May 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil fell back in May, dropping by $8.71 (7.9 percent) to $101.33 per barrel. That retreat occurred despite a weak dollar and an increase in consumption of 379,000 barrels per day (BPD) -- to 19.2 million BPD -- during March, but coincided with a continued rise in crude stocks during May.
 

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According to ASPO-USA, although oil prices fell early in the final full week of May -- at one point dropping below $97 a barrel in New York as the dollar rose to a two-month high (on a daily value basis) following a spate of bad news about the various debt crises in the euro zone -- they quickly bounced back to the vicinity of $100 after Goldman Sachs released a forecast that oil prices were heading higher as demand was outrunning the global oil production and economic recovery was picking up. Goldman was soon joined by Morgan Stanley, JPMorgan, and Barclays in forecasting considerably higher oil prices in the next 18 months. JPMorgan sees Brent crude trading at $130 a barrel by the third quarter of 2011 and Goldman is forecasting Brent at $120 by the end of 2011 and $140 by the end of 2012. NY crude closed out last week at $100 a barrel and, in London, Brent crude settled on Friday at $115.

May 2011 Currency Exchange Rates

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The U.S. dollar gained ground against Canada’s “loonie” (1.0 percent) and the euro (0.9 percent) but deppreciated against the yen (2.5 percent). On a trade-weighted index basis, the dollar was unchanged against a basket of 26 currencies.
 

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Canada: The loonie weakened against the dollar despite real GDP growth of 0.3 percent in March and strong Asian demand for Canada’s oil, lumber and potash. Some analysts speculate the loonie’s depreciation stemmed from expectations the Bank of Canada will hold off raising interest rates until September, instead of in July as previously expected.

Europe: The euro “yo-yo’d” against the dollar in May, as expectations of strong Asian demand for European “bail-out” bonds competed with Europe’s sovereign debt crises -- which are also threatening Eastern Europe’s economic recovery -- and souring confidence among German investors because of rising energy prices.

Japan: The yen apparently strengthened on account of the economy’s fairly robust bounce back from the mid-March earthquake and tsunami. Industrial output rose 1 percent in April following a record plunge immediately after the disaster, and companies said they planned to crank up output further in May and June. Japan’s economy remains in a “very severe” state, however, and has a long way to go back to full recovery -- evidenced by a rising jobless rate, plunging auto exports, and warnings by Moody's ratings agency that both growth and government action may fall short of what is necessary to bring Tokyo's ballooning debt back under control.

1Q2011 Gross Domestic Product: Second Estimate

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The Bureau of Economic Analysis (BEA) left its estimate of 1Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.8 percent -- well below expectations of a revision to 2.2 percent. Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed to growth while government consumption expenditures (GCE) subtracted from it. Net exports (NetX) were a “wash.” Comparing the advance and preliminary estimates shows that PCE contributed less to growth than first thought, while PDI contributed more. Without the upward revision in private inventories (now pegged at 1.2 percent, considerably higher than the advance estimate of 0.1 percent), 1Q growth would have been below 1 percent.
 

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The Consumer Metrics Institute continues to question (legitimately, in our opinion) the reliability of the deflator used to arrive at the real GDP estimate; the deflator removes the influence of price changes from the growth estimate.

“The importance of the price deflator used by the BEA cannot be overstated. In calculating the "real" GDP the BEA continued to use an overall 1.9 percent annualized inflation rate, which is substantially lower than the inflation rates being reported by any of the BEA's sister agencies. The mathematical implications of the deflator are simple: a lower deflator creates a higher "real" GDP reading. If April's CPI-U (as reported by the Bureau of Labor Statistics) of 3.2 percent year-over-year inflation is used as the deflator, the reported 1.84 percent annualized growth rate shrinks to a 0.56 percent annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.63 percent rate. If instead of the year-over-year CPI-U we were to use the annualized CPI-U from just the first quarter (5.7 percent), the "real" GDP would be shrinking at a 1.82 percent annualized rate, and the "real final sales of domestic products" would be contracting at a recession-like 3.01 percent.

“Although the overall reported headline rate for the GDP remained essentially unchanged, the numbers reflected somewhat weaker consumer contributions and anemic "real final sales" -- all while using a price deflator that strains [credulity]….”

March 2011 International Trade

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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 March from the previous month, following an upwardly revised rise of 0.4 percent in February. Trade growth varied widely by region in March. Both exports and imports grew strongly in the United States, reversing the contraction of both that occurred in February. Growth accelerated significantly in emerging Asia as well. By contrast, the natural disaster that struck Japan in March caused its exports to collapse, while imports declined as well. Euro Area exports continued to expand at a modest pace, while its imports decreased.

Prices jumped nearly 2.0 percent between February and March, and are now up 22.7 percent from their February 2009 low.
 

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The U.S. goods and services deficit widened to $48.2 billion in March (from $45.4 billion in February), the largest deficit since June 2010. Exports totaled $172.7 billion (up from $165.0 billion in February, and the largest absolute monthly rate of growth since 2000), while imports totaled $220.8 billion. Higher oil prices were responsible for most of the jump in imports.
 

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Paper exports and imports both increased in March: exports by 439,000 metric tons (15.7 percent) and imports by 47,000 tons (13.1 percent). Both metrics remained above year-earlier levels as well: exports +477,000 tons (17.3 percent) and imports +46,000 tons (12.7 percent).
 

