April 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in April 2023 were at a seasonally adjusted annual rate (SAAR) of 683,000 units (670,000 expected). This is 4.1% (±11.8%)* above the revised March rate of 656,000 (originally 683,000 units) and 11.8% (±15.1%)* above the April 2022 SAAR of 611,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +10.7%. For longer-term perspectives, NSA sales were 50.8% below the “housing bubble” peak and 18.6% above the long-term, pre-2000 average.

The median sales price of new houses sold in April 2023 was $420,800 (-7.7%, or $35,000). The average sales price was $501,000 (-10.4%, or $58,200). Homes priced at/above $750,000 comprised 11.3% of sales, down from the year-earlier 14.3%.

* 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 April, single-unit completions fell by 68,000 units (-6.5%). Sales rose (27,000 units, or +4.1%), resulting in inventory for sale expanding in absolute terms (+1,000 units) but shrinking on months-of-inventory (-0.3 month) terms. 

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Existing home sales extended their decline when sliding (-3.4% or 150,000 units) in April to a SAAR of 4.28 million units (4.295 million expected). Inventory of existing homes for sale expanded in both absolute (+70,000 units) and months-of-inventory (+0.3 month) terms. Because resales retreated while new-home sales advanced, the share of total sales comprised of new homes increased to 13.8%. The median price of previously owned homes sold in April rose to $388,800 (+3.6% or $13,400).

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Housing affordability slid (-5.2 index points) as the median price of existing homes for sale in March rose by $11,900 (+3.2% MoM; -1.4 YoY) to $380,000. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices accelerated to a not-seasonally adjusted monthly change of +1.3% (+0.7% YoY).

“The modest increases in home prices we saw a month ago accelerated in March 2023,” said Craig Lazzara, Managing Director at S&P DJI. “The National Composite rose by 1.3% in March, and now stands only 3.6% below its June 2022 peak. Our 10- and 20-City Composites performed similarly, with March gains of 1.6% and 1.5% respectively. On a trailing 12-month basis, the National Composite is only 0.7% above its level in March 2022, with the 10- and 20-City Composites modestly negative on a year-over-year basis.

“The acceleration we observed nationally was also apparent at a more granular level. Before seasonal adjustment, prices rose in all 20 cities in March (versus in 12 in February), and in all 20 price gains accelerated between February and March. Seasonally adjusted data showed 15 cities with rising prices in March (versus 11 in February), with acceleration in 14 cities.

“One of the most interesting aspects of our report continues to lie in its stark regional differences. Miami’s 7.7% year-over-year gain made it the best-performing city for the eighth consecutive month. Tampa (+4.8%) continued in second place, narrowly ahead of bronze medalist Charlotte (+4.7%). The farther west we look, the weaker prices are, with Seattle (-12.4%) now leading San Francisco (-11.2%) at the bottom of the league table. It’s unsurprising that the Southeast (+5.4%) remains the country’s strongest region, while the West (-6.2%) remains the weakest.

“Two months of increasing prices do not a definitive recovery make, but March’s results suggest that the decline in home prices that began in June 2022 may have come to an end. That said, the challenges posed by current mortgage rates and the continuing possibility of economic weakness are 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.

1Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2023 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 +1.27% (+1.1% expected), up 0.21 percentage point (PP) from the “advance” estimate (“1Qv1”) but -1.29PP from 4Q2022.

As with 1Qv1, two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed positively to the headline; also, private domestic investment (PDI) detracted from it. However, whereas net exports (NetX) had also contributed positively to the 1Qv1 headline, it was neutral in 1Qv2. The 1Qv2 increase in real GDP “reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment,” the BEA said. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (all relative to 1Qv1):

PCE. Consumer spending was revised up by $2.1 billion (chained-2012 dollars), led by spending on services (+$3.8B) -- primarily health care (+$11.3B). That gain was partially offset by a -$2.1B revision to goods spending -- especially food and beverages (-$1.3B) and motor vehicles and parts (-$1.1B).

PDI. Fixed investment was revised up by $10.2B, led by software (+$7.4B); residential investment was trimmed by -$1.8B. Private inventories were boosted by +$8.5B -- especially nonfarm (+$8.0B).

NetX. Upward revisions to exports (+$2.1B) were more than offset by a boost to imports (+$9.6B).

GCE. Revisions to state and local gross investment (+$4.6B) dominated this category.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.37% (+0.05PP from 1Qv1), a level 2.28PP above the 4Q2022 estimate. 

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Looking forward, many economists think a recession is inevitable by the end of the year. They view the seeming green shoots in April (e.g., April’s CFNAI) as a feint, pointing to softer consumer spending, waning business investment and the slumping housing and manufacturing industries.

