May 2015 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment increased by 280,000 jobs in May -- well above expectations of 220,000. Moreover, combined March and April employment gains were revised upward by 32,000 (March: +34,000; April: -2,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up to 5.5% as the labor force grew (+208,000), although the number of employed workers grew faster (+272,000) than the number of unemployed (+125,000). 

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Observations from the employment report include:

* The disparity in jobs gains between the establishment (+280,000) and household (+272,000) surveys virtually disappeared.

* The downturn in oil-sector (part of the Mining & Logging category) employment continued in this report.

* Nearly two-thirds (182,500) of job growth occurred in the sectors typically associated with the lowest-paid jobs: Education & Health Services +74,000; Leisure & Hospitality +57,000; Retail Trade +31,400; and Temp Help +20,100.

* The ongoing narrowing in the number of Manufacturing versus Food Service & Drinking Places (FS&DP) jobs continued in May. Interestingly, in January 2000, there were 9.168 million more U.S. manufacturing jobs than FS&DP jobs. As of May 2015, the gap has shrunk to 1.306 million. Although the number of manufacturing jobs was 181,000 higher than April 2014, the concurrent growth rate in FS&DP jobs was nearly double that (+355,400). 

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* After four months at 59.3%, the employment-population ratio ticked up by 0.1% (to 59.4%); also, the number of employment-age persons not in the labor force fell by 208,000. 

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* The labor force participation rate returned to the upper end of the range it has exhibited during the past year (+0.1 percentage point, to 62.9%). Average hourly earnings of all private employees rose by $0.08, resulting in a 2.3% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose $0.06 (+2.0% YoY). With the CPI running at an official rate of -0.2% (YoY), wages are technically rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in May. 

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* Finally, full-time jobs increased (+630,000) while part-time jobs retreated (-232,000). Full-time jobs have been trending higher since December 2009, but are still 473,000 short of the pre-recession high. Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million.

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

April 2015 International Trade (Softwood Lumber)

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Softwood lumber exports increased by 11 MMBF (7.5%) in April while imports fell by 100 MMBF (-8.3%). Exports were 26 MMBF (15.5%) below year-earlier levels; imports were 43 MMBF (4.1%) higher. The net export deficit was 69 MMBF (7.7%) higher. 

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The rest of North America (i.e., Canada and Mexico) was once again the primary destination for U.S. softwood lumber exports in April (42.9%). Asia (especially China, Japan and Taiwan) was a distant second (37.4%). Canada was also the largest single-country destination (23.3%). Year-to-date (YTD) exports to China were down over 50% relative to the same period in 2014. Meanwhile, Canada was the source of nearly all (95.7%) softwood lumber imports into the United States. Overall, YTD exports were down 17.5% compared to a year earlier, while imports were up 11.4%. 

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U.S. softwood lumber export activity through West Coast customs districts rose slightly in relation to the other districts during April: 41.0% of the U.S. total; Seattle retained the title of most-active district, with 27.0% of the April total. At the same time, Great Lakes customs districts handled 70.4% of the softwood lumber imports (especially Duluth, MN with 30.0%) coming into the United States. 

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Southern yellow pine comprised 27.0% of all softwood lumber exports in April, followed by Douglas-fir with 16.4%. Southern pine exports were up 2.9% YTD relative to a year earlier, while Douglas-fir exports were down 37.3%.

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

April 2015 International Trade (General)

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The goods and services deficit was $40.9 billion in April, down $9.7 billion from $50.6 billion in March, revised. April exports were $189.9 billion, $1.9 billion more than March exports. April imports were $230.8 billion, $7.8 billion less than March imports.

The April decrease in the goods and services deficit reflected a decrease in the goods deficit of $9.3 billion to $60.7 billion and an increase in the services surplus of $0.4 billion to $19.8 billion.

Year-to-date, the goods and services deficit increased $1.5 billion, or 0.9 percent, from the same period in 2014. Exports decreased $18.0 billion or 2.3 percent. Imports decreased $16.5 billion or 1.8 percent. 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume decreased by 0.1% in April (but +2.7% year-over-year) while prices fell by 2.2% (-15.4% YoY).

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

May 2015 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that growth of economic activity in the U.S. manufacturing sector quickened slightly in May. The PMI registered 52.8%, an increase of 1.3 percentage points over the April reading of 51.5%. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The most apparent changes included a substantial moderation in the pace of input price decreases; and increases in new orders, employment, inventories, backlogged orders and imports. 

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Wood Products was unchanged in May; "Oversupply is continuing to tighten profit margins," commented one respondent. Paper Products expanded amidst widespread support.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- slowed in May. The NMI registered 55.7%, 2.1 percentage points lower than the April reading of 57.8%. Except for input prices, exports and imports, all other sub-indexes were lower in May than in April. 

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All three service industries we track reported expansion in May. The employment sub-index was the most consistent source of strength.

