health care (+44,200). Employment declined in information (-25,000) and in transportation and warehousing (-21,500). Total nonfarm employment (155.4 million) is now 3.0 million jobs above its pre-pandemic level in February 2020 (private sector: +3.4 million; public sector: -376,000). That said, employment is also perhaps 5.7 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing lost 4,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which fell into contraction in February. Wood products manufacturing fell by 1,000 (ISM unchanged); paper manufacturing: -1,100 (ISM unchanged); construction: +24,000 (ISM rose).

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* The number of employment-age persons not in the labor force fell (-269,000) to 99.9 million; that level is 4.7 million higher than in February 2020. Because the change in the number of employed and unemployed were roughly balanced, the employment-population ratio (EPR) was unchanged at 60.2% -- still 0.9PP below its February 2020 level. 

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* With the working-age civilian population growing by 150,000 and labor force expanding by 419,000, the labor force participation rate inched up to 62.5%. Average hourly earnings of all private employees increased by $0.08 (to $33.09), and the year-over-year increase accelerated to +4.6%. Because the average workweek for all employees on private nonfarm payrolls shrank to 34.5 hours, average weekly earnings slipped (-$0.54) to $1,1441.61 (+4.0% YoY). Nonetheless, with the consumer price index running at an annual rate of +6.4% in January, 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 rose (+607,000) at 133.2 million; there are now 2.4 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 6.5 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 -- inched up by 17,000, while those working part time for non-economic reasons fell (-227,000); multiple-job holders: -97,000. 

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For a “sanity test” of the job numbers, we consult employment withholding/FICA taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in February fell by $30.4 billion, to $257.7 billion (-10.5% MoM; -0.2% 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 February was 0.4% 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.

January 2023 International Trade (Softwood Lumber)

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With January exports of goods and services at $257.5 billion (+3.4% MoM; +13.3% YoY) and imports at $325.8 billion (+3.0% MoM; +3.5% YoY), the net trade deficit was $68.3 billion (+1.6% MoM; -21.9% YoY). 

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Softwood lumber exports rose (5 MMBF or +5.5%) in January, along with imports (115 MMBF or +10.3%). Exports were 1 MMBF (+0.9%) above year-earlier levels; imports: 163 MMBF (+15.2%) higher. As a result, the year-over-year (YoY) net export deficit was 162 MMBF (+16.7%) larger. Also, the average net export deficit for the 12 months ending January 2023 was 0.5% above 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 (59.3% of total softwood lumber exports; of which Mexico: 34.0%; Canada: 25.3%), Asia (12.8%; especially China: 3.7%), and the Caribbean: 19.0% especially the Dominican Republic: 9.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 160.6% relative to the same month of the prior year. Meanwhile, Canada was the source of most (72.1%) softwood lumber imports into the United States. Imports from Canada were 2.8% lower YTD/YTD. Overall, YTD exports were up 0.9% compared to the prior year; imports: +15.2%.

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U.S. softwood lumber export activity through the West Coast customs region represented 36.7% of the U.S. total; Gulf: 36.0%, and Eastern: 17.9%. Seattle (15.9% of the U.S. total), Mobile (18.6%), San Diego (16.8%) and Laredo (11.2%) were the most active districts. At the same time, the Great Lakes customs region handled 48.1% of softwood lumber imports -- most notably the Duluth, MN district (16.4%) -- coming into the United States. The Eastern region comprised 30.8% of imports, but that volume was distributed among the districts.

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Southern yellow pine comprised 23.7% of all softwood lumber exports; Douglas-fir (16.6%), treated lumber (13.6%), other pine (10.7%) and finger-jointed (8.0%) were also significant. Southern pine exports were up 30.2% YTD/YTD, while Doug-fir: -3.7%; treated: -20.7%; other pine: (+23.3%); and finger-jointed: -7.1%.

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.

February 2023 Currency Exchange Rates

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In February, the monthly average value of the U.S. dollar (USD) appreciated against all currencies we track: Canada’s “loonie” (+0.2%), euro (+0.7%), and Japanese yen (+2.0%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.5% 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 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 January increased $3.8 billion or 0.7% to $547.8 billion. Durable goods shipments decreased $0.1 billion or virtually unchanged to $277.4 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.9 billion or 1.5% to $270.4 billion, led by petroleum and coal products. Shipments of wood products rose by 0.7%; paper: +1.1%.

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Inventories increased $0.4 billion or virtually unchanged to $808.3 billion. The inventories-to-shipments ratio was 1.48, down from 1.49 in December. Inventories of durable goods decreased $0.3 billion or 0.1% to $493.3 billion, led by transportation equipment. Nondurable goods inventories increased $0.7 billion or 0.2% to $315.0 billion, led by food products. Inventories of wood products shrank by 0.8%; paper: -0.2%.

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New orders decreased $8.9 billion or 1.6% to $542.8 billion. Excluding transportation, new orders rose by $5.3 billion or 1.2% (+4.3% YoY). Durable goods orders decreased $12.8 billion or 4.5% to $272.4 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.6 billion or 0.8% (+5.5% YoY). New orders for nondurable goods increased $3.9 billion or 1.5% to $270.4 billion.