“The march to recession continues, with some rest stops along the way,” said TS Lombard’s Steve Blitz.

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.

April 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in April at a seasonally adjusted annual rate (SAAR) of 1,401,000 units (1.405 million expected). This is 2.2% (±11.9%)* above the revised March estimate of 1,371,000 (originally 1.420 million units), but 22.3% (±8.7%) below the April 2022 SAAR of 1,803,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -22.6%.

Single-family housing starts in April were at a SAAR of 846,000; this is 1.6% (±12.3%)* above the revised March figure of 833,000 units (-28.2% YoY). Multi-family: 555,000 units (+3.2% MoM; -11.5% 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 1,375,000. This is 10.4% (±9.9%) below the revised March estimate of 1,534,000 (originally 1.542 million units), but 1.0% (±16.4%)* above the April 2022 SAAR of 1,361,000 units; the NSA comparison: +0.1% YoY.

Single-family completions were at a SAAR of 971,000; this is 6.5% (±11.0%)* below the revised March rate of 1,039,000 units (-5.9% YoY). Multi-family: 404,000 units (-18.4% MoM; +18.7% YoY).

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Total permits were at a SAAR of 1,416,000 units (1.430 million expected). This is 1.5% below the revised March rate of 1,437,000 (originally 1.413 million units) and 21.1% below the April 2022 SAAR of 1,795,000 units; the NSA comparison: -26.5% YoY.

Single-family authorizations were at a SAAR of 855,000; this is 3.1% above the revised March figure of 829,000 units (-24.7% YoY). Multi-family: 561,000 units (-7.7% MoM; -29.4% YoY).

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Press release from NAHB’s Robert Dietz:

“Limited existing inventory, which has put a renewed emphasis on new construction, resulted in a solid gain for builder confidence in May even as the industry continues to face several challenges, including building material supply chain disruptions and tightening credit conditions for construction loans.

“Builder confidence in the market for newly built single-family homes in May rose five points to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This marks the fifth straight month that builder confidence has increased and is the first time that sentiment levels have reached the midpoint mark of 50 since July 2022.

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level. In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.

“While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.

“And with interest rates more than doubling from 2021, the HMI survey shows incentives have played a key role in attracting buyers in this new economic climate and that the use of these sales inducements are gradually slowing across the board:

• The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in Feb. and March, and 36% last November.
• The average price reduction remains at 6%, unchanged for the past four months.
• 54% offered some type of incentive to bolster sales in May, down from 59% in April and 62% last 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.

April 2023 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.5% in April (0.0% expected) after moving sideways the previous two months. In April, manufacturing increased 1.0%, bolstered by a strong gain in the output of motor vehicles and parts; factory output excluding motor vehicles and parts moved up 0.4%. The index for mining rose 0.6%, while the index for utilities dropped 3.1%, as milder temperatures in April lowered demand for heating. At 103.0% of its 2017 average, total IP in April was 0.2% above its year-earlier level.

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Market Groups

Most major market groups recorded growth in April. The production of consumer durables was boosted by an 8.4% jump in the output of automotive products. Elsewhere, there were gains in business equipment (1.2%), defense and space equipment (1.1%), non-energy materials (0.8%), and construction supplies (0.4%). In contrast, nondurable consumer goods, business supplies, and energy materials all posted slight declines for the month.

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Industry Groups

Manufacturing output increased 1.0% in April; however, the growth rates for both February and March were revised down 0.3 percentage point (PP). All told, the index for manufacturing in April was 0.9% below its year-earlier level. Durable and nondurable manufacturing advanced 1.4% and 0.6% in April, respectively. Other manufacturing (publishing and logging) ticked down 0.1%. Industry groups within durable manufacturing posted somewhat mixed results, with the largest increase coming from motor vehicles and parts (9.3%) and the largest decrease coming from miscellaneous manufacturing (1.4%); wood products: +0.6%. Within nondurables, plastics and rubber products recorded the largest gain (1.2%), while apparel and leather recorded the largest loss (0.8%); paper products: -0.1%.

Mining output climbed 0.6% in April, with growth primarily coming from oil and gas extraction. The output of utilities declined 3.1%, as both electric and natural gas utilities production moved down.

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Capacity utilization (CU) edged up to 79.7% in April, a rate that is equal to its long-run (1972–2022) average.

