July 2021 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2021 were at a seasonally adjusted annual rate (SAAR) of 708,000 units (700,000 expected). This is 1.0 percent (±11.3 percent)* above the revised June rate of 701,000 (originally 676,000 units), but 27.2 percent (±7.3 percent) below the July 2020 SAAR of 972,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -25.9%. For longer-term perspectives, NSA sales were 49.0% below the “housing bubble” peak but 20.5% above the long-term, pre-2000 average.

The median sales price of new houses sold in July jumped ($20,300 or +5.5% MoM) to a record-high $390,500; meanwhile, the average sales price also rose to a record $446,000 ($16,400 or +3.8% MoM). Starter homes (defined here as those priced below $200,000) comprised 2.2% of the total sold, down from the year-earlier 8.2%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 were less than 0.6% of sales, down from 1.2% a year earlier.

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

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As mentioned in our post about housing permits, starts and completions in July, single-unit completions rose by 33,000 units (+3.6%). Because sales increased by a smaller amount (7,000 units; +1.0%), inventory for sale rose in absolute (+19,000 units) and months-of-inventory (+0.2 month) terms. 

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Existing home sales advanced in July (120,000 units or +2.0%), to a SAAR of 5.99 million units (5.830 million expected). Inventory of existing homes for sale expanded in absolute (90,000 units) and months-of-inventory (0.1 month) terms. Because resales rose more quickly than new-home sales, the share of total sales comprised of new homes edged down to 10.6%. The median price of previously owned homes sold in July retreated to $359,900 ($2,900 or -0.8% MoM).

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Housing affordability dipped by 6.0 percentage points as the median price of existing homes for sale in June jumped by $13,800 (+3.9% MoM; +24.4 YoY), to a record $370,600. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +2.2% (+18.6% YoY).

“June 2021 is the third consecutive month in which the growth rate of housing prices set a record, said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The National Composite Index marked its thirteenth consecutive month of accelerating prices with an 18.6% gain from year-ago levels, up from 16.8% in May and 14.8% in April. This acceleration is also reflected in the 10- and 20-City Composites (up 18.5% and 19.1%, respectively). The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country. In June, all 20 cities rose, and all 20 gained more in the 12 months ended in June than they had gained in the 12 months ended in May. Home prices in 19 of our 20 cities (all but Chicago) now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.

“June’s 18.6% price gain for the National Composite is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. This month, Boston joined Charlotte, Cleveland, Dallas, Denver, and Seattle in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quartile of historical performance; in 19 cities, price gains were in top decile.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. June’s data are consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.

“Phoenix’s 29.3% increase led all cities for the 25th consecutive month, with San Diego (+27.1%) and Seattle (+25.0%) close behind. As has been the case for the last several months, prices were strongest in the Southwest (+22.7%) and West (+22.6%), but every region logged top-decile, double-digit gains.”

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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.

2Q2021 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2021 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) edged up the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +6.56% (+6.6% expected), up 0.06 percentage point (PP) from the “advance” estimate (“2Qv1”) and +0.28PP from 1Q2021.

As with 2Qv1, personal consumption expenditures (PCE) was the only grouping of GDP components driving the expansion. Private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets. As for details:

PCE. Contribution to 2Q headline: +7.80PP; +0.36PP from 1Q and +0.02PP from 2Qv1. Broad-based upward revisions to consumer spending on goods ($15.4 billion, nominal) were largely offset by downward revisions to spending on services (-12.1B). Housing and utilities (-$5.4B), health care (+$11.3B), other services (-$9.0B), and receipts from sales of goods and services by nonprofit institutions (-$15.8B) -- which do not have market-derived value -- were the “movers and shakers” in the service-spending category.

PDI. Contribution to 2Q headline: -0.67PP; -0.30PP from 1Q and -0.10PP from 2Qv1. Upward revisions to intellectual property products (+$8.9B) were overcome by downward revisions to residential investment (-$3.5B) and nonfarm inventories (-$7.5B).

NetX. Contribution to 2Q headline: -0.24PP; +1.32PP from 1Q and +0.20PP from 2Qv1. A downward revision to goods imports (-$11.7B) dominated NetX; recall that imports are inversely correlated with the GDP headline.

