Macro Pulse

December 2011 International Trade

2012-02-22T10:55:00.000-08:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume increased by 1.4 percent in December from the previous month, following a revised rise of 0,8 percent in November. Regional results were mixed: Emerging economies generally did better than advanced economies; Japanese and Euro Area imports continued to decline.

Over the whole of 2011, trade went up by 5.6 percent (2010 average to 2011 average). Emerging economies again outpaced advanced economies. Earthquake-hit Japan has been struggling to recover. In the Euro Area both imports and exports advanced slowly.

World trade prices rose by 1.6 percent in December and averaged +1.1 percent during 4Q.

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Total December exports of $178.8 billion and imports of $227.6 billion resulted in a goods and services deficit of $48.8 billion, up from $47.1 billion in November. December exports were $1.1 billion more than in November, while imports were $3.0 billion higher.

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Paper exports more than recouped November’s downturn when jumping by 285,000 tons (9.8 percent) in December; imports ticked down by 18,000 tons (4.3 percent). Exports remained 14,000 tons (0.4 percent) above year-earlier levels, but imports were 29,000 tons (6.9 percent) lower.

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Softwood lumber exports fell by 7 MMBF (5.3 percent) in December and imports advanced by 32 MMBF (4.2 percent). Exports were 11 MMBF (9.3 percent) higher than year-earlier levels; imports were 61 MMBF (8.3 percent) higher.

January 2012 Consumer and Producer Price Indices

2012-02-17T14:34:00.000-08:00

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The seasonally adjusted Consumer Price Index increased 0.2 percent in January. The not seasonally adjusted all-items index has risen 2.9 percent over the last 12 months, a slight decrease from last month's 3.0 percent figure. The index for energy has risen 6.1 percent over the last year and the food index 4.4 percent; both figures are slight declines from last month. The index for all items less food and energy has risen 2.3 percent, its largest 12-month increase since September 2008.

The seasonally adjusted Producer Price Index for finished goods (PPI) advanced 0.1 percent in January. Prices for finished goods declined 0.1 percent in December and moved up 0.2 percent in November. At the earlier stages of processing, the index for intermediate goods fell 0.4 percent in January, and crude goods prices increased 1.5 percent. On an unadjusted basis, the finished goods index advanced 4.1 percent for the 12 months ended January 2012, the smallest year-over-year rise since a 3.6-percent increase in January 2011.

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Details at different stages of processing include:

Finished goods -- The rise in finished goods prices can be attributed to the index for finished goods less foods and energy, which moved up 0.4 percent. By contrast, prices for finished energy goods and for finished consumer foods declined 0.5 percent and 0.3 percent, respectively.

Intermediate goods -- This index moved down 0.4 percent following a 0.2-percent decline in December. Over three-fourths of the broad-based decrease in January is attributable to prices for intermediate energy goods, which fell 1.4 percent. Also contributing to the decline in intermediate goods prices, the index for intermediate goods less foods and energy inched down 0.1 percent, and prices for intermediate foods and feeds decreased 0.4 percent. For the 12 months ended in January, the intermediate goods index rose 4.2 percent, the smallest year-over-year advance since a 2.9-percent increase in December 2009.

Crude goods -- The index for crude goods moved up 1.5 percent. For the three-month period ending in January, crude material prices rose 2.6 percent following a 1.1-percent decline from July to October. In January, nearly half of the broad-based monthly advance is attributable to a 1.6-percent increase in prices for crude energy materials. Also contributing to the January advance, the index for crude foodstuffs and feedstuffs moved up 1.6 percent, and prices for crude nonfood materials less energy rose 0.6 percent.

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At the end of 2011 the Bureau of Labor Statistics stopped reporting a couple of data series we have tracked on this blog -- “Softwood logs, bolts and timber” (WPU085101) and “Pulpwood” (WPU085103). We have substituted “Logs, bolts, timber, pulpwood, woodchips and other roundwood products” (WPU085) in the graph above -- simplified as “Wood Fiber.” The individual price indices we track either increased more slowly on a year-over-year basis in January or, in the case of softwood lumber, actually declined. All except softwood lumber were more expensive in January than a year earlier.

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January 2012 Industrial Production, Capacity Utilization and Capacity

2012-02-16T16:25:00.000-08:00

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Industrial production was unchanged in January, as a gain of 0.7 percent in manufacturing was offset by declines in mining and utilities. Within manufacturing, the index for motor vehicles and parts jumped 6.8 percent and the index for other manufacturing industries increased 0.3 percent. Total industrial production is now reported to have advanced 1.0 percent in December; the initial estimate had been an increase of 0.4 percent. This large upward revision reflected higher output for many manufacturing and mining industries. At 95.9 percent of its 2007 average, total industrial production in January was 3.4 percent above its level of a year earlier. Wood Products output shrank by 1.5 percent but Paper output rose by 0.7 percent.

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The capacity utilization rate for total industry decreased to 78.5 percent, a rate 1.8 percentage points below its long-run (1972--2011) average. Changes in Wood Products and Paper capacity utilization were split: respectively, -1.4 and +0.8 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); By contrast, Wood Products and Paper both dropped by 0.1 percent.

January 2012 U.S. Treasury Statement and Debt Overview

2012-02-16T11:45:00.000-08:00

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Outlays of $261.7 billion and receipts of $234.3 billion added $27.4 billion to the federal budget deficit in January. The federal debt held by the public stood at $15.223 trillion at the end of December.

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Foreigners held $4.732 trillion, or 31 percent of the U.S. public debt at the end of December. China remained the largest foreign creditor ($1.101 trillion) despite shedding $31.9 billion (2.8 percent) of Treasuries. The U.K., often considered a proxy for China, also sold $11.1 billion (2.6 percent) in December. Japan was the biggest buyer in both absolute and percentage change terms ($3.5 billion; 0.3 percent).

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The Federal Reserve “stood pat” with its holdings of U.S. Treasury securities in December.

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Central banks controlled 68 percent of the foreign-held U.S. Treasuries, down from 72 percent a year earlier.

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $87.1 billion in December; that brought the three-month moving average to $28.9 billion.

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Delving into the TIC report details revealed that short-term securities experienced a net outflow of $18.3 billion (bringing the three-month moving average to -$7.1 billion).

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Long-term U.S. public debt saw net inflows drop to $10.6 billion (3-month average = $30.3 billion), while private equities saw net outflows of $31.7 billion (3-month average = -$13.9 billion). This begs the question: How could net TIC flows be increasing if the components were all down? The answer appears to lie with the observation that banks’ own net dollar-denominated liabilities to foreign residents increased by $103.8 billion.

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Foreigners seem to be wavering in their commitment to hold Treasuries with the Federal Reserve, thereby creating considerable volatility in the monthly change of custodial holdings.

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A substantial share of the explanation for why U.S. interest rates fell to their current low levels came from foreign investors’ willingness to buy and hold U.S. Treasuries. (Note that the monthly change axis in the graph above is inverted to better show its correlation with the 10-year Treasury rate.) Rates could rise if those investors get “cold feet” and park more of their funds in other vehicles.

February 2012 Macro Pulse -- The Good, the Bad, and the Perplexing

2012-02-14T09:22:00.000-08:00

At least as far as the U.S. economy was concerned, data release headlines during the past month were, by and large, reasonably positive. More pessimistic information often emerged upon closer inspection, however. And then there were some real head-scratchers. Examples of each include….

Click here to read the entire February 2012 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

December 2011 U.S. Construction

2012-02-08T12:44:00.000-08:00

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Overall construction spending in the United States increased by 1.5 percent during December, to a seasonally adjusted and annualized rate (SAAR) of $816.4 billion. All categories posted increases; the private non-residential category exhibited the largest advance in both absolute and percentage terms (respectively, $9.1 billion and 3.3 percent).

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Despite the increase in residential construction spending, total housing starts fell by 4.1 percent in December, to 657,000 units (SAAR) – nearly 25 percent over year-earlier levels, but still more than 71 percent below the January 2006 peak. Single-family starts rose to 470,000 units (by +20,000 units or 4.4 percent); multi-family starts, by contrast, dropped to 187,000 units (by -48,000 units or 20.4 percent), 37.4 percent above year earlier levels.

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New-home sales retreated in December, by 2.2 percent, to 307,000 (SAAR). The median price of new homes sold dropped by 2.5 percent, to $210,300. Because single-unit starts rose while sales fell (respectively, 20,000 and -7,000), the three-month average starts-to-sales ratio jumped almost to 1.5 in December.

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Single-unit completions fell by 0.9 percent; the inventory of new single-family homes shrank in absolute terms (1,000 units) but expanded in months of inventory (0.1 month). Inventory stood at 157,000 units and 6.1 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.

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Existing home sales fared better than their new-home counterparts in December, rising by 220,000 units (SAAR) or 5.0 percent. The share of total sales comprised of new homes ticked down by 0.5 percentage point, to 6.2 percent. The impact of the National Association of Realtors’ recent home sales rebenchmarking exercise can be seen in the steep drop in the existing sales index between December 2006 and January 2007 (red line in the graph above).

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Although the median price of existing homes sold rose by $1,100 (0.7 percent), to $165,100, housing affordability crept higher. This followed on the heels of decreases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during October (both -1.3 percent).

“Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall. Weakness was seen as 19 of 20 cities saw average home prices decline in November over October,” said David Blitzer, chair of the Index Committee at S&P Indices. “The only positive for the month was Phoenix, one of the hardest hit in recent years. Annual rates were little better as 18 cities and both Composites were negative. Nationally, home prices are lower than a year ago. The 10-City Composite was down 3.6 percent and the 20-City was down 3.7 percent compared to November 2010. The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.

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“The crisis low for the 10-City Composite was April 2009; for the 20-City Composite the more recent low was March 2011. The 10-City Composite is now about 1.0 percent above its low, and the 20-City Composite is only 0.6 percent above its low. From their 2006 peaks, both Composites are down close to 33 percent through November.

“Atlanta continues to stand out in terms of recent relative weakness. It was down 2.5 percent over the month, after having fallen by 5.0 percent in October, 5.9 percent in September and 2.4 percent in August. It also posted the weakest annual return, down 11.8 percent. In addition, Atlanta, Las Vegas, Seattle and Tampa all reached new lows in November.”

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December 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

2012-02-08T12:33:00.000-08:00

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Bureau of Economic Analysis data showed that personal income increased $61.3 billion (0.5 percent), and disposable personal income (DPI) increased $47.1 billion (0.4 percent) in December. Personal consumption expenditures (PCE) decreased $2.0 billion, or less than 0.1 percent. Real (inflation-adjusted) DPI increased 0.3 percent while real PCE decreased 0.1 percent.

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With real DPI growth essentially stalling on a year-over-year basis, consumers are reducing their rate of saving to maintain their lifestyles. The personal saving rate ticked back up to 4.0 percent in December, but the downward trend remains intact.

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Consumers bumped up spending by 0.1 percent on retail goods in December, but gains were concentrated in the vehicle and food service sectors as the “other” category fell by 0.3 percent.

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Total consumer debt outstanding increased substantially again in December, rising by a seasonally adjusted $19.3 billion (9.4 percent annualized). Revolving (mostly credit card) debt rose by $2.8 billion (4.1 percent annualized), while non-revolving debt (mainly student and auto loans) increased $16.6 billion (11.8 percent annualized). Student loans comprised over 64 percent of the gain in the non-revolving loan category.

January 2012 Employment Report

2012-02-04T09:10:00.000-08:00

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 243,000 in January, and the unemployment rate decreased to 8.3 percent. January’s private-sector job growth was widespread and amounted to +257,000, while government employment shrank by 14,000 (mostly at the local level). The change in total nonfarm payroll employment for November was revised from +100,000 to +157,000, and the change for December was revised from +200,000 to +203,000. Monthly revisions result from additional sample reports and the monthly recalculation of seasonal factors. The BLS’s annual benchmark process also contributed to these revisions.

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As we have been pointing out for quite some time, employment is converging with the previous peak at a slower pace than any prior recession going back to 1973. The economy still has 5.6 million fewer jobs than at the beginning of the 2007 recession.

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A substantial proportion of the reason for why the unemployment rate fell by 0.2 percentage points can be attributed to the observation that the number of persons not in the labor force exploded by a record 1.2 million in January. In addition, the ratio of employed persons relative to the total population (EPR) has barely budged off its February 2010 low; the EPR is at levels comparable to those seen in the late 1980s.