Manufacturing CU moved up 0.7PP in April to 78.3%, a rate that is 0.1PP above its long-run (1972–2022) average (wood products: +0.6%; paper: 0.0%). The operating rate for mining rose 0.6PP to 91.8%, while the operating rate for utilities fell 2.6PP to 72.7%. The rate for mining was 5.4PP above its long-run average, while the rate for utilities remained well below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.5% YoY) to 129.3% of 2017 output. NAICS manufacturing also edged up by 0.1% (+1.3% YoY) to 128.1%. Wood products: +0.1% (+1.3% YoY) to 119.9%; paper: -0.1% (-0.6% YoY) to 106.2%.

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

April 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 April (+0.4% expected). The index for shelter (+0.4%) was the largest contributor to the monthly all-items increase, followed by increases in the index for used cars and trucks (+4.4%) and the index for gasoline (+3.0%). The increase in the gasoline index more than offset declines in other energy component indexes (e.g., energy services: -1.7%), and the energy index rose 0.6% in April. The food index was unchanged in April, as it was in March. The index for food at home fell 0.2% over the month while the index for food away from home rose 0.4%.

The index for all items less food and energy rose 0.4% in April, as it did in March. Indexes which increased in April include shelter, used cars and trucks, motor vehicle insurance, recreation, household furnishings and operations, and personal care. The index for airline fares and the index for new vehicles were among those that decreased over the month.

The all-items index increased 4.9% for the 12 months ending April; this was the smallest 12-month increase since the period ending April 2021. The index for all items less food and energy rose 5.5% over the last 12 months. The energy index decreased 5.1% for the 12 months ending April, and the food index increased 7.7% over the last year. 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) advanced 0.2% in April (+0.3% expected). Final demand prices fell 0.4% in March and were unchanged in February. On an unadjusted basis, the index for final demand moved up 2.3% for the 12 months ended in April.

In April, 80% of the rise in the index for final demand is attributable to a 0.3% increase in prices for final demand services. The index for final demand goods advanced 0.2%.

Prices for final demand less foods, energy, and trade services rose 0.2% in April after inching up 0.1% in March. For the 12 months ended in April, the index for final demand less foods, energy, and trade services increased 3.4%.

Final Demand

Final demand services: Prices for final demand services moved up 0.3% in April, the largest increase since a 0.4% rise in November 2022. Leading the advance in April, the index for final demand services less trade, transportation, and warehousing climbed 0.4%. Margins for final demand trade services increased 0.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, the index for final demand transportation and warehousing services decreased 1.7%.

Product detail: Over one-third of the April advance in the index for final demand services can be traced to a 4.1% rise in prices for portfolio management. The indexes for food and alcohol wholesaling, outpatient care (partial), loan services (partial), hospital inpatient care, and guestroom rental also moved higher. Conversely, prices for long-distance motor carrying declined 2.3%. The indexes for food retailing and for securities brokerage, dealing, and investment advice also fell.

Final demand goods: Prices for final demand goods increased 0.2% in April after falling 1.0% in March. Leading the advance, the index for final demand energy rose 0.8%. Prices for final demand goods less foods and energy moved up 0.2%. In contrast, the index for final demand foods decreased 0.5%.

Product detail: An 8.4% advance in prices for gasoline was a major factor in the April increase in the index for final demand goods. Prices for fresh and dry vegetables, carbon steel scrap, plastic resins and materials, aircraft and aircraft equipment, and fluid power equipment also moved higher. Conversely, the index for chicken eggs dropped 37.9%. Prices for jet fuel and for light motor trucks also declined.

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The not-seasonally adjusted price indexes we track all declined on a MoM basis but were mixed on a 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.

April 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 253,000 jobs in April (178,000 expected). February and March employment changes were revised down by a combined 149,000 (February: -78,000; March: -71,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked lower, to 3.4%, as the labor force shrank (-43,000) but more people found work (+139,000). 

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Observations from the employment reports include:

* The two surveys were directionally consistent, but job gains significantly outpaced the number of workers who found employment.

* Goods-producing industries gained 33,000 jobs; service providers: +220,000. Employment continued to trend up in professional and business services (+43,000), health care (+36,000), leisure and hospitality (+31,000), and social assistance (+24,600). Total nonfarm employment (155.6 million) is now 3.3 million jobs above its pre-pandemic level in February 2020 (private sector: +3.6 million; public sector: -301,000). That said, employment is also perhaps 5.6 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 11,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which barely broke back into expansion in April. Wood products manufacturing lost 1,400 (ISM was unchanged); paper manufacturing: -2,700 (ISM rose); construction: +15,000 (ISM rose).

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* The number of employment-age persons not in the labor force rose (+214,000) to 99.7 million; that level is 4.6 million higher than in February 2020. Although the number of employed rose by 139,000, the employment-population ratio (EPR) was unchanged at 60.4%, which is still 0.7PP below its February 2020 level. 