Relevant commodities up in price included fuel (both diesel and gasoline) and paper. Some reported natural gas as cheaper, others as more expensive. No relevant commodities were in short supply.

ISM’s and Markit’s surveys exhibited some divergence in May. Markit’s Manufacturing PMI showed some moderation (ISM was stronger), whereas Markit’s Services PMI reflected much slower growth.

Comments from Chris Williamson, Markit’s chief economist, are presented below:

Manufacturing -- “With manufacturers reporting the smallest rise in new orders since the start of last year, the survey provides further evidence that the strong dollar is hurting the economy. Falling exports and slumping profits were two weak links in the economy during the first quarter and look set to act as ongoing drags in the second quarter.

“While the economy still looks set to rebound from the decline seen in the first quarter, the extent of the second quarter recovery therefore remains highly uncertain and could well disappoint.

“It is encouraging to see employment growth holding up so well, with May seeing an increased rate of job creation in the manufacturing sector. But employment can often be a lagging indicator and payroll numbers will inevitably come under pressure if order book growth fails to improve in coming months.

“It therefore remains too early to take a reliable reading on the health of the economy and the data flow over the summer will be crucial in determining the timing of the first Fed rate hike.”

Services -- “Slowing service sector growth adds to signs that the U.S. economy has lost some momentum after an initial bounce-back from weather-related weakness at the start of the year.

“May’s PMI data showed service sector activity rising to a slightly smaller degree than signaled by the flash reading. Alongside the slowdown in manufacturing, the services PMI points to the weakest pace of U.S. economic growth since January.

“While the survey still supports the view that GDP growth looks set to recover after the 0.7% rate of decline seen in the first quarter, the softness of the data raises big question marks for policymakers over the strength of the rebound and whether the economy is losing momentum as it heads into the summer.

“The strong dollar is clearly hurting, with new orders growth deteriorating in both manufacturing and services. On the other hand, order books growth remained strong enough to encourage firms to take on staff in increasing numbers in May, leading to the largest rise in employment for almost a year. With the job market gains pushing the economy towards full employment, policymakers may consider rate hikes appropriate even in the face of slower growth.”

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

April 2015 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments was virtually unchanged at $482.4 billion in April. Shipments of durable goods decreased $0.5 billion or 0.2% to $240.1 billion, led by primary metals. Meanwhile, nondurable goods shipments increased $0.5 billion or 0.2% to $242.3 billion, led by chemical products. Wood shipments fell by 1.6% while Paper rose 0.8%. 

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Inventories increased $0.6 billion or 0.1% to $649.0 billion. The inventories-to-shipments ratio was 1.35, up from 1.34 in March.

Inventories of durable goods increased $0.8 billion or 0.2% to $401.6 billion (the highest level since the series was first published on a NAICS basis in 1992), led by transportation equipment. Nondurable goods inventories decreased $0.2 billion or 0.1% to $247.4 billion, led by chemical products. Inventories of Wood expanded by 0.5% while Paper contracted by 0.2%.

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New orders decreased $1.8 billion or 0.4% to $476.7 billion (-0.1% expected). Excluding transportation, new orders increased 0.1%. Durable goods orders decreased $2.3 billion or 1.0% to $234.4 billion, led by transportation equipment. New orders for nondurable goods increased $0.5 billion or 0.2% to $242.3 billion.

Prior to July 2014, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012, recouping roughly 75% of the losses incurred since the beginning of the Great Recession. With July’s transportation-led spike now in the rearview mirror, new orders are back to around 63% of their December 2007 high. 

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Unfilled durable-goods orders decreased $1.1 billion or 0.1% to $1,202.4 billion, led by machinery. The unfilled orders-to-shipments ratio was 6.98, down from 6.99 in March. Real unfilled orders, which had been a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders in June 2014 were back to just 79% of their December 2008 peak. Real unfilled orders jumped to 102% of the prior peak in July, thanks to the largest-ever batch of aircraft orders, hence, this metric is likely to remain elevated for several years.

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

May 2015 Currency Exchange Rates

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In May the monthly average value of the U.S. dollar depreciated against two of the three major currencies we track: -1.3% against Canada’s loonie and -3.1% against the euro. The greenback gained relative to the yen. On a trade-weighted index basis, the dollar weakened by 0.7% against a basket of 26 currencies. 

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

April 2015 Construction Spending

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Overall construction spending in the United States jumped 2.2% during April (more than triple the +0.7% expected), to a seasonally adjusted and annualized rate (SAAR) of $1.006 trillion -- the first time since November 2008 that total spending exceeded $1 trillion. The private non-residential component increased by $11.1 billion (+3.1%). Outlays on public projects rose by $9.0 billion (+3.3%) while the private residential component brought up the rear with a more meager $1.9 billion (+0.6%). 

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Click here for a discussion of April’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories and prices.

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