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) collapsed to 63.7 percent, the lowest value since May 1983. At the same time, the annual percentage increase in average hourly earnings of production and non-supervisory employees slumped to 1.5 percent, a record low stretching back to when such data began to be collected in 1964. With the price index for urban consumers rising at a 3.0 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

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On a somewhat brighter note, full-time employment increased by 80,000; however, part-time employment rose by 132,000. Nonetheless, the declining trend for part-time employment appears to be strengthening; the full-time trend is solidly, although modestly, higher if viewed from January 2010.

In summary, this employment report appears quite positive at first glance, but closer examination reveals serious flaws.

December 2011 Manufacturers’ Shipments, Inventories and New Orders

2012-02-03T16:14:00.000-08:00

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According to the U.S. Census Bureau, the value of shipments, inventories and new orders were mixed in December for the sectors and industries we track.

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Shipments increased for a seventh consecutive month, by $3.4 billion (0.7 percent) to $459.4 billion. Durable goods shipments increased $4.4 billion (2.2 percent) to $207.5 billion, led by primary metals. Shipments of nondurable goods decreased $1.0 billion (0.4 percent) to $251.9 billion, driven lower by petroleum and coal products. Wood shipments fell by 1.5 percent while Paper rose by 0.3 percent.

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 23.2 percent decrease in not-seasonally adjusted rail shipments in December (relative to November), and a 7.3 percent rise from a year earlier. Seasonal adjustments converted the 23.2 percent November-to-December decrease to a 1.8 percent gain, however. Rail shipments of all forest-related products were higher in December 2011 than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose 0.2 percent on a seasonally and workday adjusted basis in December after a 0.1 percent increase in November. “Many Wall Street economists have jacked up their ‘backcasts’ for fourth quarter GDP growth to 3 percent but the PCI does not support this view,” said Ed Leamer, PCI chief economist, prior to the GDP release. “The PCI measures inventories destined for factories, stores and homes, and the decline in the PCI in the third quarter correctly anticipated the large negative contribution of inventories to GDP growth.” With all three months of the fourth quarter now available, the PCI suggested 4Q GDP growth of 2.0 percent or less. As indicated in our GDP blog post, however, the Bureau of Economic Analysis (BEA) estimated 4Q2011 real GDP growth at 2.8 percent -- quite close to the 3 percent figure Leamer mentioned. We expect the BEA’s estimate to be revised lower during upcoming months.

“With real retail sales growing more rapidly than the PCI over the last two quarters, however, the first half of 2012 may be an inventory-rebuilding period, allowing inventories to make a substantial contribution to GDP growth,” Leamer concluded.

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Inventories, up 26 of the last 27 months, increased $0.4 billion (0.1 percent) to $610.1 billion -- the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments (IS) ratio was 1.33, down from 1.34 in November. Durable goods inventories increased $1.1 billion (0.3 percent) to $370.0 billion, led by transportation equipment. Inventories of nondurable goods decreased $0.7 billion (0.3 percent), dragged lower by chemical products.

Forest products inventories shrank: Wood by 0.2 percent and 0.8 percent for Paper.

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We had expected either the durable-goods IS ratio to fall or GDP growth to falter. There had been an apparent disconnect between those two metrics since 1Q2011. The graph above shows a negative correlation between quarterly GDP change and the durable-goods IS ratio (i.e., quarterly GDP change climbs when the value of shipments comes closer to matching that of inventories, causing the IS ratio to fall, and GDP change drops when the value of shipments exceeds that of inventories, causing the IS ratio to rise). Note that the IS ratio is inverted in the above figure to demonstrate that the rebound in GDP growth since 2009 has not been supported by shipments of durable goods to the same degree as before the recession.

It is somewhat unusual for GDP change to run counter to its historical relationship with the IS ratio for consecutive quarters (2Q and 3Q2011), thus we had been awaiting a correction: either for the IS ratio to fall or GDP growth to decline. With the IS ratio falling in December, it appears the two metrics may again be tending toward moving somewhat in tandem.

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New orders, up two consecutive months, increased $5.3 billion (1.1 percent) to $466.2 billion. This followed a 2.2 percent November increase. Excluding transportation, new orders increased 0.6 percent. Durable goods orders increased $6.3 billion (3.0 percent) to $214.3 billion, led by transportation equipment. New orders for nondurable goods decreased $1.0 billion (0.4 percent) to $251.9 billion.

January 2012 ISM Reports

2012-02-03T16:06:00.000-08:00

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The pace of growth in manufacturing extended gains in January, with the Institute for Supply Management’s (ISM) PMI rising to 54.1 percent, from 53.9 in December (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Manufacturing is starting out the year on a positive note, with new orders, production and employment all growing in January."

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The non-manufacturing sector jumped higher in January, reflected by a 3.8 percentage point rise (to 56.8 percent) in the non-manufacturing index (now known simply as the “NMI”). "Respondents' comments are mostly positive about business conditions. There is concern about cost pressures and the sustainability of the recent spike in activity,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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The only reported change in Wood Products reflected a slowdown in production. Despite the lack of encouraging news, at least some Wood Products participants are seeing light at the end of the tunnel. "Market conditions appear to be improving, with the outlook for 2012 better yet," said one Wood Products respondent. Paper Products expanded, the only “negative” being rising input prices. "Once again, business continues to be strong," said one Paper Products contributor. Real Estate and Construction both reported expansion in overall activity, while Ag & Forestry was unchanged.

As the bar chart and table above indicate, input prices moved higher in January: that was a reversal of fortunes for manufacturing, but a continuation of the trend in the service sector.

Paper, diesel fuel and gasoline were up in price. The only relevant commodity down in price was corrugated cartons. No. 2 diesel fuel was listed in short supply.

January 2012 Monthly Average Crude Oil Price

2012-02-02T09:49:00.000-08:00

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved higher in January, advancing by $1.67 (1.7 percent) to $100.24 per barrel. That rise coincided with slight weakening of the dollar and the lagged impacts of an increase in consumption of 171,000 barrels per day (BPD) -- to 18.7 million BPD -- during November, but occurred despite a rebound in crude stocks during January. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in December (January data was not yet available when this was written), the dollar-euro exchange rate at the time meant it was in fact over $9 per barrel more expensive than WTI on a U.S.-dollar basis ($107.87 versus $98.57, respectively).

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January 2012 Currency Exchange Rates

2012-02-01T13:10:00.000-08:00

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The U.S. dollar gained ground against the euro but depreciated against the yen and Canada’s “loonie.” On a trade-weighted index basis, the dollar lost 0.6 percent against a basket of 26 currencies.

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4Q2011 Gross Domestic Product: Advance Estimate

2012-01-28T14:20:00.000-08:00

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The Bureau of Economic Analysis (BEA) estimated 4Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 2.8 percent, up from the final estimate of 1.8 percent in 3Q. Private domestic investment (PDI) – especially private inventories – and personal consumption expenditures (PCE) contributed to 3Q growth in that order, while net exports (NetX) and government consumption expenditures (GCE) exerted “drags.”

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Consumer Metrics Institute made the following observations:

-- The annualized growth rate for consumer expenditures for goods was sharply higher at 1.34 percent, up over one percentage point from the 0.33 percent rate reported for 3Q2011. On the other hand, consumer services plummeted -- losing 0.80 percentage point as the growth rate fell to 0.10 percent. This is likely a sign of both dropping demand and eroding prices within the consumer services sector. This drop in the consumption of consumer services offsets the bulk of the increase in spending on consumer goods, with the aggregate contribution to the headline number ending up at only +0.21 percent.

-- The growth rate of private fixed investments also dropped significantly to 0.41 percent, over one percentage point lower than the 1.52 percent annualized rate reported for 3Q.

-- The growth rate of inventories represented the true "wild card" in the report, swinging from a 3Q contraction of -1.35 percent to a newly reported growth rate of +1.94 percent -- a change of nearly +3.3 percentage points in its contribution to the headline number. This apparently wild swing could be the result of either real changes in inventory levels or phantom changes as commodity prices firmed inventory valuations after dropping dramatically during 3Q. If the changes are real, it is likely that manufacturers were rebuilding inventories after being overly cautious during 3Q, following their classic pattern of a lagging over-correction. In that scenario we should expect this line item to revert to long-term trend lines during 1H2012, lowering the headline numbers at that time. However, if the numbers are the phantom result of changes in commodity pricing (particularly oil) impacting inventory valuations even as physical levels remain largely unchanged, then the headline number is largely meaningless and we can expect the quality of the GDP numbers to continue to be held hostage by the BEA's price deflators. [Ed note: Given that the quarter-to-quarter percentage change in the GDP deflator was in line with the changes in both the CPI-U and PPI, we tend to think CMI’s inventory-building hypothesis is the correct one. For more on that topic, see our blog post Of GDP Growth and Deflators: Smoke and Mirrors? ]

-- Another major swing in the numbers concerned total expenditures by governments at all levels, which is now contracting at a -0.93 percent annualized rate (a significant weakening from the -0.02 percent rate during 3Q) -- a rate that continues a string of five consecutive quarters of contraction. It also reflects a change to annualized contraction at all levels of government (Federal, state and local) -- and most notably in Federal defense spending.

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The 4Q GDP estimate leaves the recession call made by Federal Reserve analyst Jeremy Nalewaik essentially unchanged. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change stood at 1.56 percent in 4Q.

November 2011 International Trade

2012-01-25T09:17:00.000-08:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume increased by 1.0 percent in November from the previous month, following a revised decline of 0.7 percent in October. Both import and export volumes made a remarkable jump in Central and Eastern Europe. Euro Area exports surged as well. In Japan, on the other hand, both exports and imports declined substantially. World trade prices dropped 0.3 percent in November.

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Total November exports of $177.8 billion and imports of $225.6 billion resulted in a goods and services deficit of $47.8 billion, up from $43.3 billion in October. November exports were $1.5 billion less than October exports of $179.4 billion. November imports were $2.9 billion more than October imports of $222.6 billion.

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Paper exports slumped by 265,000 tons (8.3 percent) in November, while imports ticked up by 13,000 tons (3.3 percent). Exports remained 34,000 tons (1.2 percent) above year-earlier levels, but imports were 41,000 tons (9.1 percent) lower.

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Softwood lumber exports fell by 7 MMBF (4.8 percent) in November and imports retreated by 84 MMBF (9.9 percent). Exports were 10 MMBF (8.0 percent) higher than year-earlier levels; imports were 30 MMBF (4.0 percent) higher.

December 2011 U.S. Treasury Statement and Debt Overview

2012-01-25T09:11:00.000-08:00

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Outlays of $325.9 billion and receipts of $240.0 billion added $86.0 billion to the federal budget deficit in December. The federal debt held by the public stood at $15.223 trillion at the end of December.

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Foreigners held $4.751 trillion, or 31 percent of the U.S. public debt at the end of November. China remained the largest foreign creditor ($1.133 trillion). Japan was the biggest buyer in both absolute and percentage change terms ($59.9 billion; 6.1 percent) in November, followed by the United Kingdom ($18.2 billion; 4.4 percent). The U.K. is often considered a proxy for China, which sold $1 billion in November.

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Even the Federal Reserve trimmed its holdings of U.S. Treasury securities slightly (-$6 billion, or -$72 billion annualized) in November.

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $48.6 billion in November; that brought the three-month moving average to $24.0 billion.

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Delving into the TIC report details reveals that long- and short-term U.S. public debt saw net inflows. Long-term private equities, by contrast, saw net outflows.

December 2011 Consumer and Producer Price Indices

2012-01-25T09:03:00.000-08:00

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The seasonally adjusted Consumer Price Index was unchanged in December. Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment.

Similar to last month, the energy index declined in December and offset increases in other indexes. The gasoline index declined for the third month in a row and the household energy index declined as well. The food index rose in December, with the index for food at home turning up after declining last month.

The index for all items less food and energy increased 0.1 percent in December after rising 0.2 percent in November. The indexes for shelter, recreation, medical care, and tobacco all posted increases, while the indexes for used cars and trucks, new vehicles, and apparel all declined.

The all items index has risen 3.0 percent over the last 12 months, a decline from last month's 3.4 percent figure. Recent declines in the energy index have brought its 12-month change down to 6.6 percent from 19.3 percent in September. The 12-month change in the index for all items less food and energy held at 2.2 percent, while the 12- month change in the food index edged up from 4.6 percent to 4.7 percent.