GCE. Contribution to 2Q headline: -0.33PP; -1.10PP from 1Q and -0.06PP from 2Qv1. A downward revision to gross investment by state and local governments (-$2.0B) dominated this category.

The BEA's real final sales of domestic product -- which ignores inventories -- was revised to +7.86% (+0.23PP), a level 1.04PP below the 1Q estimate. 

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

July 2021 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in July at a seasonally adjusted annual rate (SAAR) of 1,534,000 units (1.61 million expected).  This is 7.0 percent (±8.9 percent)* below the revised June estimate of 1,650,000 (originally 1.643 million units), but 2.5 percent (±10.9 percent)* above the July 2020 SAAR of 1,497,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +1.7%.

Single-family housing starts in July were at a SAAR of 1,111,000; this is 4.5 percent (±9.9 percent)* below the revised June figure of 1,163,000 units (+11.0% YoY). Multi-family: 423,000 units (-13.1% MoM; -17.9% YoY).

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

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Total completions were at a SAAR of 1,391,000 units. This is 5.6 percent (±16.4 percent)* above the revised June estimate of 1,317,000 (originally 1.324 million units) and 3.8 percent (±14.4 percent)* above the July 2020 SAAR of 1,340,000 units; the NSA comparison: +3.8% YoY.

Single-family housing completions were at a SAAR of 954,000 units; this is 3.6 percent (±16.1 percent)* above the revised June rate of 921,000 units (-0.5% YoY). Multi-family: 437,000 units (+10.4% MoM; +12.8% YoY).

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Total permits were at a SAAR of 1,635,000 units (1.62 million expected). This is 2.6 percent (±0.9 percent) above the revised June rate of 1,594,000 (originally 1.598 million units) and 6.0 percent (±0.9 percent) above the July 2020 SAAR of 1,542,000 units; the NSA comparison: +0.5% YoY. 

Single-family permits were at a SAAR of 1,048,000; this is 1.7 percent (±0.8 percent) below the revised June figure of 1,066,000 (-0.6% YoY). Multi-family: 587,000 units (+11.2% MoM; +2.8% YoY).

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Higher construction costs and supply shortages along with rising home prices pushed builder confidence to its lowest reading since July 2020, according to the NAHB/Wells Fargo Housing Market Index (HMI). Builder sentiment in the market for newly built single-family homes fell five points to 75 in August.

“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” said NAHB Chairman Chuck Fowke. “Policymakers need to find long-term solutions to supply-chain issues.”

“While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales,” said NAHB Chief Economist Robert Dietz. “While these supply-side limitations are holding back the market, our expectation is that production bottlenecks should ease over the coming months and the market should return to more normal conditions.”

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

July 2021 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.9% in July (+0.5% expected) after moving up 0.2% in June. In July, manufacturing output rose 1.4%. About half of the gain in factory output is attributable to a jump of 11.2% for motor vehicles and parts, as a number of vehicle manufacturers trimmed or canceled their typical July shutdowns. Despite the large increase last month, vehicle assemblies continued to be constrained by a persistent shortage of semiconductors; the production of motor vehicles and parts in July was about 3½% below its recent peak in January 2021. The output of utilities decreased 2.1% in July, while the index for mining rose 1.2%. At 101.1% of its 2017 average, total industrial production in July was 6.6% above its year-earlier level but 0.2% below its pre-pandemic (February 2020) level. 

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Industry Groups

In July, manufacturing output increased 1.4%; excluding the large gain in motor vehicles and parts, manufacturing output moved up 0.7%. The index for overall manufacturing in July was 0.8% above its pre-pandemic level. Production of durable goods rose 2.4% in July. In addition to the increase for motor vehicles and parts, gains of 1.5% or more were recorded by machinery; electrical equipment, appliances, and components; aerospace and miscellaneous transportation equipment; and miscellaneous manufacturing (wood products: +0.1%). The output of nondurable goods rose 0.3%; the largest increases were recorded by textile and product mills and by plastics and rubber products (paper: +1.0%). The output of other manufacturing (publishing and logging) increased 0.2%. The index for mining advanced 1.2%, about the same pace it has averaged over the past 12 months. The index for utilities fell 2.1% in July, as an unusually hot June gave way to a July with temperatures somewhat below normal.