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Unfilled durable-goods orders increased $0.3 billion or virtually unchanged to $1,157.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.07, up from 6.06 in December. 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. Real unfilled orders trended lower after November 2014, although more-recent data hint at a possible upturn.

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.

February 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 February 2023 contracted a bit more slowly. The PMI registered 47.7%, up 0.3 percentage point (PP) from January’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 (+6.8PP), new orders (+4.5PP), and imports (+2.1PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded at a marginally slower pace in February (-0.1PP, to 55.1%). Business activity (-4.1PP), employment (+4.0PP), and exports (+2.7PP) exhibited the largest changes.

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Of the industries we track, manufacturers contracted while services expanded. Respondent comments included the following:

Construction. “Activity is steady. Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters.”

 

Changes in S&P Global‘s survey headline results were broadly consistent with ISM’s. Both manufacturing reports showed contraction, and both services reports exhibited expansion. Details from S&P Global’s surveys follow --

Manufacturing. Softest decline in output for three months as supply chain conditions improve.

Key findings:
* Decrease in new sales sparks further, but slower, fall in output
* Greatest improvement in lead times since May 2009
* Selling prices rise at sharper pace despite softer uptick in costs

 

Services. Selling price inflation accelerates amid renewed upturn in output in February.

Key findings:
* Activity returns to expansion, albeit at only a slight pace
* Employment rises at fastest rate since September 2022
* Selling price inflation accelerates despite softer rise in costs

 

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

Manufacturing. “US manufacturing remained under intense pressure in February. Although the PMI rose slightly, it continues to signal the steepest downturn outside of pandemic lockdown months since 2009.

“Moreover, some of the improvement in output could merely be attributed to faster supplier delivery times, which quickened to the greatest extent since 2009 to facilitate higher production and enable factories to work through previously placed orders. The worry is that new order inflows continue to fall sharply as many companies report disappointing sales, linked in part to a sustained trend towards cost-saving inventory reduction and low levels of confidence at their customers, both at home and abroad. None of this points to a healthy economic situation.

“There was some brighter news in that factory jobs growth picked up slightly amid reports of greater success in filling vacancies, and the improvement in supply chains helped reduce input cost inflation. However, rising wage pressures and efforts to raise margins meant average prices for goods leaving the factory gate rose sharply once again, the rate of inflation accelerating for a second straight month to hint at stubbornly high price pressures.”

 

Services. “A return to growth of US service sector business activity in February for the first time in eight months has offset a decline in manufacturing output, helping stabilize the economy and hopefully avert a downturn in the first quarter.

“The upturn was led by a revival in spending on services by consumers and improved activity in the tech sector, but was also aided by a marked cooling in the recent downturn in financial services.

“Across both services and manufacturing, jobs growth has risen to a five-month high as business confidence about the year ahead has perked up to its highest since last May, reviving further from the low-point seen last October. Clearly the gloom heading into the winter has been replaced with brighter prospects moving into the spring.

“This improving picture has, however, added to firms’ pricing power. Having fallen to a 27-month low in January, the rate of inflation for goods and services reaccelerated in February to its highest since last October as companies reported greater success in passing higher costs on to customers.”

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.

February 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 down, by $1.29 (-1.7%) to $76.83 per barrel in February. 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 December’s drop of 1.1 million barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 19.5 million BPD), and accumulated oil stocks that arced to near the top of the five-year average range (February 2023 average: 471 million barrels). 

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Selected highlights from the 24 February 2023 issue of OilPrice.com’s Oil & Energy Insider include:

“Yet another build in U.S. crude inventories added to downward pressure on oil prices on [February 24],” wrote OilPrice.com editor Tom Kool. “The EIA's report weighed particularly heavily on WTI, opening an arbitrage window into both Europe and Asia. The market reaction to another 7.6-million-barrel build was originally subdued by speculation of a further production cut from Russia and rumors of Chinese demand returning. Ultimately, inflation fears and continued inventory builds pushed oil prices lower, with ICE Brent trending around the $81 per barrel mark.”

A Flotilla of US Oil Is Set to Sail to China. The relative weakness of WTI has prompted a revival in Chinese buying of US barrels as China’s state-owned Sinopec and Petrochina have fixed at least 10 VLCC tankers for March-loading cargoes out of the US Gulf Coast.

Russia Fixes Crude Discounts on Exports. Russia’s President Vladimir Putin signed a law that capped the maximum possible discounts on Urals crude as part of an ongoing oil taxation overhaul, with the maximum discount set at $34 per barrel in April and gradually declining to $25 per barrel in July.

Iraq to Drop US Dollar in China Exports. The Iraqi central bank announced this week that it had allowed trade from China to be settled directly in yuan rather than US dollar, a relief for the country’s energy sector as since 2022 the US Treasury has enforced stricter controls on transactions by Iraqi banks.

Tight Diesel Stocks Remain Inflation Risk. With middle distillate stocks below the 10-year average in each of the main trading regions and a whopping 40 million barrels lower in Europe, any swift uptick in manufacturing and industrial activity is poised to send diesel prices back into an upward spiral.

China Locks in Another US LNG Term Deal. China Gas Holdings, one of the largest independent gas distributors in China, signed two separate 20-year LNG deals with US exporter Venture Global for a total of 2 million tons LNG per year, adding to a flurry of similar deals recently.

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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.