The seasonally adjusted Producer Price Index for finished goods (PPI) declined 0.1 percent in December. Prices for finished goods moved up 0.3 percent in November and fell 0.3 percent in October. At the earlier stages of processing, the index for intermediate goods decreased 0.5 percent in December, and crude goods prices moved down 1.1 percent. On an unadjusted basis, the index for finished goods increased 4.8 percent in 2011 after rising 3.8 percent in 2010.

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Details at different stages of processing include:

Finished goods -- The December decline in finished goods prices is attributable to decreases of 0.8 percent in the indexes for finished energy goods and finished consumer foods. By contrast, prices for finished goods less foods and energy increased 0.3 percent.

Intermediate goods -- This index fell 0.5 percent in December after rising 0.2 percent in November. Accounting for three-quarters of this broad-based decline, the index for intermediate materials less foods and energy decreased 0.5 percent. Prices for intermediate energy goods and for intermediate foods and feeds moved down 0.3 percent and 0.6 percent, respectively. In 2011, prices for intermediate goods rose 6.1 percent after increasing 6.3 percent in 2010.

Crude goods -- The index for crude goods decreased 1.1 percent in December. For the three months ending in December, prices inched up 0.1 percent following a 1.8 percent rise from June to September. The December monthly decline is mostly attributable to the index for crude foodstuffs and feedstuffs, which fell 2.6 percent. Prices for crude energy materials edged down 0.1 percent and the index for crude nonfood materials less energy was unchanged.

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A majority of the individual price indices we track were either unchanged or increased relative to November; two declined. All except softwood lumber had higher indices in December than a year earlier. Only pulpwood rose more quickly on a year-over-year basis in December than in November.

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December 2011 Industrial Production, Capacity Utilization and Capacity

2012-01-25T08:56:00.000-08:00

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Industrial production increased 0.4 percent in December after having fallen 0.3 percent in November. For 4Q2011 as a whole, industrial production rose at an annual rate of 3.1 percent, its tenth consecutive quarterly gain. In the manufacturing sector, output advanced 0.9 percent in December with similarly sized gains for both durables and nondurables. At 95.3 percent of its 2007 average, total industrial production in December was 2.9 percent above its level of a year earlier. Wood Products output jumped by 4.2 percent but Paper output fell by 1.0 percent.

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The capacity utilization rate for total industry rose to 78.1 percent, an increase of 0.4 percent from a month earlier but a rate 2.3 percentage points below its long-run (1972--2010) average. Wood Products and Paper capacity utilization was split: respectively, +4.4 and -0.9 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); By contrast, Wood Products dropped by 0.2 percent while Paper declined by 0.1 percent.

January 2012 Macro Pulse -- Forecasting in a Blizzard

2012-01-12T20:06:00.000-08:00

Dating in the upper Midwest during the early 1980s sometimes meant returning home in the dead of night and amidst a blinding snowstorm. There was no feeling quite like being unable to tell which ditch the car was heading toward, and -- having no cell phone -- knowing that ending up in one could mean either hours alone in a freezing cold car or a miles-long slog through the drifts.

Economic forecasting has a bit of that same feel right now. Each statistical release, news blurb and blog commentary is like a snowflake. They come in an unending flurry, swirling every which way until one has a difficult time telling whether the economy is growing or contracting, and in what direction it is likely to head. Some of those conflicting developments include…

Click here to read the entire January 2012 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

November 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

2012-01-10T17:25:00.000-08:00

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Bureau of Economic Analysis data showed that personal income increased $8.5 billion (0.1 percent) and disposable personal income (DPI) decreased $5.0 billion (less than 0.1 percent), in November. Personal consumption expenditures (PCE) increased $13.1 billion (0.1 percent) in November. Real (inflation-adjusted) DPI decreased less than 0.1 percent while real PCE increased 0.2 percent.

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With real DPI growth essentially stalling on a year-over-year basis, consumers are reducing their rate of saving to maintain their lifestyles. The personal saving rate fell back to 3.5 percent in November, the lowest since the beginning of the recession in December 2007.

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Consumers bumped up spending on retail goods in November for everything except meals away from home. Overall, spending rose 0.2 percent. The “other” category saw the biggest absolute jump ($659 million) but vehicles experienced the largest percentage change (0.5 percent). The biggest winners in November were electronics retailers, whose sales jumped 2.1 percent as consumers snapped up new mobile phones, iPads, electronic-book readers and high-definition televisions.

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Total consumer debt outstanding surged in November, rising by a seasonally adjusted and annualized $20.4 billion (10 percent), the largest monthly gain in a decade. Credit card debt rose by $5.6 billion (8.5 percent), the most since March 2008, while non-revolving debt (mainly student and auto loans) increased $14.8 billion (10.7 percent), nearly matching July's gain that was the biggest since February 2005. Student loans comprised over 75 percent of the gain in the non-revolving loan category.

December 2011 Employment Report

2012-01-06T12:04:00.000-08:00

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 200,000 in December, and the unemployment rate dropped to 8.5 percent. Over the past 12 months, nonfarm payroll employment has risen by 1.6 million. Employment in the private sector rose by 212,000 in December and by 1.9 million over the year. Employment in transportation and warehousing rose sharply in December (+50,000). Almost all of that gain resulted from seasonal hiring in the couriers and messengers industry (+42,000). Government employment changed little in December but was down by 280,000 over the year. Public sector job losses during 2011 were concentrated in local government; state government, excluding education; and the U.S. Postal Service. The change in total nonfarm payroll employment for October was revised from +100,000 to +112,000, and the change for November was revised from +120,000 to +100,000.

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As we have been pointing out for quite some time, employment is converging with the previous peak at a slower pace than any prior recession going back to 1973. The economy still has 6.0 million fewer jobs than at the beginning of the 2007 recession.

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Also, the number of persons not in the labor force reached a new high of nearly 87 million. In addition, the ratio of employed persons relative to the total population (EPR) has barely budged off its February 2010 low; the EPR is at levels comparable to those seen in the late 1980s.

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The civilian labor force participation rate remained at 64.0 percent, while the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked higher to just over 1.6 percent, barely above the historical low set back in February 2004. With the consumer price index for urban consumers rising at a 3.4 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

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On a somewhat brighter note, part-time employment fell by 371,000 jobs while full-time employment increased by a more substantial 553,000. The declining trend for part-time employment appears to be strengthening; the full-time trend is solidly, although modestly, higher if viewed from January 2010.

In summary, this employment report was better than expectations, but then expectations are rather low.

November 2011 U.S. Construction

2012-01-06T11:52:00.000-08:00

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Overall construction spending in the United States increased by 1.2 percent during November, to a seasonally adjusted and annualized rate (SAAR) of $807.1 billion. All except the private non-residential category posted increases; the private residential category exhibited the largest advance in both absolute and percentage terms.

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Total housing starts rose by 9.3 percent in November, to 685,000 units (SAAR) – nearly 25 percent over year-earlier levels. Single-family starts rose to 447,000 units (10,000 units or 2.3 percent), but remained 1.5 percent lower than a year ago; multi-family starts, by contrast, jumped to 238,000 units (by 48,000 units or 25.3 percent), 145.4 percent above year earlier levels.

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New-home sales also advanced in November, by 1.6 percent, to 315,000 (SAAR). The median price of new homes sold dropped by 3.8 percent, however, to $214,100. Because single-unit starts rose more quickly than sales (respectively, 10,000 and 5,000), the three-month average starts-to-sales ratio ticked above 1.4 in November.

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Single-unit completions fell by 0.7 percent, and the inventory of new single-family homes shrank in both absolute terms (2,000 units) and months of inventory (0.2 month). Inventory stood at 158,000 units and 6.0 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.

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Existing home sales fared better than their new-home counterparts in November, rising by 170,000 units (SAAR) or 4.0 percent. The share of total sales comprised of new homes ticked down by 0.1 percentage point, to 6.7 percent. The impact of the National Association of Realtors’ recent home sales rebenchmarking exercise can be seen in the steep drop in the existing sales index between December 2006 and January 2007 (red line in the graph above).

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With the median price of existing homes sold rising by $3,000 (1.9 percent), to $164,100, housing affordability retreated slightly from its record high set in October. This followed on the heels of slight decreases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during October (respectively, -1.1 and -1.2 percent).

“There was weakness in the monthly statistics, as 19 of the cities posted price declines in October over September,” said David Blitzer, chair of the Index Committee at S&P Indices. “Eleven of the cities and both composites fell by 1.0 percent or more during the month. And even though some of the annual rates are improving, 18 cities and both Composites are still negative. Nationally, home prices are still below where they were a year ago. The 10-City Composite is down 3.0 percent and the 20-City is down 3.4 percent compared to October 2010.

“In the October data, the only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both Composites seeing their annual rates of change improve. The crisis low for the 10-City Composite was back in April 2009; whereas it was a more recent March 2011 for the 20-City Composite. The 10-City Composite is about 2.4 percent above its relative low, and the 20-City Composite is about 1.9 percent.

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“Atlanta and the Midwest are regions that really stand out in terms of recent relative weakness. Atlanta was down 5.0 percent over the month, after having fallen by 5.9 percent in September. It also has the weakest annual return, down 11.7 percent. Chicago, Cleveland Detroit and Minneapolis all posted monthly declines of 1.0 percent or more in October. These markets were some of the strongest during the spring/summer buying season. However, Detroit is the healthiest when viewed on an annual basis. It is up 2.5 percent versus October 2010. Atlanta, Cleveland, Detroit and Las Vegas are four markets where average prices are below their January 2000 levels; and Atlanta and Las Vegas posted new lows in October.

“Some of the other housing statistics posted relatively healthy figures for November, but it seems that most of the good news was confined to the multi-family sector. Existing home sales rose in November, but are still at a low annual rate of about 4.0 million. Single family housing starts also rose, but remain close to record lows and are still down about 1.5 percent versus October 2010.”

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December 2011 ISM Reports

2012-01-05T10:53:00.000-08:00

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The pace of growth in manufacturing picked up again in December, with the Institute for Supply Management’s (ISM) PMI rising to 53.9 percent, from 52.7 in November (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month's survey."

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The non-manufacturing sector also edged up in December, reflected by a 0.6 percentage point rise (to 52.6 percent) in the non-manufacturing index (now known simply as the “NMI”). "Respondents' comments are mixed and vary by industry and company. Economic growth continues to be slowed by the lag in employment,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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The only reported change in Wood Products reflected a slowdown in new orders. Paper Products expanded, the main foreward-looking “negatives” being declines in new export orders and a rise in inventories. Real Estate and Ag & Forestry both reported contraction in overall activity, while Construction expanded.

As the bar chart and table above indicate, input price behavior was mixed during December: prices fell more slowly for manufacturing but rose more slowly for the service sector.

Some respondents reported paying more for fuel while others paid less. The only relevant commodity described as being in short supply was #2 diesel fuel.

November 2011 Manufacturers’ Shipments, Inventories and New Orders

2012-01-05T09:49:00.000-08:00

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According to the U.S. Census Bureau, the value of shipments, inventories and new orders were mostly higher in November for the sectors and industries we track.

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Shipments, up six consecutive months, increased $0.1 billion to $455.0 billion in November. Durable goods shipments decreased $0.7 billion (0.3 percent) to $202.9 billion, led lower by transportation equipment. Shipments of nondurable goods increased $0.8 billion (0.3 percent) to $252.1 billion, led by petroleum and coal products. Wood and Paper shipments both fell -- by 0.5 and 0.6 percent, respectively.

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 21.5 percent increase in not-seasonally adjusted rail shipments in November (relative to October), and a 2.3 percent rise from a year earlier. Seasonal adjustments trimmed the 21.5 percent October-to-November increase to a 0.9 percent gain, however. Interestingly, rail shipments of primary forest products were lower in November 2011 than a year earlier.

The PCI, which tracks diesel use for over-the-highway trucking, rose 0.1 percent on a seasonally and workday adjusted basis in November after a 1.1 percent increase in October. Ed Leamer, PCI chief economist said, “The continuing weakness in the PCI is out-of-sync with real retail sales. The year-over-year increase in real retail sales through October was 3.6 percent compared with an increase in the PCI of 1.3 percent. The disconnect between real retail sales and the PCI suggests that retailers have learned to better manage their inventory. Therefore, shoppers can anticipate fewer bargains in the month ahead, and relatively little stock left for the after-Christmas sales.” Leamer added, “With two months of data available, the PCI suggests fourth quarter GDP growth in range of 0.0 to 1.0 percent.”

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Inventories increased $2.8 billion (0.5 percent) to $609.8 billion, the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.34, up from 1.33 in October. Durable goods inventories increased $2.1 billion (0.6 percent) to $369.0 billion; transportation equipment led the durables inventory increase. Inventories of manufactured nondurable goods increased $0.7 billion (0.3 percent) to $240.8 billion, led by petroleum and coal products.

