3Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2023 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 +5.16% (+4.9% expected), up 0.29 percentage point (PP) from the “advance” estimate (“3Qv1”) and +3.10PP from 2Q2023.

As with 3Qv1, 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 3Q percent-change headline. Net exports (NetX) detracted from it. The 3Qv2 update reflected “upward revisions to nonresidential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending,” the BEA wrote, adding, “Imports, which are a subtraction in the calculation of GDP, were revised down.”

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As for details (billions of chained 2017 dollars; all relative to 3Qv1) --

PCE (-$14.7B):

• Goods (-$1.4B). Spending on durable goods retreated ($3.9B), led by motor vehicles and parts (-$3.3B).
• Services (-$13.1B). Household consumption expenditures fell ($10.6B), led by a combination of financial services and insurance (-$6.7B) and other services (-$4.5B)

PDI (+$19.4B):

• Fixed investment (+$15.3B). Gains in nonresidential investment (+$11.0B) were led by structures (+$8.0B). Residential fixed investment was revised by +$4.1B.
• Inventories (+$3.3B). Nonfarm inventories (+$2.9B) led the gain in this category.

NetX (+$2.3B):

• Exports (-$1.6B). Services (-$1.9B) led the downward revision in this category.
• Imports (-$3.7B). Here, too, services (-$4.2B) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision boosted NetX relative to 3Qv1.

GCE (+$8.3B):

• Federal (+$2.9B). Nondefense consumption expenditures (+$2.5B) led this category.
• State and local (+$5.5B). Gross investment (+$5.2B) dominated.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.76% (+0.21PP from 3Qv1), a level 1.70PP above the 2Q2023 estimate. QoQ growth in gross domestic income, by contrast, was reported to be a less “zippy” +1.5%, up from +0.5% in 1&2Q2023.

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“Evidence of economic strength over the summer could mislead some to assume the economy is on a strong trajectory — it is not,” said chief economist Gregory Daco of EY Parthenon.

“Nothing [in this report] was sufficient to change the economy’s overall trajectory nor the expectation that growth will slow significantly in the fourth quarter,” added chief economist Joshua Shapiro of MFR Inc.

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.

October 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in October 2023 were at a seasonally adjusted annual rate (SAAR) of 679,000 units (725,000 expected). This is 5.6% (±12.3%)* below the revised September rate of 719,000 (originally 759,000 units), but 17.7% (±17.9%)* above the October 2022 SAAR of 577,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +18.6%. For longer-term perspectives, NSA sales were 51.1% below the “housing bubble” peak and 2.5% below the long-term, pre-2000 average.

The median sales price of new houses sold in October was $409,300 (-3.1% MoM, or $13,000). The average sales price was $487,000 (-5.5%, or $28,400). Homes priced at/above $750,000 comprised 9.8% of sales, down from the year-earlier 14.0%.

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

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As mentioned in our post about housing permits, starts and completions in October, single-unit completions slipped by 9,000 units (-0.9%). Sales fell by a greater amount (40,000 units, or -5.6%), resulting in inventory for sale expanding in both absolute (+6,000 units) and months-of-inventory terms (+0.6 month). 

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Existing home sales retreated (160,000 units or -4.1) in October to a SAAR of 3.79 million units (3.91 million expected). The inventory of existing homes for sale expanded in both absolute (+20,000 units) and months-of-inventory (+0.2 month) terms. Because new sales retreated more dramatically (on a proportional basis) than resales, the share of total sales comprised of new homes decreased to 15.2%. The median price of previously owned homes sold in October dipped to $391,800 (-0.3% or $1,000).

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Housing affordability rose 1.7 percentage points as the median price of existing homes for sale in September retreated by $11,000 (-2.7% MoM; +2.5% YoY) to $399,200. 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 +0.3% (but +3.9% YoY).

“U.S. home prices continued their rally in September 2023,” said Craig Lazzara, Managing Director at S&P DJI. “Our National Composite rose by 0.3% in September, marking eight consecutive monthly gains since prices bottomed in January 2023. The Composite now stands 3.9% above its year-ago level and 6.6% above its January level. Our 10- and 20-City Composites both rose in September, and likewise currently exceed their year-ago and January levels.

