February 2023 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 311,000 jobs in February, exceeding the 223,000 expected. December and January employment changes were revised down by a combined 34,000 (December: -21,000; January: -13,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) rose to 3.6%, as only 42% of the labor force (re)entrants found work. 

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Observations from the employment reports include:

* Over half of net jobs gain came from CES (business birth/death model) adjustments -- i.e., from jobs in firms formed recently enough they are not yet included in the survey “sampling frame.”

* Goods-producing industries added 20,000 jobs; service providers: +291,000. Notable job gains occurred in leisure and hospitality (+105,000), retail trade (+50,100), government (+46,000 -- half of which were local teachers), and health care (+44,200). Employment declined in information (-25,000) and in transportation and warehousing (-21,500). Total nonfarm employment (155.4 million) is now 3.0 million jobs above its pre-pandemic level in February 2020 (private sector: +3.4 million; public sector: -376,000). That said, employment is also perhaps 5.7 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing lost 4,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which fell into contraction in February. Wood products manufacturing fell by 1,000 (ISM unchanged); paper manufacturing: -1,100 (ISM unchanged); construction: +24,000 (ISM rose).

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* The number of employment-age persons not in the labor force fell (-269,000) to 99.9 million; that level is 4.7 million higher than in February 2020. Because the change in the number of employed and unemployed were roughly balanced, the employment-population ratio (EPR) was unchanged at 60.2% -- still 0.9PP below its February 2020 level. 

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* With the working-age civilian population growing by 150,000 and labor force expanding by 419,000, the labor force participation rate inched up to 62.5%. Average hourly earnings of all private employees increased by $0.08 (to $33.09), and the year-over-year increase accelerated to +4.6%. Because the average workweek for all employees on private nonfarm payrolls shrank to 34.5 hours, average weekly earnings slipped (-$0.54) to $1,1441.61 (+4.0% YoY). Nonetheless, with the consumer price index running at an annual rate of +6.4% in January, the average worker keeps losing purchasing power. In fact, average hourly wages have lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs rose (+607,000) at 133.2 million; there are now 2.4 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 6.5 million during that period. Workers employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- inched up by 17,000, while those working part time for non-economic reasons fell (-227,000); multiple-job holders: -97,000. 

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For a “sanity test” of the job numbers, we consult employment withholding/FICA taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in February fell by $30.4 billion, to $257.7 billion (-10.5% MoM; -0.2% YoY). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year; the average of the three months ending February was 0.4% above the year-earlier average.

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

January 2023 International Trade (Softwood Lumber)

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With January exports of goods and services at $257.5 billion (+3.4% MoM; +13.3% YoY) and imports at $325.8 billion (+3.0% MoM; +3.5% YoY), the net trade deficit was $68.3 billion (+1.6% MoM; -21.9% YoY). 

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Softwood lumber exports rose (5 MMBF or +5.5%) in January, along with imports (115 MMBF or +10.3%). Exports were 1 MMBF (+0.9%) above year-earlier levels; imports: 163 MMBF (+15.2%) higher. As a result, the year-over-year (YoY) net export deficit was 162 MMBF (+16.7%) larger. Also, the average net export deficit for the 12 months ending January 2023 was 0.5% above the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (59.3% of total softwood lumber exports; of which Mexico: 34.0%; Canada: 25.3%), Asia (12.8%; especially China: 3.7%), and the Caribbean: 19.0% especially the Dominican Republic: 9.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 160.6% relative to the same month of the prior year. Meanwhile, Canada was the source of most (72.1%) softwood lumber imports into the United States. Imports from Canada were 2.8% lower YTD/YTD. Overall, YTD exports were up 0.9% compared to the prior year; imports: +15.2%.

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U.S. softwood lumber export activity through the West Coast customs region represented 36.7% of the U.S. total; Gulf: 36.0%, and Eastern: 17.9%. Seattle (15.9% of the U.S. total), Mobile (18.6%), San Diego (16.8%) and Laredo (11.2%) were the most active districts. At the same time, the Great Lakes customs region handled 48.1% of softwood lumber imports -- most notably the Duluth, MN district (16.4%) -- coming into the United States. The Eastern region comprised 30.8% of imports, but that volume was distributed among the districts.

