2Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2023 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 +2.07% (+2.4% expected), down 0.35 percentage point (PP) from the “advance” estimate (“2Qv1”) but +0.07PP from 1Q2023.

As with 2Qv1, three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 2Q percent-change headline. Net exports (NetX) detracted from it. The 2Qv2 update “primarily reflected downward revisions to private inventory investment and nonresidential fixed investment that were partly offset by an upward revision to state and local government spending,” the BEA wrote.

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As for details (all relative to 2Qv1):

PCE. Consumer spending was revised up by $1.1 billion (chained-2012 dollars), led by spending on services (+$1.6B) -- positive contributions primarily concentrated among food services and accommodations (+$4.3B), transportation services (+$3.6B), and the imputed value of final consumption expenditures of nonprofit institutions (+$3.6B). That gain was partially offset by a -$0.9B revision to goods spending -- especially motor vehicles and parts (-$3.8B), and gasoline and other energy goods (-$2.6B).

PDI. PDI was revised down by $20.8B, led by a drop (-$11.0B) in nonfarm inventories. Fixed investment was also revised lower (-$8.8B), led by equipment (particularly, information processing equipment: -$8.1B); residential investment was boosted by +$0.8B.

NetX. Upward revisions to imports (+$7.8B) -- which are a subtraction in the calculation of GDP -- more than offset the change in exports (+$1.1B).

GCE. Revisions to state and local gross investment (+$6.7B) dominated this category.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +2.16% (-0.12PP from 2Qv1), a level 1.98PP below the 1Q2023 estimate. 

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“Fewer economists think a recession is imminent than was the case as recently as the spring,” wrote MarketWatch’s Jeffry Bartash. Even so, Bartash inserted a note of caution from PNC Financial Services’ Gus Faucher, who observed, “Weaker growth in real gross domestic income [+0.5%], relative to GDP, may be an indication that tighter monetary policy is weighing on the U.S. economy.”

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

July 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2023 were at a seasonally adjusted annual rate (SAAR) of 714,000 units (705,000 expected). This is 4.4% (±12.8%)* above the revised June rate of 684,000 (originally 697,000 units) and is 31.5% (±16.3%) above the July 2022 SAAR of 543,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +34.10%. For longer-term perspectives, NSA sales were 48.6% below the “housing bubble” peak but 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in July was $436,700 (+4.8%, or $20,000). The average sales price was $513,000 (+1.1%, or $5,700). Homes priced at/above $750,000 comprised 10.2% of sales, down from the year-earlier 13.6%.

* 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 July, single-unit completions advanced by 13,000 units (+1.3%). Sales also rose (30,000 units, or +4.4%), resulting in inventory for sale expanding in absolute terms (+11,000 units) but shrinking in months-of-inventory (-0.2 month) terms. 

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Existing home sales fell (-2.2% or 90,000 units) in July to a SAAR of 4.07 million units (4.15 million expected). The inventory of existing homes for sale expanded in both absolute (+40,000 units) and months-of-inventory (+0.2 month) terms. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes increased to 14.9%. The median price of previously owned homes sold in July fell to $406,700 (-0.8% or $3,300).

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Housing affordability slid (-5.9 index points) as the median price of existing homes for sale in June rose by $14,500 (+3.6% MoM; -1.2% YoY) to $416,000. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices decelerated to a not-seasonally adjusted monthly change of +0.9% (-0.02% YoY).

“U.S. home prices continued to increase in June 2023," says Craig J. Lazzara, Managing Director at S&P DJI. "Our National Composite rose by 0.9% in June, and it now stands only -0.02% below its all-time peak from exactly one year ago. Our 10- and 20-City Composites likewise each gained 0.9% in June 2023, and stand -0.5% and -1.2%, respectively, below their June 2022 peaks.

“As we've noted previously, the recovery in home prices is broadly based. Prices rose in all 20 cities in June, both before and after seasonal adjustment. Over the last 12 months, 10 cities show positive returns. Otherwise said, half the cities in our sample now sit at all-time high prices.