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Capacity utilization (CU) for the industrial sector rose 0.7 percentage point (PP) in July to 76.1%, a rate that is 3.5PP below its long-run (1972–2020) average.

Manufacturing CU increased 1.1PP in July to 76.6% (NAICS manufacturing: +1.3%, to 76.8%; wood products: +0.1%; paper products: +0.9%). The operating rate for mining rose 1.0PP to 76.9%, while the operating rate for utilities decreased 1.7PP to 72.6%. The rates for all three sectors remained below their long-run averages.

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Capacity at the all-industries level was unchanged MoM (+0.1% YoY) at 132.8% of 2017 output. NAICS manufacturing was also unchanged (0.0% YoY) at 130.4%. Wood products: 0.0% (+0.4% YoY) at 123.1%; paper products: +0.1% (+0.2% YoY) to 113.5%.

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

June 2021 International Trade (Softwood Lumber)

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Softwood lumber exports rose (4 MMBF or +3.8%) in June, while imports fell (93 MMBF or -6.0%). Exports were 21 MMBF (+23.1%) above year-earlier levels; imports were 277 MMBF (+23.5%) higher. As a result, the year-over-year (YoY) net export deficit was 256 MMBF (+23.5%) larger. Also, the average net export deficit for the 12 months ending June 2021 was 20.3% larger than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above).

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North America (53.0% of total exports; of which Canada: 31.2%; Mexico: 21.8%), Asia (14.7%; especially China: 4.7%; and Japan: 4.4%), and the Caribbean: 25.6% especially the Dominican Republic: 9.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -58.4% relative to the same months in 2020. Meanwhile, Canada was the source of most (84.2%) of softwood lumber imports into the United States. Imports from Canada were 19.3% higher YTD than the same months in 2020. Overall, YTD exports were up 8.7% compared to 2020; imports: +20.5%.

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U.S. softwood lumber export activity through the West Coast customs region represented 32.7% of the U.S. total; Gulf: 29.6%, and Eastern: 23.8%. Seattle (19.5% of the U.S. total) was the single most-active district, followed by Mobile (18.1%) and San Diego (10.6%). At the same time, Great Lakes customs region handled 55.2% of softwood lumber imports -- most notably the Duluth, MN district (22.7%) -- coming into the United States. 

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Southern yellow pine comprised 24.8% of all softwood lumber exports; Douglas-fir (14.2%) and treated lumber (11.4%) were also significant. Southern pine exports were down 12.8% YTD relative to 2020, while Doug-fir: +1.8%; and treated: +13.8%.

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

July 2021 Consumer and Producer Price Indices (incl. Forest Products)

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Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% in July (+0.5% expected) after rising 0.9% in June. The indexes for shelter, food, energy, and new vehicles all increased in July and contributed to the monthly all-items seasonally adjusted increase. The food index increased 0.7% in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8%. The energy index rose 1.6% in July, as the gasoline index increased 2.4% and other energy component indexes also rose.

The index for all items less food and energy rose 0.3% in July after increasing 0.9% in June. Along with shelter and new vehicles, the indexes for recreation, for medical care, and for personal care increased in July. The index for used cars also increased in July, but the 0.2% advance was much smaller than in recent months. The index for motor vehicle insurance declined in July, and the index for airline fares fell slightly.

The all-items index rose 5.4% for the 12 months ending July, the same increase as the period ending June. The index for all items less food and energy rose 4.3% over the last 12 months, while the energy index rose 23.8%. The food index increased 3.4% for the 12 months ending July, compared to a 2.4% rise for the period ending June.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 1.0% in July (+0.6% expected). Final demand prices rose 1.0% in June and 0.8% in May. Nearly three-fourths of the July increase in the final demand index can be traced to a 1.1% advance in prices for final demand services. The index for final demand goods rose 0.6%.