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Southern yellow pine comprised 23.7% of all softwood lumber exports; Douglas-fir (16.6%), treated lumber (13.6%), other pine (10.7%) and finger-jointed (8.0%) were also significant. Southern pine exports were up 30.2% YTD/YTD, while Doug-fir: -3.7%; treated: -20.7%; other pine: (+23.3%); and finger-jointed: -7.1%.

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.

February 2023 Currency Exchange Rates

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In February, the monthly average value of the U.S. dollar (USD) appreciated against all currencies we track: Canada’s “loonie” (+0.2%), euro (+0.7%), and Japanese yen (+2.0%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.5% against a basket of 26 currencies. 

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

January 2023 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments in January increased $3.8 billion or 0.7% to $547.8 billion. Durable goods shipments decreased $0.1 billion or virtually unchanged to $277.4 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.9 billion or 1.5% to $270.4 billion, led by petroleum and coal products. Shipments of wood products rose by 0.7%; paper: +1.1%.

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Inventories increased $0.4 billion or virtually unchanged to $808.3 billion. The inventories-to-shipments ratio was 1.48, down from 1.49 in December. Inventories of durable goods decreased $0.3 billion or 0.1% to $493.3 billion, led by transportation equipment. Nondurable goods inventories increased $0.7 billion or 0.2% to $315.0 billion, led by food products. Inventories of wood products shrank by 0.8%; paper: -0.2%.

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New orders decreased $8.9 billion or 1.6% to $542.8 billion. Excluding transportation, new orders rose by $5.3 billion or 1.2% (+4.3% YoY). Durable goods orders decreased $12.8 billion or 4.5% to $272.4 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.6 billion or 0.8% (+5.5% YoY). New orders for nondurable goods increased $3.9 billion or 1.5% to $270.4 billion.

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Unfilled durable-goods orders increased $0.3 billion or virtually unchanged to $1,157.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.07, up from 6.06 in December. Real (inflation-adjusted) unfilled orders, which -- prior to the pandemic -- had been a good litmus test for potential sector growth, show a less-positive picture; in real terms, unfilled orders in June 2014 were back to 103% of their December 2008 peak. Real unfilled orders then jumped to 110% of the prior peak in November 2014, thanks to the largest-ever batch of aircraft orders. Real unfilled orders trended lower after November 2014, although more-recent data hint at a possible upturn.

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

February 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for February 2023 contracted a bit more slowly. The PMI registered 47.7%, up 0.3 percentage point (PP) from January’s reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Subindexes with the largest changes included prices paid (+6.8PP), new orders (+4.5PP), and imports (+2.1PP). 

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Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- expanded at a marginally slower pace in February (-0.1PP, to 55.1%). Business activity (-4.1PP), employment (+4.0PP), and exports (+2.7PP) exhibited the largest changes.

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Of the industries we track, manufacturers contracted while services expanded. Respondent comments included the following:

Construction. “Activity is steady. Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters.”

 

Changes in S&P Global‘s survey headline results were broadly consistent with ISM’s. Both manufacturing reports showed contraction, and both services reports exhibited expansion. Details from S&P Global’s surveys follow --

Manufacturing. Softest decline in output for three months as supply chain conditions improve.

Key findings:
* Decrease in new sales sparks further, but slower, fall in output
* Greatest improvement in lead times since May 2009
* Selling prices rise at sharper pace despite softer uptick in costs

 

Services. Selling price inflation accelerates amid renewed upturn in output in February.

Key findings:
* Activity returns to expansion, albeit at only a slight pace
* Employment rises at fastest rate since September 2022
* Selling price inflation accelerates despite softer rise in costs

 

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

Manufacturing. “US manufacturing remained under intense pressure in February. Although the PMI rose slightly, it continues to signal the steepest downturn outside of pandemic lockdown months since 2009.

“Moreover, some of the improvement in output could merely be attributed to faster supplier delivery times, which quickened to the greatest extent since 2009 to facilitate higher production and enable factories to work through previously placed orders. The worry is that new order inflows continue to fall sharply as many companies report disappointing sales, linked in part to a sustained trend towards cost-saving inventory reduction and low levels of confidence at their customers, both at home and abroad. None of this points to a healthy economic situation.

“There was some brighter news in that factory jobs growth picked up slightly amid reports of greater success in filling vacancies, and the improvement in supply chains helped reduce input cost inflation. However, rising wage pressures and efforts to raise margins meant average prices for goods leaving the factory gate rose sharply once again, the rate of inflation accelerating for a second straight month to hint at stubbornly high price pressures.”