“Regional differences continue to be striking. On a year-over-year basis, June's three best-performing cities were Chicago (+4.2%), Cleveland (+4.1%), and New York (+3.4%) – the same three that had topped our May leader board. At the other end of the scale, the worst performers continue to be in the Pacific and Mountain time zones, with San Francisco (-9.7%) and Seattle (-8.8%) at the bottom. The Midwest (+2.8%) continues as the nation's strongest region, followed this month by the Northeast (+1.6%). The West (-5.9%) remains the weakest region.

“June is the fifth consecutive month in which home prices have increased across the U.S. With 2023 half over, the National Composite has risen 4.7%, which is slightly above the median full calendar year increase in more than 35 years of data. We recognize that the market's gains could be truncated by increases in mortgage rates or by general economic weakness, but the breadth and strength of this month's report are consistent with an optimistic view of future results.”

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

July 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in July at a seasonally adjusted annual rate (SAAR) of 1,452,000 units (1.455 million expected). This is 3.9% (±16.0%)* above the revised June estimate of 1,398,000 (originally 1.434 million units) and 5.9% (±16.1%)* above the July 2022 SAAR of 1,371,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +5.8%.

Single-family housing starts in July were at a rate of 983,000; this is 6.7% (±13.0%)* above the revised June figure of 921,000 units (+10.0% YoY). Multi-family: 469,000 units (-1.7% MoM; -2.7% 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 1,321,000. This is 11.8% (±7.8%) below the revised June estimate of 1,498,000 (originally 1.468 million units) and 5.4% (±11.1%)* below the July 2022 SAAR of 1,396,000 units; the NSA comparison: -7.8% YoY.

Single-family completions were at a SAAR of 1,018,000; this is 1.3% (±11.6%)* above the revised June rate of 1,005,000 units (-0.5% YoY). Multi-family: 303,000 units (-38.5% MoM; -22.7% YoY).

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Total permits were at a SAAR of 1,442,000 units (1.464 million expected). This is 0.1% above the revised June rate of 1,441,000 (originally 1.440 million units), but 13.0% below the July 2022 SAAR of 1,658,000 units; the NSA comparison: -14.0% YoY.

Single-family permits were at a SAAR of 930,000; this is 0.6% above the revised June figure of 924,000 units (+1.3% YoY). Multi-family: 512,000 units (-1.0% MoM; -33.3% YoY).

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Press release from NAHB’s Robert Dietz:

“After steadily rising for seven consecutive months, builder confidence retreated in August as rising mortgage rates nearing 7% (per Freddie Mac) and stubbornly high shelter inflation have further eroded housing affordability and put a damper on consumer demand.

“Builder confidence in the market for newly built single-family homes in August fell six points to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many home owners elect to stay put because they are locked in at a low mortgage rate.

“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%. The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.

“The August HMI survey also revealed that rising mortgage rates are causing more builders to use sales incentives to attract home buyers. After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August. The average decline for builders reducing prices remained at 6%. And the share of builders using incentives to bolster sales was 55% in August, higher than in July (52%) but still lower than in December 2022 (62%).”

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

July 2023 Industrial Production, Capacity Utilization and Capacity

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In July, total industrial production (IP) increased 1.0% (+0.3% expected) following declines in the previous two months. Manufacturing output rose 0.5% in July; the production of motor vehicles and parts jumped 5.2%, while factory output elsewhere edged up 0.1%. The index for mining moved up 0.5%, and the index for utilities climbed 5.4% as very high temperatures in July raised demand for cooling. At 102.9% of its 2017 average, total industrial production in July was 0.2% below its year-earlier level. 

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Market Groups

Most major market groups recorded growth in July. The production of consumer durables was boosted by a jump of 4.8% in the output of automotive products. Similarly, the abnormally hot weather in July lifted the indexes of energy consumer goods and energy materials, which advanced 3.7% and 2.1%, respectively. Elsewhere, there were gains of 1% in consumer nondurables, business equipment, as well as defense and space equipment. Of the major market groups, construction supplies recorded the only decline.