On an unadjusted basis, the final demand index moved up 7.8% for the 12 months ended in July, the largest advance since 12-month data were first calculated in November 2010. Prices for final demand less foods, energy, and trade services moved up 0.9% in July, the largest advance since climbing 1.0% in January. For the 12 months ended in July, the index for final demand less foods, energy, and trade services rose 6.1%, the largest increase since 12-month data were first calculated in August 2014.

Final Demand

Final demand services: The index for final demand services rose 1.1% in July, the largest one-month increase since data were first calculated in December 2009. Nearly half of the broad-based advance in July is attributable to margins for final demand trade services, which jumped 1.7%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services also moved higher, 0.6% and 2.7%, respectively.

Product detail: About 20% of the July advance in prices for final demand services can be traced to margins for automobiles and automobile parts retailing, which climbed 11.2%. The indexes for airline passenger services; hospital outpatient care; machinery and equipment wholesaling; traveler accommodation services; and securities brokerage, dealing, investment advice, and related services also increased. In contrast, prices for portfolio management fell 1.8%. The indexes for chemicals and allied products wholesaling and for fuels and lubricants retailing also declined.

Final demand goods: The index for final demand goods moved up 0.6% in July following a 1.2% jump in June. Leading the July advance in prices for final demand goods, the index for final demand goods less foods and energy increased 1.0%. Prices for final demand energy rose 2.6%. Conversely, the index for final demand foods decreased 2.1%.

Product detail: Among prices for final demand goods in July, the index for tobacco products increased 2.7%. Prices for gasoline; diesel fuel; gas fuels; consumer, institutional, and commercial plastic products; and eggs for fresh use also moved higher. In contrast, the index for beef and veal fell 11.6%. Prices for residential electric power and for softwood lumber (not edge worked) also declined.

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The not-seasonally adjusted price indexes we track were mixed on a MoM basis but all rose on a YoY basis.

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

July 2021 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 943,000 jobs in July (exceeding consensus expectations of 900,000). May and June employment changes were revised up by a combined 119,000 (May: +31,000; June: +88,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) fell by 0.5 percentage point, to 5.4%, as gains among the employed (+1.043 million) were nearly four times greater than the increase in the civilian labor force (+261,000). 

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Observations from the employment reports include:

* Goods-producing industries gained a rather miniscule 44,000 jobs; service-providers: +899,000. Notable job gains occurred in leisure and hospitality (+380,000), in local government education (+220,700), and in professional and business services (+60,000); only retail trade showed a loss (-5,500). Manufacturing added 27,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in July. Wood Products employment rose by 1,400 (ISM fell); Paper and Paper Products: -600 (ISM rose); Construction: +11,000 (ISM rose).

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* The number of employment-age persons not in the labor force declined slightly (-130,000) to 100.1 million. Consequently, the employment-population ratio (EPR) rose to 58.4%; i.e., nearly six out of 10 in the employment-age population are presently employed. 

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* Because the civilian labor force expanded by 261,000 in July, the labor force participation rate inched up 61.7%. Average hourly earnings of all private employees increased by $0.11 (to $30.54), and the year-over-year increase jumped to +4.0%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.11, to $25.83 (+4.7% YoY). Since the average workweek for all employees on private nonfarm payrolls was unchanged at 34.8 hours, average weekly earnings increased by $3.83, to $1,062.79 (+4.6% YoY). With the consumer price index running at an annual rate of +5.4% in June, even those who are employed are -- on average – not keeping up with the official inflation rate.

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* Full-time jobs jumped (1.265 million) to 127.5 million. 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 – dropped by 144,000, whereas those working part time for non-economic reasons slid by nearly 250,000; multiple-job holders retreated by 83,000.

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For a “sanity test” of the job numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in July fell by $24.8 billion, to $216.5 billion (-10.3% MoM; +11.3% YoY). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending July was 20.2% 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.

July 2021 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil nudged up by $1.11 (+1.6%), to $72.49 per barrel in July. That rise occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of May’s increase of 635,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.1 million BPD, and a further retreat in accumulated oil stocks (July average: 440 million barrels).