“We’ve commented before on the breadth of the housing market’s strength, which continued to be impressive. On a seasonally adjusted basis, all 20 cities showed price increases in September; before seasonal adjustments, 15 rose. Prices in 17 of the cities are higher than they were in September 2022. Notably, the National Composite, the 10-City Composite, and 10 individual cities (Atlanta, Boston, Charlotte, Chicago, Cleveland, Detroit, Miami, New York, Tampa, and Washington) stand at their all-time highs.

“On a year-over-year basis, the three best-performing metropolitan areas in September were Detroit (+6.7%), San Diego (+6.5%), and New York (+6.3%). San Diego’s presence breaks the Rust Belt’s recent grip on the top three positions, but the bottom three continue to have a western flavor. Year-over-year, September’s worst performers were Las Vegas (-1.9%), Phoenix (-1.2%), and Portland (-0.7%). The Northeast (+5.3%) and Midwest (+5.0%) continue as the nation’s strongest regions, while the West (-1.3%) remains the weakest.

“On a year-to-date basis, the National Composite has risen 6.1%, which is well above the median full calendar year increase in more than 35 years of data. Although this year’s increase in mortgage rates has surely suppressed the quantity of homes sold, the relative shortage of inventory for sale has been a solid support for prices. Unless higher rates or exogenous events lead to general economic weakness, the breadth and strength of this month’s report are consistent with an optimistic view of future results.”

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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.

October 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in October at a seasonally adjusted annual rate (SAAR) of 1,372,000 units (1.350 million expected). This is 1.9% (±13.5%)* above the revised September estimate of 1,346,000 (originally 1.358 million units), but 4.2% (±10.0%)* below the October 2022 SAAR of 1,432,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -5.1%.

Single-family housing starts in October were at a SAAR of 970,000; this is 0.2% (±8.8%)* above the revised September figure of 968,000 units (+12.4% YoY). Multi-family: 402,000 units (+6.3% MoM; -30.9% YoY).

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

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Total completions were at a SAAR of 1,410,000. This is 4.6% (±11.6%)* below the revised September estimate of 1,478,000 (originally 1.453 million units), but 4.6% (±13.2%)* above the October 2022 SAAR of 1,348,000 units; the NSA comparison: +3.5% YoY.

Single-family housing completions in October were at a SAAR of 993,000; this is 0.9% (±12.3%)* below the revised September rate of 1,002,000 units (+0.8% YoY). Multi-family: 417,000 units (-12.4% MoM; +10.2% YoY).

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Total permits were at a SAAR of 1,487,000 units (1.463 million expected). This is 1.1% above the revised September rate of 1,471,000 (originally 1.473 million units), but 4.4% below the October 2022 SAAR of 1,555,000 units; the NSA comparison: -0.4% YoY.

Single-family authorizations in October were at a rate of 968,000; this is 0.5% above the revised September figure of 963,000 units (+19.0% YoY). Multi-family: 519,000 units (+2.2% MoM; -23.0% YoY).

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Press release from NAHB’s Robert Dietz:

“High mortgage rates that approached 8% earlier this month continue to hammer builder confidence, but recent economic data suggest housing conditions may improve in the coming months.

“Builder confidence in the market for newly built single-family homes in November fell six points to 34 in November, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fourth consecutive monthly drop in builder confidence, as sentiment levels have declined 22 points since July and are at their lowest level since December 2022. Also of note, nearly the entire HMI data for November was collected before the latest Consumer Price Index was released and showed that inflation is moderating.

“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market. Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory. While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months. In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.

“NAHB is forecasting approximately a 5% increase for single-family starts in 2024 as financial conditions ease with improving inflation data in the months ahead.

“But with mortgage rates running above 7% since mid-August, per Freddie Mac data, many builders continue to reduce home prices to boost sales. In November, 36% of builders reported cutting home prices, up from 32% in the previous two months. This is the highest share of builders cutting prices during this cycle, tying the previous high point set in November 2022. The average price reduction in November remained at 6%, unchanged from the previous month. Meanwhile, 60% of builders provided sales incentives of all forms in November, down slightly from 62% in October.”

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.