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Industry Groups

Manufacturing output rose 0.5% in July; however, the growth rates for the previous three months were revised down. Altogether, the index for manufacturing in July was 0.7% below its year-earlier level. In July, the indexes for durable and nondurable manufacturing increased 0.8% and 0.1%, respectively. Other manufacturing (publishing and logging) advanced 1.3%.

Within durable manufacturing, gains of 1% or more were registered by motor vehicles and parts (5.2%), machinery (1.3%), and computer and electronic products (1.0%). In contrast, losses of 1% or more were recorded by electrical equipment, appliances, and components (1.7%); primary metals (1.2%); and furniture and related products (1.2%). Within nondurable manufacturing, modest declines in the indexes of paper, of plastics and rubber products, and of apparel and leather were more than offset by gains elsewhere. Wood products: -0.7%; paper products: -0.7%.

Mining output grew 0.5% in July and was 2.0% above its year-earlier level. The output of utilities climbed 5.4% in July, bolstered by a jump of 6.7% for electric utilities.

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Capacity utilization (CU) moved up to 79.3% in July, a rate that is 0.4 percentage point (PP) below its long-run (1972–2022) average.

Manufacturing CU edged up to 77.8% in July, a rate that is 0.4PP below its long-run (1972–2022) average (wood products: +0.6%; paper: 0.0%). The operating rate for mining moved up 0.6PP to 92.4%, 6PP above its long-run average. The operating rate for utilities strengthened 3.5PP to 72.3%, well below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.6% YoY) to 129.7% of 2017 output. Manufacturing also edged up by 0.1% (+1.4% YoY) to 128.6%. Wood products: less than +0.1% (+1.1% YoY) to 120.1%; paper: -0.1% (-0.8% YoY) to 105.9%.

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

July 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 0.2% in July  (+0.2% expected), the same increase as in June. The index for shelter was by far the largest contributor to the monthly all-items increase, accounting for over 90% of the increase, with the index for motor vehicle insurance also contributing. The food index increased 0.2% in July after increasing 0.1% the previous month. The index for food at home increased 0.3% over the month while the index for food away from home rose 0.2% in July. The energy index rose 0.1% in July as the major energy component indexes were mixed.

The index for all items less food and energy rose 0.2% in July, as it did in June. Indexes which increased in June include shelter, motor vehicle insurance, education, and recreation. The indexes for airline fares, used cars and trucks, medical care, and communication were among those that decreased over the month.

The all-items index increased 3.2% for the 12 months ending July, slightly more than the 3.0% increase for the 12 months ending in June. The index for all items less food and energy rose 4.7% over the last 12 months. The energy index decreased 12.5% for the 12 months ending July, and the food index increased 4.9% over the last year.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.3% in July (+0.2% expected). Final demand prices were unchanged in June and declined 0.3% in May. On an unadjusted basis, the index for final demand advanced 0.8% for the 12 months ended in July.

In July, the increase in final demand prices was led by a 0.5% rise in the index for final demand services. Prices for final demand goods edged up 0.1%.

The index for final demand less foods, energy, and trade services moved up 0.2% in July, the largest increase since a 0.3% rise in February. For the 12 months ended in July, prices for final demand less foods, energy, and trade services advanced 2.7%.

Final Demand

Final demand services: The index for final demand services increased 0.5% in July, the largest rise since moving up 0.5% in August 2022. Leading the broad-based advance in July, prices for final demand services less trade, transportation, and warehousing climbed 0.3%. Margins for final demand trade services rose 0.7%, and the index for final demand transportation and warehousing services moved up 0.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Forty percent of the July advance in the index for final demand services can be traced to a 7.6% rise in prices for portfolio management. The indexes for machinery and vehicle wholesaling; outpatient care (partial); chemicals and allied products wholesaling; securities brokerage, dealing, investment advice, and related services; and transportation of passengers (partial) also moved higher. Conversely, margins for food and alcohol retailing declined 2.5%. The indexes for application software publishing and for long-distance motor carrying also fell.