 

Services. “A return to growth of US service sector business activity in February for the first time in eight months has offset a decline in manufacturing output, helping stabilize the economy and hopefully avert a downturn in the first quarter.

“The upturn was led by a revival in spending on services by consumers and improved activity in the tech sector, but was also aided by a marked cooling in the recent downturn in financial services.

“Across both services and manufacturing, jobs growth has risen to a five-month high as business confidence about the year ahead has perked up to its highest since last May, reviving further from the low-point seen last October. Clearly the gloom heading into the winter has been replaced with brighter prospects moving into the spring.

“This improving picture has, however, added to firms’ pricing power. Having fallen to a 27-month low in January, the rate of inflation for goods and services reaccelerated in February to its highest since last October as companies reported greater success in passing higher costs on to customers.”

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.

February 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil inched down, by $1.29 (-1.7%) to $76.83 per barrel in February. That decrease occurred within the context of a noticeably weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of December’s drop of 1.1 million barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 19.5 million BPD), and accumulated oil stocks that arced to near the top of the five-year average range (February 2023 average: 471 million barrels). 

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Selected highlights from the 24 February 2023 issue of OilPrice.com’s Oil & Energy Insider include:

“Yet another build in U.S. crude inventories added to downward pressure on oil prices on [February 24],” wrote OilPrice.com editor Tom Kool. “The EIA's report weighed particularly heavily on WTI, opening an arbitrage window into both Europe and Asia. The market reaction to another 7.6-million-barrel build was originally subdued by speculation of a further production cut from Russia and rumors of Chinese demand returning. Ultimately, inflation fears and continued inventory builds pushed oil prices lower, with ICE Brent trending around the $81 per barrel mark.”

A Flotilla of US Oil Is Set to Sail to China. The relative weakness of WTI has prompted a revival in Chinese buying of US barrels as China’s state-owned Sinopec and Petrochina have fixed at least 10 VLCC tankers for March-loading cargoes out of the US Gulf Coast.

Russia Fixes Crude Discounts on Exports. Russia’s President Vladimir Putin signed a law that capped the maximum possible discounts on Urals crude as part of an ongoing oil taxation overhaul, with the maximum discount set at $34 per barrel in April and gradually declining to $25 per barrel in July.

Iraq to Drop US Dollar in China Exports. The Iraqi central bank announced this week that it had allowed trade from China to be settled directly in yuan rather than US dollar, a relief for the country’s energy sector as since 2022 the US Treasury has enforced stricter controls on transactions by Iraqi banks.

Tight Diesel Stocks Remain Inflation Risk. With middle distillate stocks below the 10-year average in each of the main trading regions and a whopping 40 million barrels lower in Europe, any swift uptick in manufacturing and industrial activity is poised to send diesel prices back into an upward spiral.

China Locks in Another US LNG Term Deal. China Gas Holdings, one of the largest independent gas distributors in China, signed two separate 20-year LNG deals with US exporter Venture Global for a total of 2 million tons LNG per year, adding to a flurry of similar deals recently.

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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.

January 2023 Construction Spending

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Construction spending during January 2023 was estimated at a seasonally adjusted annual rate of $1,825.7 billion, 0.1% (±0.7%)* below the revised December estimate of $1,827.5 billion (originally $1,809.8 billion); expectations were for +0.2%. The January figure is 5.7% (±1.2%) above the January 2022 SAAR of $1,726.6 billion; the not-seasonally adjusted YoY comparison (shown in the table below) is +5.0%.

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

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Private Construction

Spending on private construction was at a SAAR of $1,442.6 billion, virtually unchanged from (±0.5%)* the revised December estimate of $1,442.0 billion (originally $1,427.1 billion):
- Residential. $847.4 billion, -0.6% (±1.3%)* of which
- Home improvement. $351.4 billion, +0.5% (+15.3% YoY);
- Nonresidential. $595.2 billion, +0.9% (±0.5%).

Public Construction

Public construction spending was $383.1 billion, 0.6% (±1.2%)* below the revised December estimate of $385.5 billion (originally $382.7 billion):
- Educational. $84.1 billion, -0.6% (±2.0%)*
- Highway. $117.3 billion, 0.9% (±2.8%)*.

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Click here for a discussion of January’s new residential permits, starts and completions, and 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.