October 2023 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) declined 0.6% in October (-0.3% expected). Manufacturing output fell 0.7%. Much of this decline was due to a 10% drop in the output of motor vehicles and parts that was affected by strikes at several major manufacturers of motor vehicles—the index for manufacturing excluding motor vehicles and parts edged up 0.1%. The index for utilities decreased 1.6%, and the output of mines increased 0.4%. Total IP in October was 0.7% below its year-earlier level. 

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Market Groups

The output of major market groups was mixed in October, with the drop in motor vehicles and parts output exerting downward pressure on a number of categories. The index for consumer durables dropped 5.8%, led by a 10.3% decrease in the index for automotive products, while the production of consumer nondurable goods edged up 0.1%. The output of business equipment moved down 0.5% because of a drop in the transit component. The index for defense and space equipment rose 1.7% in October, its 10th consecutive monthly increase. The index for construction supplies edged up 0.2% and business supplies moved down 0.4%. Within materials, the largest decline was in durable materials, which includes automotive parts.

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Industry Groups

Manufacturing output dropped 0.7% in October and was 1.7% below its year-earlier level. The index for durable manufacturing slid 1.3% in October, and the index for nondurable manufacturing edged down 0.1%. Other manufacturing (publishing and logging) moved up 0.5%.

Within durable manufacturing, the output of motor vehicles and parts posted the largest decline (10%). Elsewhere, decreases were also seen in the indexes for primary metals (1.7%) as well as furniture and related products (1.4%), while the largest increases were recorded by computer and electronic products (1.9%) as well as electrical equipment, appliances, and components (1.5%); wood products (-0.4%). Within nondurable manufacturing, gains in the indexes for petroleum and coal products (2.2%) and paper (0.7%) were offset by declines in the indexes for plastics and rubber products (2.2%) and chemicals (0.6%).

Mining output moved up 0.4% in October and was 2.2% above its year-earlier level. The index for utilities, however, dropped 1.6% in October but was 2.9% above its year-earlier level.

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Capacity utilization (CU) moved down 0.6 percentage point to 78.9% in October, a rate that is 0.8PP below its long-run (1972–2022) average.

Manufacturing CU moved down 0.6PP to 77.2% in October, a rate that is 1PP below its long-run (1972–2022) average; wood products: -0.4%; paper: +0.8%. The operating rate for mining increased 0.5PP to 94.3%, a rate that is 7.9PP above its long-run average. The operating rate for utilities decreased 1.3PP to 71.4%, 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 130.2% of 2017 output. Manufacturing also edged up by 0.1% (+1.4% YoY) to 129.1%. Wood products: less than +0.1% (+0.7% YoY) to 120.1%; paper products: -0.1% (-1.0% YoY) to 105.5%.

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.

October 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) was essentially unchanged in October (+0.1% expected), after increasing 0.4% in September. Over the last 12 months, the all-items index increased 3.2% before seasonal adjustment.

The index for shelter continued to rise in October, offsetting a decline in the gasoline index and resulting in the seasonally adjusted index being unchanged over the month. The energy index fell 2.5% over the month as a 5.0% decline in the gasoline index more than offset increases in other energy component indexes. The food index increased 0.3% in October, after rising 0.2% in September. The index for food at home increased 0.3% over the month while the index for food away from home rose 0.4%.

The index for all items less food and energy rose 0.2% in October, after rising 0.3% in September. Indexes which increased in October include rent, owners' equivalent rent, motor vehicle insurance, medical care, recreation, and personal care. The indexes for lodging away from home, used cars and trucks, communication, and airline fares were among those that decreased over the month.

The all-items index rose 3.2% for the 12 months ending October, a smaller increase than the 3.7% increase for the 12 months ending September. The index for all items less food and energy rose 4.0% over the last 12 months, its smallest 12-month change since the period ending in September 2021. The energy index decreased 4.5% for the 12 months ending October, and the food index increased 3.3% over the last year.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) fell 0.5% in October (+0.1% expected), after  advancing 0.4% in September. The October decline is the largest decrease in final demand prices since a 1.2% drop in April 2020. On an unadjusted basis, the index for final demand rose 1.3% for the 12 months ended in October.