Final demand goods: Prices for final demand goods edged up 0.1% in July after no change in June. The July increase is attributable to the index for final demand foods, which rose 0.5%. Prices for final demand goods less foods and energy and for final demand energy were both unchanged.

Product detail: Within the index for final demand goods in July, prices for meats rose 5.0%. The indexes for gas fuels; hay, hayseeds, and oilseeds; utility natural gas; and motor vehicles also moved higher. In contrast, prices for diesel fuel dropped 7.1%. The indexes for gasoline, fresh fruits and melons, and plastic resins and materials also decreased.

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

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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.

June 2023 International Trade (Softwood Lumber)

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With June exports of goods and services at $247.5 billion (-0.1% MoM; -4.3.2% YoY) and imports at $313.0 billion (-1.0% MoM; -7.8% YoY), the net trade deficit was $65.5 billion (-4.1% MoM; -19.0% YoY). 

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Softwood lumber exports edged down (13 MMBF or -11.2%) in June, along with imports (82 MMBF or -6.3%). Exports were 23 MMBF (-17.7%) below year-earlier levels; imports: 218 MMBF (-15.2%) lower. As a result, the year-over-year (YoY) net export deficit was 195 MMBF (-15.0%) smaller. Also, the average net export deficit for the 12 months ending June 2023 was 1.8% 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: 37.0%; Canada: 21.7%), Asia (16.3%; especially China: 4.3%), and the Caribbean (20.4%; especially the Dominican Republic: 6.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 97.9% higher than the same month of the prior year. Meanwhile, Canada was the source of most (83.0%) softwood lumber imports into the United States. Imports from Canada were 8.5% lower YTD/YTD. Overall, YTD exports were down 2.1% compared to the prior year; imports: -6.3%.

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U.S. softwood lumber export activity through the West Coast customs region represented 33.9% of the U.S. total; Gulf: 34.9%, and Eastern: 22.0%. Seattle (13.3% of the U.S. total), Mobile (14.8%), San Diego (17.2%) and Laredo (13.3%) were the most active districts. At the same time, the Great Lakes customs region handled 55.3% of softwood lumber imports -- most notably the Duluth, MN district (18.6%) -- coming into the United States. The Eastern region comprised 20.1% of imports, but that volume was distributed among the districts.

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Southern yellow pine comprised 20.7% of all softwood lumber exports; Douglas-fir (15.5%), treated lumber (14.8%), other pine (10.2%) and finger-jointed (8.7%) 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.

July 2023 Currency Exchange Rates

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In July, the monthly average value of the U.S. dollar (USD) depreciated against Canada’s “loonie” (-0.6%), the euro (-2.1%), and the Japanese yen (-0.3%). On the broad trade-weighted index basis (goods and services) the USD weakened by 0.9% 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.

July 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 187,000 jobs in July (200,000 expected). May and June 2023 employment changes were revised down by a combined 49,000 (May: -25,000; June: -24,000); in fact, employment gains have now been revised lower for every historical month in 2023. Meanwhile, the unemployment rate (based upon the BLS’s household survey) slipped 0.1 percentage point (PP) to 3.5%, as the change in the number of employed (+268,000) again outpaced the expansion of the labor force (+152,000). 

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Observations from the employment reports include:

* Goods-producing industries added 18,000 jobs; service providers: +169,000. Industries with significant employment growth included health care (+63,000), social assistance (+24,100), financial activities (+19,000), and wholesale trade (+17,900). Total nonfarm employment (156.3 million) is now 4.0 million jobs above its pre-pandemic level in February 2020 (private sector: +4.1 million; public sector: -170,000). That said, employment is also perhaps 5.3 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing lost 2,000 jobs, led by nondurable goods (-10,000). That result agrees with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which contracted further (to 44.4) in July. Wood products manufacturing shed 1,700 jobs (ISM was unchanged); paper manufacturing: -700 (ISM increased); construction: +19,000 (ISM rose).