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* With the working-age civilian population growing by 171,000 and labor force shrinking by 43,000, the labor force participation rate remained at 62.6%. Average hourly earnings of all private employees nudged up by $0.16 (to $33.36), and the year-over-year increase accelerated to +4.4% (+5.1% on a not-seasonally adjusted basis). Because the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours, average weekly earnings edged up (+$5.50) to $1,147.58 (+6.1% YoY). With the consumer price index running at an annual rate of +5.0% in March, the average worker may have gained a modicum of purchasing power. In fact, average hourly wages had lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs rose (+161,000) to 134.5 million; there are now 3.7 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by over 6.8 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 -- fell by 199,000, while those working part time for non-economic reasons jumped (+363,000); multiple-job holders: -272,000. 

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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 April fell by $75.6 billion, to $237.2 billion (-24.2% MoM; -6.7% 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 April was 1.1% below 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.

March 2023 International Trade (Softwood Lumber)

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With March exports of goods and services at $256.2 billion (+2.1% MoM; +5.0% YoY) and imports at $320.4 billion (-0.3% MoM; -8.6% YoY), the net trade deficit was $64.2 billion (-9.1% MoM; -39.7% YoY). 

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Softwood lumber exports rose (21 MMBF or +21.8%) in March, along with imports (163 MMBF or +14.9%). Exports were 10 MMBF (+9.3%) above year-earlier levels; imports: 130 MMBF (-9.4%) lower. As a result, the year-over-year (YoY) net export deficit was 140 MMBF (-11.0%) smaller. Also, the average net export deficit for the 12 months ending March 2023 was 1.1% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (58.6% of total softwood lumber exports; of which Mexico: 34.8%; Canada: 23.8%), Asia (14.7%; especially China: 5.0%), and the Caribbean (20.7%; especially the Dominican Republic: 7.7%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 127.8% higher than the same month of the prior year. Meanwhile, Canada was the source of most (83.4%) softwood lumber imports into the United States. Imports from Canada were 7.7% lower YTD/YTD. Overall, YTD exports were up 0.3% compared to the prior year; imports: -2.2%.

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U.S. softwood lumber export activity through the West Coast customs region represented 31.7% of the U.S. total; Gulf: 38.2%, and Eastern: 21.8%. Seattle (14.7% of the U.S. total), Mobile (18.0%), San Diego (14.7%) and Laredo (13.2%) were the most active districts. At the same time, the Great Lakes customs region handled 57.8% of softwood lumber imports -- most notably the Duluth, MN district (20.5%) -- coming into the United States. The Eastern region comprised 19.6% of imports, but that volume was distributed among the districts.

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Southern yellow pine comprised 23.9% of all softwood lumber exports; Douglas-fir (13.7%), treated lumber (13.2%), other pine (11.3%) and finger-jointed (9.7%) were also significant.

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.

April 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose in April, by $6.17 (+8.4%) to $79.45/barrel. That advance occurred within the context of a moderately weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of February’s increase of 0.458 million barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 20.0 million b/d), and accumulated oil stocks that continued diverging downward from the top of the five-year average range (April 2023 average: 464 million barrels). 

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Selected highlights from the 28 April 2023 issue of OilPrice.com’s Oil & Energy Insider include:

“Oil prices have stabilized around $78 per barrel for ICE Brent and $74 per barrel for WTI after Wednesday's double whammy of bad macroeconomic data,” wrote OilPrice.com’s Tom Kool. “The decline in U.S. capital goods spending confirmed fears that economic growth is slowing down in the United States, whilst refinery margins continued their descent this week as downstream players are finding it ever harder to stay profitable. As such, oil is set for its sixth straight monthly loss, despite the OPEC+ production cuts.” WTI’s spot price narrowly avoided that outcome, closing out April at $76.78/barrel, or $1.10/barrel above the March closing price.

OPEC Goes Against IEA. OPEC Secretary General Haitham al-Ghais warned the International Energy Agency (IEA) to be very careful about discouraging investment into oil and gas, arguing that advocating for such measures and finger-pointing at oil producers will lead to increased volatility in the future.

Ship Insurers Warn of Russia's Dark Fleet. Top executives from the shipping industry have warned that the oil price cap has made insurers even more wary of running afoul of U.S. or EU sanctions and that depriving the increasing fleet of shadow tankers of insurance raises navigation safety risks.

Suncor Doubles Down on Oil Sands. French oil major TotalEnergies sold its carbon-heavy Canadian oil sands assets to Suncor Energy for $4.1 billion with potential additional payments up to $450 million, equivalent to 135,000 b/d of net bitumen production capacity and 2.1 Bbbls of 2P reserves.