Forest products inventories were split: Wood rose by 2.1 percent while Paper fell by 0.3 percent.

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There appears to be a disconnect between GDP and manufacturing, particularly the ratio of inventories to shipments of durable goods. The graph above shows a negative correlation between quarterly GDP change and the inventories-to-shipments (IS) ratio for durable goods (i.e., quarterly GDP change climbs when the value of shipments comes closer to matching that of inventories, causing the IS ratio to fall, and GDP change drops when the value of shipments is outstripped by that of inventories, causing the IS ratio to rise). Note that the IS ratio is inverted in the above figure to demonstrate that the rebound in GDP growth since 2009 has not been supported by shipments of durable goods to the same degree as before the recession.

It is somewhat unusual for GDP change to run counter to its historical relationship with the IS ratio for consecutive quarters (2Q and 3Q2011), thus -- unless the relationship between GDP and the IS ratio has truly weakened -- we expect a correction to occur soon: either the IS ratio will fall or GDP growth will decline. Since Census Bureau data show the value of durable goods inventories were at an all-time high in November, shipments “have their work cut out for them.”

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New orders increased $8.2 billion (1.8 percent) to $459.2 billion in November. Excluding transportation, new orders increased 0.3 percent.

Durable goods orders increased $7.4 billion (3.7 percent) to $207.1 billion, nondurable goods orders increased $0.8 billion (0.3 percent) to $252.1 billion.

December 2011 Monthly Average Crude Oil Price

2012-01-04T10:20:00.000-08:00

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved higher in December, advancing by $1.36 (1.4 percent) to $98.57 per barrel. That rise occurred despite continued strengthening of the dollar, and the lagged impacts of a decrease in consumption of 232,000 barrels per day (BPD) -- to 18.6 million BPD -- during October, but coincided with a continued downward trend in crude stocks during December. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in November (December data was not yet available when this was written), the dollar-euro exchange rate at the time meant it was in fact nearly $13 per barrel more expensive than WTI on a U.S.-dollar basis ($110.77 versus $97.21, respectively).

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December 2011 Currency Exchange Rates

2012-01-04T10:13:00.000-08:00

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The U.S. dollar gained ground against the euro and yen, but depreciated against Canada’s “loonie.” On a trade-weighted index basis, the dollar gained 0.9 percent against a basket of 26 currencies.

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October 2011 International Trade

2011-12-26T22:24:00.000-08:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume decreased by 1.0 percent in October from the previous month, following a revised decline of 1.1 percent in September. Whereas the figures for emerging economies are quite mixed, with Asia doing relatively well, advanced economies’ imports and exports declined substantially, particularly those of the Euro Area. In Japan, exports fell heavily, while imports surged. Prices fell 0.4 percent in October, but remained 25.3 percent above their February 2009 low.

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The U.S. goods and services deficit was $43.5 billion in October, down from $44.2 billion in September. Exports amounted to $179.2 billion and imports $222.6 billion.

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Paper exports increased by 9,000 tons (0.3 percent) in October, and imports shrank by 9,000 tons (2.1 percent). Exports remained 179,000 tons (5.9 percent) above year-earlier levels, but imports were 5,000 tons (1.2 percent) lower.

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Softwood lumber exports rose by 9 MMBF (6.8 percent) in October while imports advanced by 40 MMBF (4.9 percent). Exports were 28 MMBF (24.6 percent) higher than year-earlier levels, and imports were 90 MMBF (11.8 percent) higher.

3Q2011 Gross Domestic Product: Final Estimate

2011-12-24T08:21:00.000-08:00

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The Bureau of Economic Analysis (BEA) estimated 3Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.8 percent, down from the advance and preliminary estimates of, respectively, 2.5 and 2.0 percent but up from 1.3 percent in 2Q. Personal consumption expenditures (PCE), net exports (NetX) and private domestic investment (PDI) – mainly nonresidential fixed investment – contributed to 3Q growth in that order, while government consumption expenditures (GCE) exerted a small “drag.”

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Consumer Metrics Institute wrapped up its coverage of the GDP report with these comments:

-- A headline number of 1.81 percent is disappointing given that we are now six quarters into a "recovery," when numbers closer to 4 percent should be expected.

-- Federal fiscal spending continued to sustain the headline number, with defense spending contributing more than a quarter of a percent. Any successful efforts to restrain the deficit will have direct and immediate impact on these numbers.

-- The contracting per-capita disposable income explains the public's mood, even if consumers are seemingly "self-medicating" their psyches through increased (and perhaps ill-considered) holiday spending.

-- When compared to earlier data for the same quarter, this set of revisions again tells us that the BEA has been chronically misreading the economy with an optimistic bias (best exemplified by the massive downward revisions to the numbers for the "Great Recession" this past July). If the Federal Reserve continues to believe that it can and should "engineer" the economy for happier outcomes, we hope that their tinkering is informed by better and more timely data than that provided by the BEA.

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The GDP revision strengthens the recession call made by Federal Reserve analyst Jeremy Nalewaik. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change now stands at 1.46 percent in 3Q.

November 2011 U.S. Treasury Statement and Debt Overview

2011-12-21T08:44:00.000-08:00

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The United States’ public debt stood at $14.790 trillion as of the end of September 2011, up from $14.025 trillion at the end of 2010 and more than double the level of a decade earlier. As can be seen from the charts above and below, nearly 89 percent of that debt was held by federal intra-governmental holding accounts (over half of which was comprised of the Federal Old-Age and Survivors Insurance Trust Fund, a.k.a., Social Security), and foreign and domestic investors of various types. The Federal Reserve held the remaining 10.8 percent. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.

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The sea change in the distribution of U.S. public debt purchases among investor types that began in 1Q2011 continued in 3Q2011: Domestic private investors, and state and local governments remained on the sidelines. Also, foreign and international investors and intergovernmental holdings bought up only a small portion of the new debt. The lack of participation among the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $649 billion (65 percent of the total incremental change).

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The fiscal picture has continued to worsen since September. Indeed, the red ink deepened again in November as outlays of $289.7 billion and receipts of $152.4 billion added another $137.3 billion to the federal budget deficit.

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U.S. treasury purchases by foreign investors picked up slightly, rising to $4.660 trillion in September but appear to have stalled (falling back to $4.656 trillion) in October. Four of the six largest holders sold some of their holdings; the rest of the world was a net seller. China remained the largest foreign creditor ($1.134 trillion) despite selling $14.2 billion of Treasury securities in October.

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The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.638 trillion). Interestingly, the Fed’s pace of purchases has slowed considerably in the past few months. Earlier this year it would have doubled its holdings had the pace of purchases been maintained for 12 months; that is no longer the case. Nonetheless, more recent data shows the Fed has continued to add U.S. Treasury debt since October, and held $1.673 trillion as of mid-December.

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Evidence of vacillating foreign interest in U.S. debt comes from the Treasury International Capital (TIC) accounting system. Flows swung from a net +$106.0 billion (inflows) in April to -$51.8 billion (outflows) in July and back to +$85.0 billion in August. The pendulum appeared to be swinging back to greater outflows in October, when outflows amounted to $48.8 billion. Essentially all of the outflows occurred in short-term securities (e.g., T-bills) and long-term private equities.

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We continue to monitor the contribution to GDP of each new dollar of total credit market debt. Although that contribution is again positive, we doubt the nearly 50-year trend of declining contributions has been permanently reversed.

November 2011 Consumer and Producer Price Indices

2011-12-21T08:30:00.000-08:00

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The seasonally adjusted Consumer Price Index was unchanged in November. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The energy index declined for the second month in a row and offset increases in the indexes for food and all items less food and energy. As in October, the gasoline index fell sharply and the index for household energy declined as well. The index for all items less food and energy increased 0.2 percent, following increases of 0.1 percent in each of the prior two months.

The all items index has risen 3.4 percent over the last 12 months. This is a slightly smaller increase than last month's 3.5 percent figure, as the 12 month change in the energy index declined from 14.2 percent to 12.4 percent. In contrast, the 12 month change in the index for all items less food and energy continued to rise, reaching 2.2 percent in November.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) advanced 0.3 percent in November. Finished goods prices fell 0.3 percent in October and moved up 0.8 percent in September. At the earlier stages of processing, the index for intermediate goods rose 0.2 percent and crude goods prices increased 3.8 percent. On an unadjusted basis, the finished goods index advanced 5.7 percent for the 12 months ended November 2011, the smallest year-over-year rise since a 5.6 percent increase in March 2011.

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Details at different stages of processing include:

Finished goods -- In November, the increase in the finished goods index was broad based with prices for finished consumer foods moving up 1.0 percent. The indexes for both finished goods less foods and energy and for finished energy goods inched up 0.1 percent.

Intermediate goods -- This index moved up 0.2 percent after declining 1.1 percent in October. Leading this increase, prices for intermediate energy goods rose 1.9 percent. The index for intermediate foods and feeds also contributed to the advance, moving up 0.6 percent. By contrast, prices for intermediate materials less foods and energy decreased 0.4 percent. For the 12 months ending in November, the intermediate goods index increased 7.7 percent, the smallest year-over-year rise since a 6.2 percent increase in January 2011.

Crude goods -- The index for crude goods moved up 3.8 percent. For the three months ending in November, prices for crude materials advanced 4.0 percent following a 1.5 percent decline from May to August. In November, the monthly increase in the crude goods index is mostly attributable to prices for crude energy materials, which jumped 10.5 percent. Also contributing to the November climb was the index for crude foodstuffs and feedstuffs, which advanced 0.5 percent. By contrast, prices for crude nonfood materials less energy decreased 2.5 percent.

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Half of the individual price indices we track were unchanged relative to October, while the other half declined. All were higher in November than a year earlier; however, only one (softwood logs, bolts & timber) rose more quickly on a year-over-year basis than in October.

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November 2011 Industrial Production, Capacity Utilization and Capacity

2011-12-21T08:22:00.000-08:00

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Industrial production decreased 0.2 percent in November after having advanced 0.7 percent in October. Factory output moved down 0.4 percent in November; excluding a drop of 3.4 percent in the output of motor vehicles and parts, manufacturing production declined 0.2 percent. Mining production edged up 0.1 percent, while the output of utilities rose 0.2 percent. At 94.8 percent of its 2007 average, total industrial production for November was 3.7 percent above its year-earlier level. Wood Products output decreased by 0.4 percent but Paper output rose by 1.1 percent.

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Capacity utilization for total industry decreased by 0.3 percent (to 77.8 percent) in November, a rate 2.6 percent above its level from a year earlier and 2.6 percentage points below its long-run (1972--2010) average. Wood Products and Paper capacity utilization was split: respectively, -0.5 and 1.2 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); Wood Products dropped by 0.2 percent while Paper declined by 0.1 percent.

December 2011 Macro Pulse -- Economy of Christmas Past, Present or Yet to Come?

2011-12-16T11:51:00.000-08:00

In Charles Dickens’ A Christmas Carol, Ebenezer Scrooge is visited in turn by the Ghosts of Christmas Past, Present and Yet to Come. The first spirit takes Scrooge to scenes of his boyhood and youth. The second takes him to the markets, where people are buying gifts and the makings of Christmas dinner. The last takes him to scenes of desolation, misery and death.

From watching news coverage of Black Friday, one could have been forgiven for concluding the Ghost of Christmas Present had enticed consumers to spend as they did before the recession. "Sales rose...to a record $11.4 billion on Black Friday,” Ed Marcheselli, chief marketing officer at ShopperTrak, told CNBC. Such stories raised expectations for a blow-out November retail sales report. The Census Bureau played the Ghost of Christmas Yet to Come, however, in reporting that retail sales in November (including Thanksgiving) came in at +0.2 percent, on expectations of 0.6 percent, and down from a revised 0.6 percent in October. Retail sales less autos rose 0.2 percent, half of the expected 0.4 percent, while sales without autos and gasoline also “missed big” at just +0.2 percent.

Other recent developments include…. Click here to read the entire December 2011 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

October 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

2011-12-08T09:35:00.000-08:00

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Bureau of Economic Analysis data showed that personal income increased $48.1 billion (0.4 percent) and disposable personal income (DPI) increased $30.2 billion (0.3 percent) in October. Personal consumption expenditures (PCE) increased $8.2 billion (0.1 percent). Real (inflation-adjusted) DPI increased 0.3 percent while real PCE rose by 0.1 percent.