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* The number of employment-age persons not in the labor force edged up (+49,000) to nearly 99.9 million; that level is 4.7 million higher than in February 2020. Because growth in the number of employed (+268,000) outpaced working-age civilian population growth (+201,000), the employment-population ratio (EPR) ticked up to 60.4%, which is 0.7PP below its February 2020 level. 

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* With the working-age civilian population growing by 201,000 and labor force expanding by 152,000, the labor force participation rate remained at 62.6%. Average hourly earnings of all private employees nudged up by $0.14 (to $33.74), and the year-over-year increase accelerated to +5.1%. Despite the average workweek for all employees on private nonfarm payrolls contracting to 34.3 hours, average weekly earnings rose (+$1.44) to $1,157.28 (+5.7% YoY). With the consumer price index running at an annual rate of +3.0% in June, the average worker appears to have gained a bit of purchasing power. Average hourly wages have generally lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time workers fell (-585,000) to 134.3 million; there are now 3.5 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 7.4 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 -- retreated by 191,000, while those working part time for non-economic reasons jumped (+704,000); multiple-job holders: +118,000. 

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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 July dipped by $3.2 billion, to $242.5 billion (-1.3% MoM; +6.3% 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 July was up 3.6% from 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.

July 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 contraction in the sector during July. The PMI registered 46.4%, up 0.4 percentage point (PP) from June’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. All subindexes remained below 50; the largest changes occurred among order backlogs (+4.1PP), employment (-3.7PP), customer inventories (+2.5PP), and supplier inventories (+2.1PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded more slowly (-1.2PP, to 52.7%). Order backlogs (+8.2PP), inventories (-5.5PP), and prices paid (+2.7PP) exhibited the largest changes.

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

Real Estate. “Sales have been steady.”

 

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

Manufacturing. Decline in manufacturing performance softens in July.

Key findings:
* Output little changed as contraction in new orders eases
* Renewed rise in input costs
* Employment growth quickens amid stronger optimism

 

Services. Business activity growth eases as demand conditions soften in July.

Key findings:
* Slower rise in new business despite sharper uptick in exports
* Input cost inflation eases but selling prices rise at faster pace
* Employment growth weakens

 

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

Manufacturing. “Manufacturing continues to act as a drag on the US economy, the recent spell of malaise persisting at the start of the third quarter. However, producers are clearly shrugging off recession fears and planning for better times ahead.

“The sector continued to suffer from lower demand, as a post-pandemic shift in spending from goods to services, and an ongoing trend of cost-focused inventory reduction, led to a further drop in orders. The overall rate of order book decline nevertheless moderated during the month, helped by a slower decline in exports, to help stabilize production.

“There were several other encouraging bright spots in the survey, most notably including a marked improvement in business expectations for output in the year ahead. Firms are therefore anticipating the current soft patch to soon pass, and importantly are hiring more staff as a result.

“There was also good news on the inflation front. The combination of weak demand and improved supply led to a further “buyers’ market” for many goods. Prices charged for goods consequently barely rose for a third straight month, which should help subdue consumer price inflation in the near term.”

 

Services. “The service sector remains the main engine of growth in the US economy, though there are signs of the motor spluttering amid rising headwinds. Business activity rose in July at the slowest rate since February, with the rate of expansion sliding further from May’s recent peak in response to sharply reduced growth of new business. Although spending from foreigners in the US continues to grow strongly as the post-pandemic travel surge shows signs of persisting, demand growth waned from domestic customers, often linked to the rising cost of living and higher interest rates.

“Reflecting concerns that the upturn is faltering, companies have become much less optimistic about the outlook and reined-in their hiring as a result.