In October, the index for final demand goods fell 1.4%. Prices for final demand services were unchanged.

The index for final demand less foods, energy, and trade services advanced 0.1% in October, the fifth consecutive rise. For the 12 months ended in October, prices for final demand less foods, energy, and trade services moved up 2.9%.

Final Demand

Final demand goods: Prices for final demand goods moved down 1.4% in October, the first decrease since falling 1.5% in May. A major factor in the October decline was the index for final demand energy, which dropped 6.5%. Prices for final demand foods fell 0.2%. Conversely, the index for final demand goods less foods and energy edged up 0.1%.

Product detail: Over 80% of the October decline in the index for final demand goods is attributable to a 15.3% drop in prices for gasoline. The indexes for diesel fuel; hay, hayseeds, and oilseeds; home heating oil; liquefied petroleum gas; and light motor trucks also fell. (In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October.) In contrast, prices for tobacco products increased 2.4%. The indexes for butter and for residual fuels also moved up.

Final demand services: Prices for final demand services were unchanged in October following six consecutive advances. In October, increases of 1.5% in the index for final demand transportation and warehousing services and 0.1% in prices for final demand services less trade, transportation, and warehousing offset a 0.7% decline in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Within the index for final demand services in October, prices for airline passenger services rose 3.1%. The indexes for chemicals and allied products wholesaling, inpatient care, outpatient care (partial), and truck transportation of freight also increased. Conversely, margins for machinery and vehicle wholesaling declined 2.9%. The indexes for apparel, footwear, and accessories retailing; portfolio management; traveler accommodation services; and health, beauty, and optical goods retailing also fell.

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The not-seasonally adjusted price indexes we track were mostly lower on a MoM basis and all lower YoY.

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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.

September 2023 International Trade (Softwood Lumber)

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With September exports of goods and services at $261.1 billion (+2.2% MoM; +0.5% YoY) and imports at $322.7 billion (+2.7% MoM; -2.7% YoY), the net trade deficit was $61.5 billion (+4.9% MoM; -14.2% YoY).

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Softwood lumber exports ticked down (1 MMBF or -1.2%) in September, while imports rose (37 MMBF or +3.2%). Exports were 6 MMBF (+5.6%) above year-earlier levels; imports: 70 MMBF (-5.5%) lower. As a result, the year-over-year (YoY) net export deficit was 75 MMBF (-6.5%) smaller. Also, the average net export deficit for the 12 months ending September 2023 was 6.9% 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 (57.0% of total softwood lumber exports -- of which Mexico: 37.4%; Canada: 19.6%), Asia (16.1% -- especially Japan; 4.1%; China: 2.5%), and the Caribbean (20.1% -- especially the Dominican Republic: 7.2%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 56.5% higher than the same month of the prior year. Meanwhile, Canada was the source of most (84.1%) softwood lumber imports into the United States. Imports from Canada were 9.2% lower YTD/YTD. Overall, YTD exports were down 3.6% compared to the prior year; imports: -8.2%.

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U.S. softwood lumber export activity through the Gulf customs region represented 37.6% of the U.S. total; West Coast: 31.3%, and Eastern: 21.6%. Mobile (16.2% of the U.S. total), San Diego (16.1%) Laredo (15.3%), and Seattle (12.1%) were the most active districts. At the same time, the Great Lakes customs region handled 56.4% of softwood lumber imports -- most notably the Duluth, MN district (18.2%) -- coming into the United States. 

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Southern yellow pine comprised 26.9% of all softwood lumber exports; Douglas-fir (13.0%), treated lumber (13.5%), other pine (10.3%) and finger-jointed (9.8%) 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.

October 2023 Currency Exchange Rates

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In October, the monthly average value of the U.S. dollar (USD) appreciated against Canada’s “loonie” (+1.3%), the euro (+1.0%), and the Japanese yen (+1.2%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 1.5% 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.

October 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 150,000 jobs in October (well below the 179,000 expected) -- a drop of more than 50% from the original September print, and the second-smallest gain of 2023. Also, August and September 2023 employment changes were revised down by a combined 101,000 (August: -62,000; September: -39,000). With these revisions, only July’s employment gain remains higher than the original estimate; all other months of 2023 have been revised lower.

Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up to 3.9%, as the retreat in the number of employed (-348,000) exceeded the labor-force shrinkage of (-201,000). 

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Observations from the employment reports include:

* The two surveys diverged, which erodes their credibility. In addition, the CES (business birth/death model) adjustment (+412,000) was the second largest in history -- surpassed by only October 2022’s +511,000; i.e., the CES data implies the second-fastest rate of business formation (or at least hiring) in history. Also, although the seasonal adjustment was a record high, it was smaller than might have been expected (+940,000) based on a trend of October adjustments encompassing the prior decade.

* Goods-producing industries lost 11,000 jobs; service providers: +161,000. Job gains occurred in health care (+58,400), government (+51,000), and social assistance (+18,800). Total nonfarm employment (156.9 million) is now nearly 4.6 million jobs above its pre-pandemic level in February 2020 (private sector: +4.5 million; public sector: +21,000). Nonetheless, employment is perhaps 5.1 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing shed 35,000 jobs (led by durable goods: -36,000), thanks to a decline of 33,000 in motor vehicles and parts that was largely due to strike activity. That result may be consistent with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which fell back into contraction (46.8) in October. Wood products manufacturing lost 200 jobs (ISM was unchanged); paper manufacturing: +600 (ISM decreased); construction: +23,000 (ISM increased).

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* The number of employment-age persons not in the labor force jumped (+416,000) to 99.9 million; that level is 4.7 million higher than in February 2020. Because the working-age civilian population expanded (+214,000) while the number of employed shrank (-348,000), the employment-population ratio (EPR) dipped to 60.2%, which is 0.9PP below its February 2020 level. 

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* Also, because the working-age civilian population grew by 214,000 while the labor force shrank by 201,000, the labor force participation rate decreased fractionally to 62.7%. Average hourly earnings of all private employees nudged up by $0.07 (to $34.00), and the year-over-year increase decelerated to +4.0%. However, because the average workweek for all employees on private nonfarm payrolls edged down to 34.3 hours, average weekly earnings fell (-$0.99) to $1,166.20 (+3.4% YoY). With the consumer price index running at an annual rate of +3.7% in September, the average worker appears likely to have once again fallen behind in terms of purchasing power. 

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* Full-time workers rose (+326,000) 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 8.0 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 -- jumped by 218,000, while those working part time for non-economic reasons dropped (-613,000); multiple-job holders: +205,000. 

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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 October advanced by $16.77 billion, to $252.5 billion (+7.1% MoM; +2.1% 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 October was down 1.6% 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.

October 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 faster contraction in the sector during October. The PMI registered 46.7%, down 2.3 percentage points (PP) from September’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. Only the production subindex remained above 50; the largest changes occurred among employment (-4.4PP), new orders (-3.7PP), and inventories (-2.5PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-1.8PP, to 51.8%). Exports (-14.9PP), imports (+9.4PP), inventories (-4.7PP), and business activity (-4.7PP) exhibited the largest changes.

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Of the industries we track, only Construction expanded. Respondent comments included the following --

Construction. “Strength in certain construction sectors is leading to continued optimism. Construction equipment and materials are generally at lower prices and with faster deliveries. However, this is not the case for all materials or equipment; some prices remain high and with long lead (times).”

 

Changes in S&P Global‘s headline index values both rose, albeit marginally. Details from S&P Global’s surveys follow --

Manufacturing. US manufacturing conditions stabilize amid renewed rise in new orders.

Key findings:

• Output expansion quickens as sales return to growth
• First fall in employment since July 2020
• Inflationary pressures strengthen

Services. Stronger expansion in output, but demand remains fragile. Inflationary pressures at three-year low.

Key findings:

• Greater employment supports faster upturn in activity
• New orders continue to fall
• Slowest rises in input prices and output charges for three years

 

Manufacturing. “October PMI data signaled a stabilization of US manufacturing conditions amid a renewed rise in new order inflows and firmer output growth,” wrote Siân Jones, Principal Economist at S&P Global Market Intelligence. “Demand conditions reportedly showed signs of improvement as customer interest revived, but this was once again largely focused on the domestic market as new export orders fell at a quicker rate.