Iran Seizes Oil Tanker Again. A Turkish-owned and operated tanker carrying Kuwaiti crude for Chevron in the US has been detained by the Iranian Navy after reportedly hitting another Iranian vessel in the Gulf of Oman, drawing the ire of the US which accused Tehran of interfering with navigational rights.

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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.

April 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 reflected slower erosion in the sector during April. The PMI registered 47.1%, up 0.8 percentage point (PP) from March’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 (+4.0PP), employment (+3.3PP), and customer inventories (+2.4PP).

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded at a marginally faster pace (+0.7PP, to 51.9%). Exports (+17.2PP), inventory sentiment (-9.0PP), and imports (+7.7PP) exhibited the largest changes.

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Of the industries we track, Real Estate and Construction expanded, Wood Products and Ag & Forestry contracted, and Wood Products was unchanged. Respondent comments included the following --

Construction. “High mortgage rates continue to weigh on new residential construction. With demand down, material suppliers are curtailing production to maintain pricing levels. Labor continues to be constrained, but some negotiation room is developing as the slowdown drags on.”

 

Changes in S&P Global‘s survey headline results were generally consistent with ISM’s. Both manufacturing headline indexes rose, although ISM’s reflected slower contraction while S&P Global nudged back into expansion; both services reports exhibited faster expansion. Details from S&P Global’s surveys follow --

Manufacturing. PMI signals expansion for first time in six months, but improvement sparks higher price pressures.

Key findings:
* Output and employment rise amid renewed upturn in new sales
* Rates of input cost and selling price inflation quicken...
* ...despite unprecedented improvement in vendor performance

 

Services. Output growth quickens on stronger demand conditions, but price hikes intensify in April.

Key findings:
* Business activity and new orders rise at faster rates
* Faster input cost and output charge inflation
* Employment growth strongest since August 2022

 

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

Manufacturing. “US manufacturing output has regained some encouraging momentum at the start of the second quarter, having stabilized in March after four months of decline.

“While the upturn is in part linked to greatly improved supply chains, helping reduce backlogs of orders, April also saw a welcome upturn in new order inflows for the first time since last September.

“Although only modest, the rise in new orders hints at a tentative revival of demand, notably from consumers, but there are also signs that fewer customers are deliberately winding down their inventory levels.

“The brightening demand picture was accompanied by a lifting of business confidence about the outlook and increased hiring. The downside was a reigniting of inflationary pressures, with a stronger order book encouraging more firms to pass through higher costs to customers.”

 

Services. “April saw an encouraging acceleration of service sector growth which, combined with indications of a renewed upturn in manufacturing, suggests the economy has regained some momentum at the start of the second quarter.

“Companies have reported an improvement in confidence compared to the gloomier picture seen late last year, with service sector companies also benefiting from a post-pandemic tailwind of spending shifting from goods to services, notably among consumers.

“However, there are indications that resurgent demand for services is reigniting inflationary pressures. Average rates charged for services are now rising at the sharpest rate for eight months, as firms report a greater ability to pass increased costs on to customers. This upturn in the service sector selling price gauge hints at a concerningly stubborn stickiness of core inflation.

“Much of course depends on whether this recovery in demand can persist. Headwinds from higher interest rates and the increased costs of living, combined with the winding down of household savings, suggest the upturn could lose steam in the months ahead.”

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.

March 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 March decreased $0.6 billion or 0.1% to $539.9 billion. Durable goods shipments increased $3.0 billion or 1.1% to $277.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $3.7 billion or 1.4% to $262.8 billion, led by petroleum and coal products. Shipments of wood products rose by 0.2%; paper: 0.0%.

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Inventories decreased $6.2 billion or 0.8% to $799.4 billion. The inventories-to-shipments ratio was 1.48, down from 1.49 in February. Inventories of durable goods decreased $4.2 billion or 0.9% to $488.8 billion, led by transportation equipment. Nondurable goods inventories decreased $2.0 billion or 0.6% to $310.5 billion, led by petroleum and coal products. Inventories of wood products shrank by 0.5%; paper: -0.1%.

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New orders increased $4.9 billion or 0.9% to $539.0 billion. Excluding transportation, new orders fell by $3.2 billion or 0.7% (-1.4% YoY). Durable goods orders increased $8.5 billion or 3.2% to $276.2 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- retreated by $0.5 billion or 0.6% (+1.6% YoY). New orders for nondurable goods decreased $3.7 billion or 1.4% to $262.8 billion.

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Unfilled durable-goods orders increased $4.2 billion or 0.4% to $1,159.7 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.04, down from 6.11 in February. 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 an ongoing 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.