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With DPI increasing faster than PCE, the personal saving rate rose to 3.5 percent, well off the recent peak of 5.0 percent seen in June. Despite the October increase, the three-month average saving rate pictured above dropped to 3.6 percent.

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Consumers ramped up spending on retail goods in October, by 0.5 percent. The “other” category saw the biggest jump ($1.7 billion or 0.6 percent), driven largely – according to Goldman Sachs – by the introduction of Apple’s latest iPhone.

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Total consumer debt outstanding increased in October, rising by a seasonally adjusted and annualized rate of 3.7 percent. The increase was broad-based; only commercial banks and finance companies saw a decline.

October 2011 Manufacturers’ Shipments, Inventories and New Orders

2011-12-05T16:01:00.000-08:00

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According to the U.S. Census Bureau, the value of shipments and inventories were mostly higher in October for the sectors and industries we track, while new orders fell.

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Shipments increased for a fifth month, by $2.6 billion (0.6 percent) to $455.4 billion. Durable goods shipments increased $3.2 billion (1.6 percent) to $203.9 billion, led by transportation equipment. Shipments of nondurable goods decreased $0.7 billion (0.3 percent) to $251.5 billion following four consecutive monthly increases. Petroleum and coal products led the decrease. Wood and Paper shipments both rose -- by 1.6 and 0.4 percent, respectively.

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 1.7 percent increase in not-seasonally adjusted rail shipments in October (relative to September), and a comparable rise from a year earlier. Seasonal adjustments trimmed the 1.7 percent September-to-October increase to a 0.5 percent gain, however. Interestingly, rail shipments of forest products fell in October.

The PCI, which tracks diesel use for over-the-highway trucking, rose 1.1 percent on a seasonally and workday adjusted basis in October after three consecutive months of negative numbers. Ed Leamer, PCI chief economist said, “The October data offer some welcome relief from the double-dip fears that were rampant a month ago, but one month does not mean a new trend. Until we get a series of positive months, it remains a she-loves-me, she-loves-me-not economy with bad news followed by good followed by bad.”

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Inventories, up 24 of the last 25 months, increased $5.6 billion (0.9 percent) to $607.1 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.33, unchanged from September.

Durable goods inventories increased $1.6 billion (0.4 percent) to $366.9 billion, led by transportation equipment. Inventories of nondurable goods increased $3.9 billion (1.7 percent) to $240.2 billion; petroleum and coal products led the increase. Forest products inventories also rose, by 0.7 percent (Wood) and 0.1 percent (Paper).

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New orders, down two consecutive months, decreased $1.6 billion (0.4 percent) to $450.0 billion in October. Excluding transportation, new orders increased 0.2 percent.

Durable goods orders decreased $0.9 billion (0.5 percent) to $198.5 billion, led by transportation equipment; new orders for nondurable goods decreased $0.7 billion (0.3 percent) to $251.5 billion.

November 2011 ISM Reports

2011-12-05T15:49:00.000-08:00

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The pace of growth in manufacturing picked up slightly in November, with the Institute for Supply Management’s (ISM) PMI rising to 52.7 percent, from 50.8 in October (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Respondents cite continuing concerns about the general economic environment, government regulations and European financial conditions, but are cautiously more optimistic about the next few months based on lower raw materials pricing and favorable levels of new orders."

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The non-manufacturing sector grew at a marginally slower pace in November, reflected by a 0.9 percentage point drop (to 52.0 percent) in the non-manufacturing index (now known simply as the “NMI”). This is the lowest reading since January 2010, when the index registered 50.7 percent. "Respondents' comments for the most part project continued slow, incremental growth. There still remains a strong concern about lagging employment,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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Expanding new orders and employment, and higher production helped lift overall activity for Wood Products in November. Paper Products also expanded, the main foreward-looking “negatives” being declines in orders and a rise in inventories.

Construction and Ag & Forestry both reported contraction in overall activity, while Real Estate expanded.

As the bar chart and table above indicate, input price behavior was mixed during November: prices fell more slowly for manufacturing but rose more quickly for the service sector.

Paper and paper products were the only relevant commodities up in price during November; cardboard products were down in price. Some respondents reported paying more for fuel while others paid less. No relevant commodity was described as being in short supply.

October 2011 U.S. Construction

2011-12-05T15:45:00.000-08:00

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Overall construction spending in the United States increased by 0.8 percent during October, to a seasonally adjusted and annualized rate (SAAR) of $798.5 billion. All categories except public construction posted increases; the private residential category exhibited the largest advance in both absolute and percentage terms.

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Total housing starts fell by 0.3 percent in October, to 628,000 units (SAAR), but were up 16.5 percent over year-earlier levels. Single-family starts rose by 3.9 percent, to 430,000 units in October; interestingly, single-family starts are 0.9 percent lower than a year ago.

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New-home sales also advanced in October, by 1.3 percent to 307,000 (SAAR). The median price of new homes sold dropped by 0.5 percent, however, to $212,300. Although single-unit starts rose more quickly than sales (respectively, 16,000 versus 4,000), the three-month average starts-to-sales ratio ticked down to 1.4.

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Single-unit completions jumped by 7.1 percent, but the inventory of new single-family homes remained unchanged in absolute terms while months of inventory shrank by 0.1 month. Inventory stood at 162,000 units and 6.1 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.

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Existing home sales fared a little better than their new-home counterparts in October, rising by 70,000 units (SAAR) or 1.4 percent. The share of total sales comprised of new homes remained stable at 5.8 percent.

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With the median price of existing homes sold falling by $3,800 (2.3 percent), to $161,600, housing affordability jumped to a new record high in October. This followed on the heels of slight decreases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during September (both roughly -0.5 percent).

“Home prices drifted lower in September and the third quarter,” said David Blitzer, chair of the Index Committee at S&P Indices. “The National Index was down 3.9 percent versus the third quarter of 2010 and up only 0.1 percent from the previous quarter. Three cities posted new index lows in September 2011: Atlanta, Las Vegas and Phoenix. Seventeen of the 20 cities and both Composites were down for the month. Over the last year home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.

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“Detroit and Washington DC posted positive annual rates of change and also saw an improvement in these rates compared to August. Only New York, Portland and Washington DC posted positive monthly returns versus August. It is a bit disturbing that we saw three cities post new crisis lows. For the prior three or four months, only Las Vegas was weakening each month. Now Atlanta and Phoenix have fallen to new lows too. On a monthly basis, Atlanta actually posted a record low rate of -5.9 percent in September over August. The markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside. The relative good news is that 14 cities saw improvements in their annual rates of change, versus the six that weakened.”

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November 2011 Employment Report

2011-12-03T17:08:00.000-08:00

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 120,000 in November, and the unemployment rate dropped to 8.6 percent; the drop in the unemployment rate resulted primarily from 315,000 people giving up looking for work, however. Employment in the private sector was stronger (+140,000), especially in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down (-20,000), especially at the local level. The change in total non-farm payroll employment for September was revised from +158,000 to +210,000, and the change for October was revised from +80,000 to +100,000.

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There were several less-encouraging aspects to the report besides the number of people who had given up looking for work. For one, as we have been pointing out for quite some time, employment is converging with the previous peak at a slower pace than any prior recession going back to 1973.

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The civilian labor force participation rate fell back to 64.0 percent, while the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked higher to nearly 1.6 percent, barely above the historical low set back in February 2004. With the consumer price index for urban consumers rising at a 3.9 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

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On a somewhat brighter note, part-time employment fell by 378,000 jobs while full-time employment increased by a somewhat comparable 323,000. The trend for part-time employment appears to be stable to declining slightly; the full-time trend is solidly, although modestly, higher if viewed from January 2010.

In summary, then, although this employment report was not awful, neither does it portend strong economic growth.

November 2011 Monthly Average Crude Oil Price

2011-12-03T16:39:00.000-08:00

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil jumped higher in November, advancing by $10.80 (12.5 percent) to $97.21 per barrel. That rise occurred despite continued strengthening of the dollar, and the lagged impacts of a decrease in consumption of 358,000 barrels per day (BPD) -- to 18.8 million BPD -- during September, but coincided with a downward trend in crude stocks during November. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in October (November data was not yet available at the time of this writing), the dollar-euro exchange rate at the time meant it was in fact over $23 per barrel more expensive than WTI on a U.S.-dollar basis ($109.55 versus $86.41, respectively).

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November 2011 Currency Exchange Rates

2011-12-03T16:33:00.000-08:00

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The U.S. dollar gained ground “across the board” in November. Although the greenback gained ground against the yen it remains only barely above the levels of the previous three months, which were its weakest since June 1995. On a trade-weighted index basis, the dollar gained 0.6 percent against a basket of 26 currencies.

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September 2011 International Trade

2011-11-24T11:52:00.000-08:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume declined by 1.0 percent in September from the previous month, following a revised increase of 1.4 percent in August. Imports declined in advanced and emerging economies. Exports of the advanced countries rose a little, thanks to the performance of the United States and Japan. Exports of the emerging markets fell, particularly in Asia and Central- and Eastern Europe. Prices fell 1.9 percent in September, to 25.8 percent above their February 2009 low.

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The U.S. goods and services deficit was $43.1 billion in September, down from a revised $44.9 billion in August. Exports amounted to $180.4 billion and imports $223.5 billion. According to Barron’s, about half of the unexpected improvement in the deficit came from gold exports.

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Paper exports increased by 9,000 tons (0.3 percent) in September, and imports shrank by 20,000 tons (4.7 percent). Exports remained 342,000 tons (12.1 percent) above year-earlier levels, but imports were 21,000 tons (4.9 percent) higher.

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Softwood lumber exports fell by 21 MMBF (13.5 percent) in September while imports advanced by 42 MMBF (5.5 percent). Exports were 8 MMBF (6.2 percent) higher than year-earlier levels, and imports were 78 MMBF (10.4 percent) higher.

3Q2011 Gross Domestic Product: Second Estimate

2011-11-23T09:00:00.000-08:00

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The Bureau of Economic Analysis (BEA) estimated 3Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 2.0 percent, down from the advance estimate of 2.5 percent but up from 1.3 percent in 2Q. Despite the downward revision, the 3Q estimate was the highest reading in a year. Personal consumption expenditures (PCE) and net exports (NetX) contributed to 3Q growth in that order, while private domestic investment (PDI) and government consumption expenditures (GCE) exerted “drags.”

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Among the notable items in the report (from the Consumer Metrics Institute):

-- Aggregate consumer expenditures for goods was revised downward slightly to a +0.30 percent annualized growth (previously reported to be +0.35 percent).

-- The annualized growth rate for consumer expenditures was also revised downward by 0.05 percent, and is now estimated to be at 1.33 percent.

-- The growth rate of private fixed investments was lowered by 0.15 percent, with the new number coming in at 1.45 percent.

-- The draw-down of inventories is now nearly a half percent worse than previously reported, pulling -1.55 percent from the headline annualized growth rate. Conventional wisdom is that this bodes well for the economy in the future, since production will presumably have to eventually ramp-up to replace that lost inventory.

But in fact there are a number of wildly conflicting ways to “spin” this inventory number:

-- Production has lagged demand, with factories struggling to keep up with increasing demand (unfortunately implausible given the anemic consumer growth numbers mentioned above);

-- Factories are reducing inventories in anticipation of weakening demand (plausible);

-- Inventory levels were ridiculously high to begin with (implying that much of the "recovery" was wishful thinking; again plausible);

-- Factories have simply cut production costs by cutting production levels (thereby inflating bottom lines without the benefit of increasing commerce; highly plausible);

-- Or our favorite: the BEA's deflators have shot them in the foot again (with deflating commodity prices "shrinking" inventories even as physical inventories remain largely unchanged; also highly plausible).

Of the five spin scenarios outlined above, the only positive one is also the least plausible.

-- Total expenditures by governments at all levels is now reported to be very slightly contracting, continuing a string of four quarters of contraction. This number masks a duality in state and local spending levels, where "consumption expenditures" (i.e., operating budgets) continue to shrink but are partially offset by increasing investments on infrastructure.

-- Exports are now reported to be slightly higher relative to the previous estimate, raising the contribution that they made to the overall GDP growth rate to +0.58 percent.

-- Imports dropped substantially compared to the previous "advance" report, and are now removing only -0.09 percent from the growth rate of the overall economy (previously this number was -0.34 percent, a full quarter of a percent worse for the headline number).

-- The annualized growth rate of "real final sales of domestic product" was revised up slightly to +3.56 percent. This was the result of the higher draw-down of inventories offsetting the generally weaker numbers shown elsewhere.