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Softwood lumber exports rose by 12 MMBF (8.6 percent) in March, but imports jumped by 170 MMBF (25.6 percent). Exports were 34 MMBF (30.4 percent) higher than year-earlier levels, but imports 23 MMBF (2.6 percent) lower.

April 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $330.0 billion and receipts of $289.5 billion added another $40.5 billion to the federal budget deficit in April, a month that typically sees revenue exceeding outlays. The U.S. federal debt held by the public stood at $14.288 trillion at the end of April.
 

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Foreigners held $4.479 trillion, or a little less than one-third of the U.S. public debt at the end of March 2011. China remained the largest foreign creditor ($1.144 trillion) despite selling $9.2 billion of Treasury securities, its fifth straight month as a net seller. The United Kingdom was the biggest buyer in both absolute ($29.7 billion) and percentage change (10.1 percent) terms. Taiwan replaced the Caribbean Banks as the fifth largest foreign holder of U.S. debt. Interestingly, holdings by the “other” (aggregated) category have been trending lower since last November, dropping $53 billion over that time period.
 

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The Federal Reserve put more distance between itself and both China and Japan during March in terms of U.S. Treasury holdings. Moreover, were the Fed to maintain its March rate of Treasury purchases for a year, it would more than double its current holdings. As mentioned above, China was a net seller in March, while Japan’s added to its holdings despite the March 11 earthquake and tsunami.

More recent data shows the Fed has ramped up purchases of U.S. Treasury debt since March, and held nearly $1.5 trillion as of mid-May.
 

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Flows into the United States for all types of investments were greater than outflows in March, as evidenced by the positive three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system. Virtually all of the increase appears to have occurred in the “Change in Banks' Own Net Dollar-denominated Liabilities” category, however.
 

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Short-term U.S. securities (e.g., T-bills) continued to decline in March, although at a somewhat slower pace. With the exception of October, foreign investors have been net sellers of short-term U.S. debt during every month since September 2010.
 

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Net inflows into long-term public debt rose by $13.2 billion (to $36.275 billion) in March, but the three-month moving average declined because inflows dried up during February. Purchases of private securities also jumped by $14.91 billion in March, to $18.465 billion.

April 2011 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.

The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all-items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year.

The 12-month increases of major indexes continued climbing. The all items index rose 3.2 percent for the 12 months ending April 2011, the highest figure since October 2008. The energy index has now risen 19.0 percent over the last 12 months, with the gasoline index up 33.1 percent. The food index has risen 3.2 percent while the index for all items less food and energy has increased 1.3 percent; both figures represent increases over recent months.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) rose 0.8 percent in April, seasonally adjusted. This advance followed increases of 0.7 percent in March and 1.6 percent in February. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.3 percent in April, and the crude goods index rose 4.0 percent. On an unadjusted basis, prices for finished goods moved up 6.8 percent for the 12 months ended April 2011, the largest year-over-year gain since an 8.8-percent increase in September 2008.
 

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Details at different stages of processing include:

Finished goods -- About three quarters of the April advance in the finished goods index can be traced to a 2.5 percent jump in prices for finished energy goods. Also contributing to the rise in the finished goods index, prices for both finished goods other than foods and energy and for finished consumer foods moved up 0.3 percent in April.

Intermediate goods -- This index rose 1.3 percent in April, the ninth consecutive monthly advance. The broad-based April increase was led by prices for intermediate goods less foods and energy, which moved up 1.1 percent. The indexes for intermediate energy goods and for intermediate foods and feeds also contributed to the intermediate goods advance, rising 1.9 percent and 1.8 percent, respectively. For the 12 months ended April 2011, prices for intermediate goods climbed 9.4 percent, the largest increase since a 9.8 percent jump in October 2008.

Crude goods -- The crude-goods index increased 4.0 percent in April. For the three months ending in April, prices for crude materials moved up 7.0 percent following an 11.4 percent jump for the three months ending in January. Leading the broad-based monthly advance in April, the index for crude energy materials rose 4.8 percent. Prices for crude foodstuffs and feedstuffs and for crude nonfood materials less energy increased 4.0 percent and 2.6 percent, respectively.
 

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Price index changes for the forest products that we track were mixed in April. Lumber and wood products, and softwood lumber price indices fell; the price index for softwood logs, bolts and timber was unchanged. Year-over-year index changes were also mixed, with price levels either declining or else increasing at a slower pace.
 

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April 2011 Industrial Production, Capacity Utilization and Capacity

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Industrial production was unchanged in April after having increased 0.7 percent in March. Output in February is now estimated to have declined 0.3 percent; previously it was reported as having edged up 0.1 percent. In April, manufacturing production fell 0.4 percent after rising for nine consecutive months. Total motor vehicle assemblies dropped from an annual rate of 9.0 million units in March to 7.9 million units in April, mainly because of parts shortages resulting from the earthquake in Japan. Excluding motor vehicles and parts, factory production rose 0.2 percent in April. The output of Wood Products factories fell 0.4 percent, while Paper output decreased 0.6 percent. At 93.1 percent of its 2007 average, total industrial production was 5.0 percent above its year-earlier level.
 

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The rate of capacity utilization for total industry edged down 0.1 percentage point to 76.9 percent, a rate 3.5 percentage points below its average from 1972 to 2010. The falloff in manufacturing capacity utilization was an even more severe -0.5 percent. Wood Products downshifted by 0.2 percent, and Paper by 0.6 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.