“An additional concern is that prices charged for services rose at an accelerated rate in July, often linked to higher staff costs. Such a wage-led stickiness of inflation in the vast service sector will naturally worry policymakers.

“With the weakening service sector expansion accompanied by a near-stalled manufacturing sector, the overall message from the surveys is that economic growth weakened at the start of the third quarter, cooling to an annualized rate of around 1.5%. The survey’s price gauges, however, continue to signal a stubbornness of inflation around the 3% mark.”

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.

June 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 June increased $0.7 billion or 0.1% to $573.9 billion. Durable goods shipments increased $0.5 billion or 0.2% to $284.0 billion, led by fabricated metal products. Meanwhile, nondurable goods shipments increased $0.2 billion or 0.1% to $290.0 billion, led by beverage and tobacco products. Shipments of wood products decreased 0.4%; paper: -0.2%.

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Inventories decreased $0.3 billion or less than -0.1% to $853.1 billion. The inventories-to-shipments ratio was 1.49, unchanged from May. Inventories of durable goods increased $0.7 billion or 0.1% to $523.4 billion, led by machinery. Nondurable goods inventories decreased $1.0 billion or 0.3% to $329.7 billion, led by petroleum and coal products. Inventories of wood products contracted by 0.9%; paper: -0.3%.

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New orders increased $13.4 billion or 2.3% to $592.0 billion. Excluding transportation, new orders rose by $1.1 billion or 0.2% (-5.3% YoY). Durable goods orders increased $13.2 billion or 4.6% to $302.1 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.1 billion or 0.1% (+1.5% YoY). New orders for nondurable goods increased $0.2 billion or 0.1% to $290.0 billion.

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Unfilled durable-goods orders increased $23.1 billion or 1.8% to $1,325.1 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.74, up from 6.64 in May. 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 104% of their December 2008 peak. Real unfilled orders then jumped to 110% of the prior peak in February 2015, thanks to the largest-ever batch of aircraft orders. Real unfilled orders trended lower through 2020, but have since exhibited a modest upward trend.

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

July 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil increased by $5.82 (+8.3%) to $76.07/barrel in July. That advance occurred within the context of a somewhat weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of May’s increase of 330,000 barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 20.8 million b/d), and accumulated oil stocks that continued trending downward below the midpoint of the five-year average range (July 2023 average: 453 million barrels). 

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

Oil prices ended July on an “up” note, “fueled in part by supply concerns and in part by growing optimism about a 'soft landing' for the U.S. economy,” wrote OilPrice.com’s Michael Kern. “The strength of the U.S. economy has added fuel to the recent rally in oil prices, with the 2.4% quarter-on-quarter growth in Q2 prompting many to believe again in the possibility of a soft landing. Even though China's hoarding of crude does not necessarily look good for the upcoming months as Chinese refiners might suddenly start buying significantly less than they do now and start running down stocks, there's so far very little immediate downside” to oil pricing.

Greenpeace Picks Another Fight Against UK Oil. Environmental campaign group Greenpeace took the UK government to court over its holding of the 2022 exploration licensing round, saying the authorities failed to assess end-use emissions from future hydrocarbon production.

Chinese Oil Stockpiles Shoot Through the Roof. Boosted by all-time high imports of Russian crude and year-on-year doubling Iranian flows, China has amassed almost 1 billion barrels in crude inventories, the highest level of stocks in almost three years, potentially drawing from them in H2.

Court Decision Greenlights Key U.S. Pipeline. The U.S. Supreme Court granted the operator of the Mountain Valley Pipeline, a longtime-planned gas conduit running through Virginia, the right to build a 3.5-mile section through the Jefferson National Forest, dealing a blow to years of environmentalist protests.

Heat Sends U.S. Power Prices Soaring. As U.S. electricity prices soar amidst a crippling heatwave, taking PJM Western prices to the highest since February, the operator of the Midwest's power grid was forced to declare a level-one emergency in 13 states stretching from Illinois to New Jersey.

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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.