-- Perhaps the most negative item among the revisions is in per-capita disposable income, which was revised sharply downward and is now reportedly shrinking at an annualized -2.1 percent rate during the third quarter (revised from a -1.7 percent in the previous "Advance" estimate). If you are looking for one line item that largely explains the mood of the general public, this is the one to monitor.

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The GDP has strengthened the recession call made by Federal Reserve analyst Jeremy Nalewaik. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change now stands at 1.5 percent in 3Q.

October 2011 U.S. Treasury Statement and Debt Overview

2011-11-21T17:06:00.000-08:00

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Outlays of $261.5 billion and receipts of $163.1 billion added $98.5 billion to the federal budget deficit in October, the first month of fiscal year 2012. The federal debt held by the public stood at $14.994 trillion at the end of October.

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Foreigners held $4.660 trillion, or 31 percent of the U.S. public debt at the end of September. China remained the largest foreign creditor ($1.148 trillion). The United Kingdom was the biggest buyer in absolute terms ($24.4 billion; 6.1 percent), while the Caribbean banks had the largest percentage change ($11.8 billion; 7.3 percent). Holdings by the “other” (aggregated) category inched up for a second month in September.

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The Federal Reserve continued to add to its holdings of U.S. Treasury securities. However, the Fed’s pace of net Treasury purchases has slowed considerably.

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $57.4 billion in September.

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Delving into the TIC report details reveals that long-term U.S. public debt was the only category with positive net inflows. Long-term private equities and short-term public debt saw net outflows.

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The large sell-off of U.S. Treasuries in September and October appears to have been reversed. The Federal Reserve holds those securities in custody for various foreign central banks. That sell-off had raised red flags in the markets for two reasons: 1) The August 2007 divestiture either triggered -- or at least was associated with -- the first credit crisis that eventually turned into the December 2007 recession. 2) Had central bank selling continued, the Fed could have become the buyer of last resort, likely resulting in much higher interest rates and inflation.

October 2011 Consumer and Producer Price Indices

2011-11-18T14:40:00.000-08:00

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in October. Over the last 12 months, the all items index increased 3.5 percent before seasonal adjustment.

A decline in the energy index more than offset small increases in the indexes for food and all items less food and energy to create the all items decline. The energy index turned down in October after increasing in each of the three previous months as the gasoline and household energy indexes declined after a series of seasonally adjusted increases. The food index rose in October, but posted its smallest increase of the year as the fruits and vegetables index declined sharply.

The index for all items less food and energy increased 0.1 percent in October; this was the same increase as last month and matches its smallest increase of the year. While the shelter and medical care indexes accelerated in October and the apparel index turned up, the indexes for new vehicles, used cars and trucks, airline fare, and recreation all declined.

The all items index has risen 3.5 percent over the last 12 months, a lower figure than last month's 3.9 percent increase, as the 12-month change in the energy index fell from 19.3 to 14.2 percent. In contrast, the 12-month change for all items less food and energy edged up from 2.0 to 2.1 percent. The food index 12-month change was 4.7 percent, the same figure as in September.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) declined 0.3 percent in October. Finished goods prices rose 0.8 percent in September and were unchanged in August. At the earlier stages of processing, the index for intermediate goods moved down 1.1 percent in October and crude goods prices fell 2.5 percent. On a seasonally unadjusted basis, the finished goods index increased 5.9 percent for the 12 months ended October 2011, the smallest year-over-year advance since a 5.6-percent rise in March 2011.

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Details at different stages of processing include:

Finished goods -- In October, the decrease in finished goods prices was the result of a 1.4 percent drop in the index for finished energy goods. By contrast, prices for finished consumer foods inched up 0.1 percent. The index for finished goods less foods and energy was unchanged.

Intermediate goods -- This index fell 1.1 percent, the largest decline since a 1.5-percent drop in March 2009. Over half of the broad-based October decrease can be traced to prices for intermediate energy goods, which fell 2.6 percent. The indexes for intermediate goods less foods and energy and for intermediate foods and feeds also contributed to the decline in intermediate goods prices, falling 0.6 percent and 1.5 percent, respectively. For the 12 months ending October 2011, the intermediate goods index advanced 8.3 percent, the smallest year-over-year rise since an 8.1-percent increase in February 2011.

Crude goods -- The index for crude goods fell 2.5 percent in October. For the 3 months ending in October, prices for crude materials advanced 0.4 percent following a 5.9-percent decrease from April to July. In October, nearly forty percent of the broad-based monthly decline can be traced to a 4.3-percent drop in the index for crude nonfood materials less energy. Lower prices for crude energy materials and for crude foodstuffs and feedstuffs -- down 2.2 percent and 1.8 percent, respectively -- also contributed to the October decrease in the crude goods index.

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Half of the price indices for the forest products that we track rose relative to September, while the other half declined. All were higher in October than a year earlier; however, two rose more quickly on a year-over-year basis than in September, three more slowly and one was essentially unchanged.

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October 2011 Industrial Production, Capacity Utilization and Capacity

2011-11-17T12:48:00.000-08:00

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Industrial production expanded 0.7 percent in October after having declined 0.1 percent in September. Previously, industrial production was reported to have gained 0.2 percent in September; most of this revision resulted from lower estimated output for mining. Factory output increased 0.5 percent in October after having risen 0.3 percent in September. At 94.7 percent of its 2007 average, total industrial production for October was 3.9 percent above its year-earlier level. Output decreased at both Wood Products and Paper plants: respectively, 2.2 and 0.3 percent.

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Capacity utilization for total industry stepped up to 77.8 percent, a rate 2.1 percentage points above its level from a year earlier but 2.6 percentage points below its long-run (1972--2010) average. Manufacturing capacity utilization also rose by 0.4 percent from August. Wood Products and Paper capacity utilization both retreated: respectively, 2.0 and 0.2 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); Wood Products dropped by 0.2 percent while Paper declined by 0.1 percent.

November 2011 Macro Pulse -- 3Q2011 GDP: Game Changer or Just Extra Innings?

2011-11-17T09:33:00.000-08:00

Game 6 of the 2011 World Series: The St. Louis Cardinals were behind three games to two. Down by two runs in the ninth inning, with two outs but two on base, the Cards’ David Freese was at the plate with two strikes -- one strike away from losing the game and the series. But the third strike never came. Freese hit a triple instead, scoring two runs and tying the game to send it into extra innings. On his next at-bat Freese won the game with a solo home run in the eleventh inning. St. Louis took Game 7 and the Series the next night.

In some respects, the advance 3Q2011 GDP report resembled Freese’s triple in Game 6. Click here to see how, and to read the entire November 2011 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

September 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

2011-11-10T11:23:00.000-08:00

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Bureau of Economic Analysis data showed that personal income increased $17.3 billion (0.1 percent) and disposable personal income (DPI) increased $12.9 billion (0.1 percent) in September. Personal consumption expenditures (PCE) increased $68.7 billion (0.6 percent). Real (inflation-adjusted) DPI decreased 0.1 percent while real PCE increased 0.5 percent.

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With such an imbalance between the change in incomes and outlays, the personal saving rate dropped to 3.6 percent, well off the recent peak of 5.3 percent seen in June.

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Consumers stepped up spending on retail goods in September, by 1.1 percent -- the largest gain in seven months. Vehicle sales saw the biggest jump ($2.4 billion or 3.6 percent) among the various categories; without the auto category, retail sales rose by 0.6 percent.

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Total consumer debt outstanding increased in September, rising by a seasonally adjusted and annualized rate of 3.6 percent. Although some other categories ticked higher, the vast majority of the increase in consumer debt originated with student loans.

October 2011 Employment Report

2011-11-04T15:28:00.000-07:00

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent. Employment in the private sector rose (+104,000), with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down (-24,000), especially at the state level.

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Employment is converging with the previous peak at a slower pace than any prior recession going back to 1973.

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Part-time employment fell by 374,000 jobs while full-time employment increased by 421,000. The trend for part-time employment appears to be stable to declining slightly; the full-time trend is solidly, although modestly, higher if viewed from January 2010.

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The civilian labor force participation rate remained at 64.2 percent. The annual percentage increase in average hourly earnings of production and non-supervisory employees dropped to 1.6 percent, nearly on par with the historical low set back in February 2004. With the consumer price index for urban consumers rising at a 3.9 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

In summary, then, although this employment report was not awful, neither does it portend strong economic growth.

September 2011 U.S. Construction

2011-11-04T11:49:00.000-07:00

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Overall construction spending in the United States increased by 0.2 percent during September, to a seasonally adjusted and annualized rate (SAAR) of $787.2 billion. All categories except public construction posted increases; the private residential category exhibited the largest advance in both absolute and percentage terms.

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Total housing starts jumped by 15.0 percent in September, to 658,000 units (SAAR), on increased demand for rental stock (51.3 percent increase in multi-family units) and rebuilding after Hurricane Irene. Total starts were at their highest level since April 2010.

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New-home sales also advanced in September, by 5.7 percent to 313,000 (SAAR). The median price of new homes sold dropped by 3.1 percent, however, to $204,400. Because single-unit starts rose more slowly than sales (respectively, 7,000 versus 17,000), the starts-to-sales ratio ticked down to 1.4.

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Single-unit completions slumped by 11.6 percent, but the inventory of new single-family homes remained unchanged in absolute terms while months of inventory shrank by 0.4 month. Inventory stood at 163,000 units and 6.2 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.

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Existing home sales fared worse than their new-home counterparts in September, falling by 150,000 units (SAAR) or 3.0 percent. The share of total sales comprised of new homes ticked up to 6.0 percent.

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With the median price of existing homes sold falling by $5,600 (3.3 percent), to $165,600, housing affordability improved noticeably in September. This followed on the heels of slight increases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during August (both +0.2 percent).

“There was some weakness in the monthly statistics, as 10 of the cities posted price declines in August over July,” said David Blitzer, chair of the Index Committee at S&P Indices. “And even though the annual rates are largely improving, 18 metropolitan statistical areas (MSA) and both composites are still negative. Nationally, home prices are still below where they were a year ago. The 10-city composite is down 3.5 percent and the 20-city is down 3.8 percent compared to August 2010.

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“In the August data, the good news is continued improvement in the annual rates of change in home prices. In spring and summer’s seasonally strong period for housing demand, we cautioned that monthly increases in prices had to be paired with improvement in annual rates before anyone could declare that the market might be stabilizing. With 16 of 20 cities and both Composites seeing their annual rates of change improve in August, we see a modest glimmer of hope with these data. As of August 2011, the crisis low for the 10-city composite was back in April 2009; whereas it was a more recent March 2011 for the 20-city composite. Both are about 3.9 percent above their relative lows.

“The Midwest is one region that really stands out in terms of recent relative strength. Chicago, Detroit and Minneapolis have all posted very sharp monthly increases going back to May. These markets were some of the weakest during the crisis, particularly Detroit. But as of August 2011, Detroit is the healthiest when viewed on an annual basis. It is up 2.7 percent versus August 2010. Prices there are still back to their 1995 levels, but the recent pickup in the US auto industry may finally be helping.

“As seen in our past few monthly reports, there were large revisions across some of the MSAs. In particular, Washington D.C. was the most affected in August. Additional sale pairs data for May to July 2011 in the Washington D.C. MSA were received this month and resulted in the revisions.”

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September 2011 Manufacturers’ Shipments, Inventories and New Orders

2011-11-04T11:35:00.000-07:00

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According to the U.S. Census Bureau, the value of shipments, inventories and new orders were mixed during September.

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Shipments increased for a fourth month, by $1.3 billion (0.3 percent) to $452.7 billion. Durable goods shipments decreased $1.3 billion (0.6 percent) to $200.2 billion, led by transportation equipment.

Shipments of nondurable goods increased $2.6 billion (1.0 percent) to $252.5 billion, led by petroleum and coal products. Wood and Paper shipments both declined -- by 0.2 and 0.6 percent, respectively.

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 19.4 percent decrease in not-seasonally adjusted rail shipments in September (relative to August), and a 1.1 percent rise compared to a year earlier. Seasonal adjustments boosted the 19.4 percent August-to-September decline into a 1.1 percent gain, however; thus, the seasonally adjusted Census Bureau value for total manufacturing and AAR volume estimates tracked together again.

The PCI, which tracks diesel use for over-the-highway trucking, fell 1.0 percent in September on a seasonally and workday adjusted basis. Ed Leamer, PCI chief economist said, “With the continued weakness in September, the PCI-based forecast for third quarter GDP growth is zero,” well under the subsequent, official estimate of 2.5 percent.