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From the 26 July 2021 issue of The Energy Bulletin:

OPEC. The cartel and its allies have set aside their differences for now, with their deal to hike crude production, but the coalition’s internal battles for market share are just getting started. After two and a half weeks of wrangling, the OPEC+ alliance on July 18th agreed to pump 400,000 b/d more crude every month to cool off a potentially overheating market. The cartel also grants five countries – Saudi Arabia, Russia, the UAE, Iraq, and Kuwait – higher output targets starting in May 2022. It is a near-term win for the group and looks set to exacerbate the divide between its richer and poorer members. Some will struggle to produce at their quotas.

The market is very tight, and a supply increase of 400,000 b/d will turn out to be a pittance, according to a senior analyst. On the other hand, he states that demand is significantly higher, despite the Covid-19 pandemic exploding in parts of the world, and oil prices are likely to climb much further by the time summer is over. Goldman Sachs said that the deal would support its view on oil while cautioning that near-term prices may gyrate amid concern about the delta variant. In addition, the planned output increase was moderate and would keep the market in deficit.

The deal proves that OPEC+ is very much intact and on course to manage a controlled and cautious tapering of cuts to avoid even the slightest risk of tipping the market into oversupply, said the founder of Vanda Insights in Singapore. However, quota-busting is likely to remain a thorn in the alliance’s side, especially when members start experiencing restraint fatigue as markets demand more oil, she added.

Shale Oil. Unlike previous boom-and-bust cycles, the shale oil industry has held off on boosting production and has focused on strengthening balance sheets, repaying loans, and rewarding shareholders. As a result of the commodity price rally this year and the discipline in capital spending, the industry is now financially more robust. Bankruptcies have been declined in recent months, and the energy loan default rate has dropped to the lowest level since the oil market crashed in March last year. In addition, low interest rates have prompted many US oil and gas firms to raise new debt, most of which goes to repaying existing liabilities, not to drill more wells.

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Selected highlights from the 30 July 2021 issue of OilPrice.com’s Oil & Energy Insider include:

Crude prices drew hefty support [during the last week of July] from U.S. inventory dynamics, with commercial stocks falling to their lowest since January 2020 and indications that the tightening is set to continue. Concurrently, the markets have seemingly got accustomed to the idea that there will not be any Iranian cliff-hanger as President-elect Raisi is to be sworn into office next week, mitigating erstwhile concerns that Tehran might flood the market with incremental barrels. COVID headwinds persist, however, as several European countries see rising Delta variant cases.

ADNOC to Ease October 2021 production cuts. The UAE state oil company ADNOC informed its term buyers that it would ease its export nomination cuts for October 2021, bringing back 10 percentage points worth of output compared to September, a clear indication that the Emirates remains earnest in its production ramp-up drive.

European Majors Leave Venezuela. France’s TotalEnergies and Norway’s Equinor have quit their Petrocedeño joint venture, transferring their stakes to a subsidiary of PDVSA. The JV manages the Juni oil field in the Orinoco Belt and a 180,000 BPD heavy crude upgrader -- this was used by both companies, arguing that developing the heavy barrels is incompatible with their low-carbon strategies.

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

July 2021 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed another slight decrease in the proportion of U.S. manufacturers reporting expansion in July. The PMI registered 59.5%, a dip of 1.1 percentage points (PP) from the June 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. The sub-indexes for imports (-7.3PP), input prices (-6.4PP) exhibited the largest changes.

“Companies and suppliers continue to struggle to meet increasing demand levels,” observed Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products. Worker absenteeism, short-term shutdowns due to parts shortages and difficulties in filling open positions continue to be issues limiting manufacturing-growth potential.”

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The services sector -- which accounts for 80% of the economy and 90% of employment -- jumped to a new all-time high of service-sector respondents reporting expansion (+4.0PP, to 64.1%). The most noteworthy changes in the sub-indexes included exports (+15.1PP), imports (-6.6PP) and employment (+4.5PP).

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Of the industries we track, only Ag & Forestry did not expand. Respondent comments included the following:

Construction. “Costs have risen dramatically in the last 45 days. Lodging, fuel, travel and supplies are all rising sharply. Costs for available labor are also rising, as demand increases in a diminished labor pool.”

Real Estate. “Business continues to gain speed as the economy recovers and assuming there won't be additional government-mandated lockdowns.”