“Of concern were reports of dwindling backlogs of work, previously used to help support production, as firms also revised down their expectations for future output to the lowest in 2023 so far. At the same time, manufacturers cut employment for the first time in over three years as workloads were reportedly insufficient to warrant additional hiring or the replacement of voluntary leavers.

“On the price front, manufacturers saw sharper increases in costs and output charges, as inflation regained some momentum in the sector. Higher oil and oil-derived input prices again spurred hikes, as rates of inflation accelerated for the third month running.”

 

Services. “The PMI survey paints a far more subdued picture of US economic health than the latest bumper GDP numbers, with October seeing very muted growth of business activity for a third successive month,” wrote Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “A summer surge in service sector activity, fueled by rising consumer spending, has stalled. Manufacturing is meanwhile also struggling to regain momentum amid weak global demand. As such, the survey data are broadly consistent with GDP rising at an annual rate of around 1.5%.

“An upside to the weak demand environment is the further cooling of price pressures in October, which brings the Fed’s 2% target into focus for the first time in three years.

“The brighter outlook for inflation and hopes of a commensurate peaking of interest rates have helped lift business confidence in year-ahead prospects, but new business inflows need to pick up in both services as well as manufacturing to ensure robust growth can be sustained as we head towards the end of the year.”

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.

September 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 September increased $2.1 billion or 0.4% to $588.1 billion. Durable goods shipments decreased $0.9 billion or 0.3% to $283.6 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.0 billion or 1.0% to $304.5 billion, led by petroleum and coal products. Shipments of wood products decreased 0.3%; paper: 0.0%.

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Inventories increased $2.0 billion or 0.2% to $857.3 billion. The inventories-to-shipments ratio was 1.46, unchanged from August. Inventories of durable goods increased $0.5 billion or 0.1% to $523.6 billion, led by machinery. Nondurable goods inventories increased $1.5 billion or 0.4% to $333.7 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.2%; paper: -0.1%.

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New orders increased $16.1 billion or 2.8% to $601.5 billion. Excluding transportation, new orders rose by $3.8 billion or 0.8% (-0.8% YoY). Durable goods orders increased $13.1 billion or 4.6% to $297.0 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.5 billion or 0.5% (+0.5% YoY). New orders for nondurable goods increased $3.0 billion or 1.0% to $304.5 billion.

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Unfilled durable-goods orders increased $18.4 billion or 1.4% to $1,353.6 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.88, up from 6.78 in August. 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.

October 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil decreased by $3.59 (-4.0%) to $85.84/barrel in October. That retreat occurred within the context of a somewhat stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of August’s increase of 757,000 barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 20.9 million b/d), and accumulated oil stocks that trended marginally upward -- but still well below the midpoint of the five-year average range (October 2023 average: 422 million barrels). 

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

“Oil prices are once again under pressure due to uncertainty about China’s economy, with the latest manufacturing data reigniting demand fears,” wrote editor Tom Kool. “Bearish sentiment around China’s economy dropped away in recent months, but October’s manufacturing activity data will undoubtedly bring back the issue of weaker Chinese demand to the global crude agenda. Surprising virtually everyone, China’s manufacturing PMI index dropped to 49.5 from 50.2 in September, whilst non-manufacturing PMI indicated a slowdown in services growth. With Brent trending around $88 per barrel, it seems it would take a serious escalation in the Middle East to send oil prices spiking.”

BP Shares Drop After Lukewarm Q3 Result. Adversely impacted by a $540 million write-down on offshore wind projects in New York as well as weak natural gas results, BP reported third-quarter earnings of $3.3 billion, missing analysts’ $4 billion forecast and prompting a 5% share drop on Tuesday.

Venezuelan Refining Collapses. Just as Venezuela prepares to ramp up crude exports amidst a 6-month sanctions clearance, the country’s 955,000 b/d Paraguana refining complex saw the closure of two CDUs due to fires and lack of feedstock, lowering its utilization rate to as little as 10%.

Investors Start Shorting Crude Futures. Hedge funds and other money managers sold the equivalent of 14 million barrels in the six most important oil futures and options contracts in the week ending October 24, marking the fourth time in five weeks that funds were net sellers.

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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.