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Inventories, up 23 of the last 24 months, increased $0.6 billion (0.1 percent) to $601.3 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.33, unchanged from August.

Durable goods inventories increased $0.4 billion (0.1 percent) to $365.6 billion, led by transportation equipment. Inventories of nondurable goods increased $0.3 billion (0.1 percent) to $235.7 billion, also led by petroleum and coal products. Forest products inventories were split, with Wood declining by 0.8 percent and Paper rising by 0.2 percent.

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New orders increased for a third month in September, by $1.4 billion (0.3 percent), to $453.5 billion. Excluding transportation, new orders increased 1.3 percent. Durable goods orders decreased $1.2 billion (0.6 percent) to $201.0 billion, led yet again by transportation equipment. New orders for manufactured nondurable goods increased $2.6 billion (1.0 percent) to $252.5 billion.

October 2011 ISM Reports

2011-11-04T11:28:00.000-07:00

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The pace of growth in manufacturing nearly stalled again in October, with the Institute for Supply Management’s (ISM) PMI falling to 50.8 percent, from 51.6 in September (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Comments from respondents are mixed, indicating positive relief from raw materials pricing and continuing strength in a few industries, but there is also more concern and caution about growth in this uncertain economy."

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The non-manufacturing sector also grew at a marginally slower pace in September, reflected by a 0.1 percentage point drop (to 52.9 percent) in the non-manufacturing index (now known simply as the “NMI”). "Even though there is month-over-month growth in the Employment Index, respondents are still expressing concern over available labor resources and job growth,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “The continued strong push for inventory reduction by supply management professionals has resulted in contraction in the Inventories Index for the first time in eight months. Respondents' comments are mixed and reflect concern about future business conditions.”

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Wood Products was unchanged, with higher production being offset by fewer new orders. Paper Products expanded, but declines in new, backlogged and export orders suggest more difficulty in the future.

Real Estate and Construction both reported contraction in overall activity during October, while Ag & Forestry remained unchanged.

As the bar chart and table above indicate, input price behavior was mixed during October: prices fell for manufacturing but rose more slowly for the service sector.

Paper and plywood were the only relevant commodities up in price during October; diesel fuel and gasoline were down in price. No relevant commodity was described as being in short supply.

October 2011 Monthly Average Crude Oil Price

2011-11-04T11:21:00.000-07:00

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil ticked higher in October, advancing by $0.80 (0.9 percent) to $86.41 per barrel. That rise coincided with the lagged impacts of an increase in consumption of 598,000 barrels per day (BPD) -- to 19.2 million BPD -- during August and a continued drop in crude stocks during October, but occurred despite a slightly stronger dollar. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in September (October data was not yet available at the time of this writing), it was in fact over $27 per barrel more expensive than WTI on a U.S.-dollar basis ($112.83 versus $85.61, respectively).

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October 2011 Currency Exchange Rates

2011-11-04T11:16:00.000-07:00

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The U.S. dollar lost ground against the yen (0.2 percent) but appreciated against the euro (0.1 percent) and Canada’s “loonie” (1.7 percent). On a trade-weighted index basis, the dollar gained 0.9 percent against a basket of 26 currencies. The dollar is once again at its weakest since January 2000 relative to the yen.

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3Q2011 Gross Domestic Product: Advance Estimate

2011-10-27T14:44:00.000-07:00

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The Bureau of Economic Analysis (BEA) estimated 3Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 2.5 percent, up from 1.3 percent in 2Q and the highest reading in a year. Personal consumption expenditures (PCE), private domestic investment (PDI) and net exports (NetX) contributed to 3Q growth in that order, while government consumption expenditures (GCE) were a “wash.”

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We cannot attribute most of the growth to a suspect GDP deflator (the statistic used to remove the effect of price changes from the real GDP estimate), because it is back in line with changes in both the consumer and producer price indices. (We discussed this topic in an earlier “Clearing the Mist” blog post.)

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Nonetheless, we find the GDP growth estimate -- and particularly the PCE component -- somewhat suspect in light of sour consumer sentiment reported by both Reuters/University of Michigan and The Conference Board.

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Interestingly, the 3Q GDP improvement has not negated the recession “call” made by Federal Reserve analyst Jeremy Nalewaik. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change was essentially unchanged at 1.6 percent in 3Q.

August 2011 International Trade

2011-10-24T15:26:00.000-07:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume rose by 1.3 percent in August from the previous month, following a revised increase of 1.0 percent in July. Import growth picked up in the Euro Area and, particularly strongly, in emerging economies. Exports from emerging Asia declined, however, as did exports from the United States. Euro Area exports continued to expand vigorously.

Prices rose 2.9 percent in August, to 26.9 percent above their February 2009 low.

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The U.S. goods and services deficit was virtually unchanged in August from July’s upwardly revised $45.6 billion. Exports totaled $177.6 billion, while imports totaled $223.2 billion.

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Paper exports increased by 19,000 tons (0.6 percent) in August, and imports expanded by 30,000 tons (7.7 percent). Exports remained 320,000 tons (11.2 percent) above year-earlier levels, and imports were 13,000 tons (3.2 percent) higher.

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Softwood lumber exports rose by 13 MMBF (9.1 percent) in August while imports retreated by 22 MMBF (2.8 percent). Exports were 35 MMBF (29.3 percent) higher than year-earlier levels, and imports were 28 MMBF (3.8 percent) higher.

September 2011 Consumer and Producer Price Indices

2011-10-19T23:56:00.000-07:00

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in September. Over the last 12 months, the all-items index increased 3.9 percent before seasonal adjustment.

Increases in energy and food indexes were the main cause of the seasonally adjusted all items increase. The gasoline index continued to rise, and indexes for electricity and natural gas increased as well. Broad increases in food indexes also continued in September, with the food at home index rising 0.6 percent for the third month in a row and no major grocery store food group indexes declining.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) rose 0.8 percent in September. Finished goods prices were unchanged in August and increased 0.2 percent in July. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 0.6 percent in September, and the crude goods index advanced 2.8 percent. On an unadjusted basis, prices for finished goods climbed 6.9 percent for the 12 months ended September 2011.

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Details at different stages of processing include:

Finished goods -- In September, the increase in the index for finished goods was broad based, with prices for finished energy goods rising 2.3 percent, the index for finished goods less foods and energy moving up 0.2 percent, and prices for finished consumer foods advancing 0.6 percent.

Intermediate goods -- This index climbed 0.6 percent in September after falling 0.5 percent in August. Over two-thirds of this broad-based advance can be traced to prices for intermediate energy goods, which rose 1.7 percent in September. The indexes for intermediate goods less foods and energy and for intermediate foods and feeds also contributed to the increase in intermediate goods prices, moving up 0.2 percent and 0.9 percent, respectively. For the 12 months ending September 2011, the intermediate goods index jumped 10.5 percent.

Crude goods -- The index for crude goods moved up 2.8 percent in September. For the three-month period ending in September, prices for crude materials advanced 1.8 percent following a 1.1 percent decrease from March to June. In September, the monthly increase in the crude goods index is mostly attributable to prices for crude energy materials, which jumped 7.7 percent. Also contributing to the September climb was the index for crude nonfood materials less energy, which advanced 1.0 percent. By contrast, prices for crude foodstuffs and feedstuffs moved down 0.9 percent.

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The price indexes for the forest products that we track either rose very little or declined; also, with only a couple of exceptions, the pace of increases slowed on a year-over-year basis.

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September 2011 U.S. Treasury Statement and Debt Overview

2011-10-19T09:07:00.000-07:00

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Outlays of $304.7 billion and receipts of $240.2 billion added another $64.5 billion to the federal budget deficit in September, a month that typically sees revenue slightly exceeding outlays. That brought the FY2011 U.S. federal deficit to $1.299 trillion ($5 billion higher than FY2010), and the federal debt held by the public stood at $14.790 trillion at the end of September.

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Foreigners held $4.573 trillion, or 31 percent of the U.S. public debt at the end of August. China remained the largest foreign creditor ($1.137 trillion). The United Kingdom was the biggest buyer in absolute terms ($43.8 billion; 12.4 percent), while the Caribbean banks had the largest percentage change ($32.5 billion; 25.3 percent). Holdings by the “other” (aggregated) category inched up in August after having trended lower since last November.

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The Federal Reserve continued to put more distance between itself and both China and Japan during August in terms of U.S. Treasury holdings. However, the Fed’s pace of net Treasury purchases has slowed considerably. China divested itself of some Treasuries (although the U.K. often serves as a proxy buyer for China) while Japan added modest amounts to its holdings.

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According to the Treasury International Capital (TIC) accounting system, flows into the United States for all types of investments broke off a four-month slide and amounted to $89.6 billion in August -- evidenced by the sharp jump in the three-month-average of net inflows.

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One item that bears watching is the large sell-off of U.S. Treasuries since September. The Federal Reserve holds those securities in custody for various foreign central banks. Since September, those central banks have divested themselves of $73.9 billion in Treasuries, the greatest amount on record. The concern over this development is two-fold: 1) The August 2007 sell-off either triggered -- or at least was associated with -- the first credit crisis that eventually turned into the December 2007 recession. 2) Should central bank selling continue, the Fed may become the buyer of last resort, which would likely result in higher interest rates and inflation.

September 2011 Industrial Production, Capacity Utilization and Capacity

2011-10-19T08:53:00.000-07:00

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Industrial production increased 0.2 percent in September after having been unchanged in August. Previously, industrial production was reported to have stepped up 0.2 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent. Manufacturing output moved up 0.4 percent in September after having gained 0.3 percent in August. At 94.2 percent of its 2007 average, total industrial production for September was 3.2 percent above its year-earlier level. Output increased at both Wood Products and Paper plants: respectively, 2.4 and 1.1 percent.

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Capacity utilization for total industry edged up to 77.4 percent, a rate 1.7 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972-2010) average. Manufacturing capacity utilization also rose by 0.3 percent from August. Wood Products and Paper capacity utilization both advanced: respectively, 2.6 and 1.2 percent.

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Capacity at the all-industries and manufacturing levels crept higher (0.1 percent); Wood Products dropped by 0.2 percent while Paper declined by 0.1 percent.

October 2011 Macro Pulse -- Sinking Ship or Rising Tide?

2011-10-17T09:09:00.000-07:00

The story is told of a yacht owner who threw a party on his craft while it was moored. Somehow, the boat sprang a leak and began to sink. When the situation was brought to the owner’s attention, not wanting to alarm his guests, he announced, “The yacht’s not sinking; it’s just the tide coming in.” Of course, anyone giving the owner’s statement more than a moment’s thought would realize its stupidity, and that they had all better get ashore.

That parable has many parallels to today’s situation. Click here to see how, and to read the entire October 2011 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments that affect the forest products industry. That commentary provides context for our 24-month forecast, which is contained in the monthly Economic Outlook newsletter available through Forest2Market. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

August 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

2011-10-09T13:15:00.000-07:00

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Bureau of Economic Analysis data showed that personal income decreased $7.3 billion (0.1 percent) and disposable personal income (DPI) decreased $5.0 billion (less than 0.1 percent) in August. It was the first income decline in nearly two years. Personal consumption expenditures (PCE) increased $22.7 billion (0.2 percent). Real (inflation-adjusted) DPI decreased 0.3 percent while real PCE decreased less than 0.1 percent.

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Retail sales were essentially unchanged in nominal terms during August. The “other” category exhibited the only increase (+0.2 percent), thanks to consumers spending more on essentials at gas stations and grocery stores. Excluding the volatile auto segment, retail sales rose 0.1 percent.

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Total consumer debt outstanding decreased in August, falling by a seasonally adjusted and annualized rate of 4.6 percent. The decrease was due entirely to seasonal adjustments, as the non-seasonally adjusted (NSA) monthly change was positive in both revolving and non-revolving debt. The overall NSA debt increase was broad based: only pools of securitized assets shrank.

September 2011 Employment Report

2011-10-09T13:09:00.000-07:00

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent. But one should note that the increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. The change in total nonfarm payroll employment for July was revised from +85,000 to +127,000, and the change for August was revised from 0 to +57,000. September’s private-sector job gains occurred in professional and business services, health care and construction; by contrast, manufacturing suffered losses.

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Employment is converging with the previous peak at a slower pace than a year ago and any prior recession going back to 1973.

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Part-time employment rose by 444,000 jobs while full-time employment increased by a mere 27,000.