 

Findings of IHS Markit‘s July survey headline results conflicted with their ISM counterparts. Manufacturing: Markit ticked up to a new record high while ISM kept dropping; services: Markit decelerated sharply while ISM soared to a new record.

Manufacturing. July PMI ticks up to record high, but supply delays and price pressures also hit new peaks

Key findings:

* Sharper expansions in output, new orders and employment
* Cost pressures spike amid record shortages and efforts to build stocks
* Backlogs rise at near-record pace amid capacity

 

Services. Softest rise in business activity since February

Key findings:

* Further marked expansions in output and new business
* Joint-quickest rise in backlogs for almost a year
* Inflationary pressures ease but remain historically strong

 

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “July saw manufacturers and their suppliers once again struggle to meet booming demand, leading to a further record jump in both raw material and finished goods prices.

“Despite reporting another surge in production, supported by rising payroll numbers, output continued to lag well behind order book growth to one of the greatest extents in the survey’s 14-year history, leading to a near-record buildup of uncompleted orders.

“Capacity is being constrained by yet another unprecedented lengthening of supply chains, with delivery delays reported far more widely in the past two months than at any time prior in the survey’s history. Manufacturers and their customers are consequently striving to maintain adequate inventory levels, often reporting the building of safety stocks where supply permits, to help keep production lines running and satisfy surging sales.

“The result is perhaps the strongest sellers’ market that we’ve seen since the survey began in 2007, with suppliers hiking prices for inputs into factories at the steepest rate yet recorded and manufacturers able to raise their selling prices to an unprecedented extent, as both suppliers and producers often encounter little price resistance from customers.”

 

Services. “The pace of U.S. economic growth cooled in July, according to the final PMI data, but remained impressively strong to suggest that GDP will rise robustly again in the third quarter. Stimulus measures combined with the vaccine roll out and reopening of the economy continued to boost demand for goods and services, most notably among households and especially in consumer-facing services such as travel and hospitality.

“Some further easing in the rate of expansion is likely in coming months, however, as future growth expectations mellowed considerably during the month. This waning of optimism in part reflected the likely peaking of demand in the second quarter as the economy opened up, but also reflected a rising concern over the potential for the Delta variant to disrupt the economy again.

“With the survey once again bringing signs that capacity is being constrained by a lack of raw materials and labor, inflationary pressures look set to persist in the coming months, though it is encouraging to note that the overall rate of increase of selling prices for goods and services continued to moderate from May’s recent peak.”

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

June 2021 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments in June increased $7.6 billion or 1.6% to $499.0 billion. Durable goods shipments increased $2.6 billion or 1.0% to $250.8 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $5.1 billion or 2.1% to $248.1 billion, led by petroleum and coal products. Shipments of wood products fell by -0.3%; paper: +0.1%.

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Inventories increased $7.4 billion or 1.0% to $740.7 billion. The inventories-to-shipments ratio was 1.48, down from 1.49 in May. Inventories of durable goods increased $4.2 billion or 0.9% to $451.0 billion, led by transportation equipment. Nondurable goods inventories increased $3.1 billion or 1.1% to $289.7 billion, led by petroleum and coal products. Inventories of wood products rose by 1.5%; paper: +0.3%.

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New orders increased $7.4 billion or 1.5% to $506.0 billion. Excluding transportation, new orders rose by $5.9 billion or 1.4% (+17.7% YoY). Durable goods orders increased $2.3 billion or 0.9% to $257.9 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.5 billion or 0.7% (+18.2% YoY). New orders for nondurable goods increased $5.1 billion or 2.1% to $248.1 billion.

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Unfilled durable-goods orders increased $11.5 billion or 1.0% to $1,223.1 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.94, down from 6.96 in May. Real unfilled orders, which had been a good litmus test for 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 109% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Except for the year-long run up during 2019, real unfilled orders have been trending lower since November 2014.

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

July 2021 Currency Exchange Rates

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In July, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+2.5%), the euro (+1.9%) and Japanese yen (+0.1%). On the broad trade-weighted index basis (goods and services), the USD strengthened by 1.3% 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.