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The civilian labor force participation rate ticked higher -- to 64.2 percent -- and the annual percentage increase in average hourly earnings of production and non-supervisory employees regained some of the ground lost in August by rising by 2.0 percent; with the consumer price index for urban consumers rising at a 3.8 percent annual pace, however, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

In summary, then, although this employment report was not awful, neither was it “anything to write home about.”

September 2011 ISM Reports

2011-10-06T14:46:00.000-07:00

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The pace of growth in manufacturing accelerated slightly in September, with the Institute for Supply Management’s (ISM) PMI rising to 51.6 percent, from 50.6 in August (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products."

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The non-manufacturing sector grew at a somewhat slower pace in September, reflected by a 0.3 percentage point drop (to 53.0 percent) in the non-manufacturing index (now known simply as the “NMI”). "Respondents' comments reflect an uncertainty about future business conditions and the direction of the economy,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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The situation for Wood Products improved, with increases in new and backlogged orders, production and employment; the only “downside” was an increase in inventories. Paper Products contracted, although the “bad news” was concentrated in higher input prices and new, backlogged and export orders. Nonetheless, one Paper Products respondent wrote that "orders remain consistent and steady -- no sign of lower demand."

Construction was the only industry among the three we track in the service sector to report expansion during September. Ag & Forestry remained unchanged while Real Estate contracted.

As the bar chart and table above indicate, the rate of input price increases was mixed during September: it accelerated (+0.5 percentage point) for manufacturing and slowed (-2.3 percentage points) for the service sector (again, 50 is the breakpoint between rising and falling prices).

Paper was the only relevant commodity up in price during September; corrugated containers and natural gas were down in price. Some respondents indicated paying more for diesel fuel and gasoline while others paid less. Diesel fuel was the only relevant commodity described as being in short supply.

August 2011 Manufacturers’ Shipments, Inventories and New Orders

2011-10-04T22:33:00.000-07:00

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The value of inventories rose during August for the sectors we track, but shipments and new orders retreated according to the U.S. Census Bureau.

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Shipments decreased $0.9 billion (0.2 percent) to $450.2 billion following two consecutive monthly increases (including a 1.2 percent rise in July). Durable goods shipments decreased $0.3 billion (0.1 percent) to $201.1 billion, led by transportation equipment. Shipments of nondurable goods decreased $0.6 billion (0.3 percent) to $249.2 billion, largely because of declining petroleum and coal products. Wood and Paper shipments both fell -- by 1.4 and 0.6 percent, respectively.

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 33.4 percent increase in not-seasonally adjusted rail shipments in August (relative to July), and a 0.3 percent drop compared to a year earlier. Seasonal adjustments “wiped out” the 33.4 percent July-to-August advance, however; thus, the seasonally adjusted Census Bureau value and AAR volume estimates tracked together for once.

“July and August results indicate that the PCI will decline in the third quarter suggesting GDP growth of 0.0 to 1.0 percent,” said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index. “The August number supports the pattern of sluggish economic growth coming out of a recession…. What we’re experiencing is the ‘new normal,’ where the U.S. economy will continue to stumble forward until a new growth engine is identified. Essentially, the economy is in need of an innovation burst.”

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Inventories, up 22 of the last 23 months, increased $2.4 billion (0.4 percent) to $601.2 billion. This was at the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.34, up from 1.33 in July.

Durable goods inventories increased $3.3 billion (0.9 percent) to $365.4 billion, also the highest level since the series was first published on a NAICS basis; the increase was led by transportation equipment. By contrast, inventories of nondurable goods decreased $0.8 billion (0.4 percent) to $235.8 billion, driven lower by petroleum and coal products. Wood and paper inventories both rose, by 0.3 and 0.4 percent, respectively.

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New orders for down two of the last three months, decreased $0.8 billion (0.2 percent) to $451.0 billion. This followed a 2.1 percent July increase. Excluding transportation, new orders decreased 0.2 percent. Durable goods orders decreased $0.2 billion (0.1 percent) to $201.9 billion, led by fabricated metal products. Orders for nondurable goods decreased $0.6 billion (0.3 percent) to $249.2 billion.

August 2011 U.S. Construction

2011-10-04T22:25:00.000-07:00

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Overall construction spending in the United States increased by 1.4 percent during August, to a seasonally adjusted and annualized rate (SAAR) of $799.1 billion. All categories posted increases, but public construction showed the largest advance in both absolute and percentage terms.

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Although the value of residential construction put in place rose in August, total housing starts declined -- by 5.0 percent, to 571,000 units (SAAR).

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The drop in total starts was primarily the result of a fallback in the multi-family category, which retreated by 24,000 units (13.5 percent).

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New-home sales retreated again in August, by 2.3 percent to 295,000 (SAAR). The median price of new homes sold also dropped by 8.7 percent, to $209,000. Despite single-unit starts declining more slowly than sales (6,000 versus 7,000, respectively), the starts-to-sales ratio ticked down to 1.4.

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Single-unit completions fell by 0.2 percent, but the inventory of new single-family homes shrank slightly in absolute terms while months of inventory bumped 0.1 month higher. Inventory stood at 162,000 units and 6.6 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.

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Existing home sales fared much better than their new-home counterparts in August, rising by 360,000 units (SAAR) or 7.7 percent. The share of total sales comprised of new homes shrank to 5.5 percent.

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With the median price of existing homes sold falling by $3,300 (1.9 percent), to $168,400, housing affordability improved again in August. This followed on the heels of mixed results in the seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during July (less than +/-0.1 percent in either case).

“With July’s data we are seeing not only anticipated monthly increases [on a seasonally unadjusted basis], but some fairly broad improvement in the annual rates of change in home prices,” said David Blitzer, chair of the Index Committee at S&P Indices. “This is still a seasonal period of stronger demand for houses, so monthly price increases are expected and were seen in 17 of the 20 cities. The exceptions were Las Vegas and Phoenix where prices fell, while Denver was flat. The better news is that 14 of 20 cities and both Composites saw their annual rates of change improve in July.

“While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery. Eighteen of the 20 cities and both Composites are showing that home prices are still below where they were a year ago. The 10-City Composite is down 3.7 percent and the 20-City is down 4.1 percent compared to July 2010. Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.

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“As with May and June’s reports, we saw some unusually large revisions across some of the MSAs. In particular, Detroit was most affected in July, with the revisions showing a much healthier market than previously thought. Our sales pairs data indicate that this market reported a lot more sales in May and June, which caused the revisions. As we have indicated before, when sales volumes are relatively low and the ratios of distressed-to-non-distressed sales are changing rapidly, revisions are more noticeable. These factors likely contributed to the revisions we saw not just in Detroit, but in many of the MSAs over the past few reports.

“Other recent housing statistics show that single-family housing starts were down slightly in August, and are about 2 percent below their year ago level; and these levels are at 30-year lows. Existing-home sales, however, were up in August and are about 20 percent above their August 2010 level. The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates, a two-year trend. However, if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around.”

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September 2011 Monthly Average Crude Oil Price

2011-10-03T22:40:00.000-07:00

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil moved “sideways” in August, retreating by just $0.72 (0.8 percent) to $85.61 per barrel. That drop coincided with a stronger dollar and the lagged impacts of a decrease in consumption of 722,000 barrels per day (BPD) -- to 18.6 million BPD -- during July, but occurred despite a noticeable drop in crude stocks during September. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in August (September data was not yet available at the time of this writing), it was in fact nearly $24 per barrel more expensive than WTI on a U.S.-dollar basis ($110.22 versus $86.33, respectively).

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September 2011 Currency Exchange Rates

2011-10-03T22:02:00.000-07:00

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The U.S. dollar lost ground against the yen (0.2 percent) but appreciated against the euro (4.2 percent) and Canada’s “loonie” (2.0 percent). On a trade-weighted index basis, the dollar gained 2.9 percent against a basket of 26 currencies. The dollar is once again at its weakest since January 2000 relative to the yen.

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2Q2011 Gross Domestic Product: Final Estimate

2011-10-03T21:59:00.000-07:00

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The Bureau of Economic Analysis (BEA) estimated 2Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.3 percent, essentially returning to the initial 2Q estimate, and up from the 0.4 percent for 1Q2011. Private domestic investment (PDI), personal consumption expenditures (PCE) and net exports (NetX) contributed to 2Q growth in that order, while government consumption expenditures (GCE) subtracted from it. As the Consumer Metrics Institute (CMI) reminded everyone, “It is important to remember that this new monthly report covered the same time periods as the previous reports -- meaning that this monthly set of changes in the numbers was caused by late arriving data at the BEA and not actual month-to-month improvements in the economy.”

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CMI also made the following observations about the latest 2Q2011 GDP report:

-- Aggregate consumer expenditures for goods was still reported to be contracting during 2Q, dragging the overall growth rate of the economy down by a -0.38 percent rate. This is actually marginally weaker than the numbers in the earlier reports.

-- Consumer expenditures for services grew slightly during the quarter, at an improved (although still very sluggish) 0.87 percent annualized growth rate. But the adjustment in this single line item represented the bulk of the improvement in the headline number.

-- The growth rate of private fixed investments was only slightly higher, at a weak annualized 1.07 percent rate.

-- Inventories are still reported to have been drawn down during the quarter, indicating that production has slowed faster than demand. The revised estimate of inventory levels caused the overall growth rate to be reduced by a -0.28 percent annualized rate.

-- Total expenditures by governments at all levels was still reported to be shrinking, reducing overall economic activity at a -0.18 percent annualized rate.

-- Exports strengthened slightly relative to the earlier report, raising the contribution that they made to the overall GDP growth rate to 0.48 percent.

-- Imports decreased somewhat when compared to the earlier report, and are now reported to be removing -0.24 percent from the growth rate of the overall economy. The combination of the revisions in the import and export numbers contributed about half of the upward changes in the published headline number.

-- The growth rate of "real final sales of domestic product" was revised upward to an annualized 1.62 percent, as the result of the now higher consumer services figures, slightly improved foreign trade and the increased draw-down of inventories.

-- Working backwards from the data tables, the effective "deflator" used by the BEA to offset the impact of inflation was 2.58 percent -- still substantially below the rates reported by their sister agencies. Substituting the line-item appropriate (CPI or PPI) current inflation rate published by the Bureau of Labor Statistics (BLS) causes the "real" GDP to be contracting at a -0.73 percent annualized rate. [Note: we covered this topic here]

-- And using the same alternate BLS deflators the real per-capita GDP can be shown to be contracting at a -1.45 percent annualized rate. Similarly, per-capita disposable income was contracting at a -0.92 percent annualized rate. These per-capita numbers are what impact individual Americans and are the real source of the frustration within the populace.

CMI wrapped up its report this way: “Even at face value the reported 1.34 percent growth rate is either sluggish or pathetic, depending on your chosen inclination to spin. When a more reasonable ‘deflator’ is used to calculate the ‘real’ numbers, the second quarter is actually shown to be in contraction. And when using such alternative BLS inflation data the most recent past quarter is the second consecutive ‘real’ quarter to have such negative growth -- meeting one of the common definitions of a new recession.

“The restive public clearly understands this -- even if the academicians at the BEA don't. The public has been seeing their (per-capita) ‘slice of the pie’ contract now for six months, and no amount of well spun ‘sluggish growth’ can alter their view of a shrinking reality.”

July 2011 International Trade

2011-09-26T10:45:00.000-07:00

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume increased by 0.8 percent in July from the previous month, following a revised decline of 2.0 percent in June. The overall picture in July was one of rising trade volumes in advanced economies and declines in emerging ones, the main exceptions being a strong rebound of exports from emerging Asia and a continued decline of imports into the United States. In Japan, export growth stalled, but import growth picked up.

Prices slipped 0.6 percent between June and July, but remained 26.2 percent above their February 2009 low.

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The U.S. goods and services deficit shrank by 13.2 percent (to $44.8 billion) in July. Exports totaled $178.0 billion (up from $170.9 billion in June), while imports totaled $222.8 billion (down from $223.9 billion).

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Paper exports decreased by 57,000 tons (1.8 percent) in July, while imports shrank by 6,000 tons (1.6 percent). Exports remained 170,000 tons (5.7 percent) above year-earlier levels, and imports were 22,000 tons (6.1 percent) higher.

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Softwood lumber exports fell by 5 MMBF (3.1 percent) in July while imports advanced by 32 MMBF (4.2 percent). Exports were 30 MMBF (26.9 percent) higher than year-earlier levels, but imports were 30 MMBF (3.7 percent) lower.