May 2011 Industrial Production, Capacity Utilization and Capacity

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Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. At 93.0 percent of its 2007 average, total industrial production in May was 3.4 percent above its year-earlier level. The output of Wood Products factories fell 1.8 percent, while Paper output rose by 0.4 percent.
 

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Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010. Manufacturing capacity utilization rose by 0.4 percent. Wood Products downshifted by 1.6 percent, while Paper expanded by 0.5 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.

June 2011 Macro Pulse -- Soft Patch or Mount Everest of Weakening Conditions?

In April, the word du jour for describing unwelcome economic developments was “transitory.” Rising prices, slow employment growth, essentially anything other than the housing slowdown  – all were deemed transitory. In May, the preferred descriptor changed to “soft patch.” Much like the “green shoots” of 2009, “soft patch” seemed to pop up virtually everywhere. Even the Financial Times couldn’t resist and wrote “Mr. Bernanke’s comments suggest he expects a ‘soft patch’ rather than a more serious slowdown in the recovery.” Michael Pento, senior economist at Euro Pacific Capital, did a brilliant send-up of the term when titling his May 31 blog post “Soft Patch or Quicksand?” Actually, Pento was clever a couple of times in May, as he also turned the phrase “Mount Everest of weakening economic data” to describe the current situation.

One of the most obvious pieces of data contributing to that Mount Everest of data was…. Click here to read the entire June 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.

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

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Bureau of Economic Analysis data showed that personal income increased $46.1 billion (0.4 percent), and disposable personal income (DPI) increased $35.1 billion (0.3 percent) in April. Personal consumption expenditures (PCE) increased $41.5 billion, or 0.4 percent. Real DPI (DPI adjusted to remove price changes) decreased less than 0.1 percent while real PCE increased 0.1 percent.
 

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Retail sales rose by 0.5 percent in nominal terms during April, the tenth straight month of increases. All categories advanced except for food service sales, which declined by 0.1 percent.

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Total consumer debt outstanding increased for a seventh month in March, at a seasonally adjusted and annualized rate of 3.1 percent. Some of the increase was due to seasonal adjustments, as revolving credit shrank in not-seasonally adjusted terms. For a change, the increase in non-revolving credit was broader based than just student loans; loans at commercial banks and credit unions also expanded.

April 2011 Manufacturers’ Shipments, Inventories and New Orders

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Shipments, inventories and new orders put in mixed performances at the total manufacturing and individual industry levels during April according to the U.S. Census Bureau.
 

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Shipments decreased $0.9 billion (0.2 percent) to $444.5 billion in April, breaking a trend of seven consecutive monthly increases. Durable goods shipments decreased $2.5 billion (1.3 percent) to $194.4 billion, led by transportation equipment. Shipments of nondurable goods partially offset the durable-goods decline by increasing $1.6 billion (0.6 percent) to $250.1 billion. Food products led the nondurable increase. Wood and Paper shipments both fell, by 0.1 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 substantial 21.2 percent drop in not-seasonally adjusted rail shipments in April. Seasonal adjustments turned that decline into an increase of 1.2 percent. The PCI (which measures diesel consumption of highway trucking) fell by a seasonally and workday adjusted 0.5 percent relative to March.
 

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Inventories increased $7.7 billion (1.3 percent) to $587.8 billion. The inventories-to-shipments ratio was 1.32, up from 1.30 in March. Durable goods inventories increased $3.3 billion (0.9 percent) to $350.6 billion, the highest level since the series was first published on a NAICS basis. Transportation equipment had the largest increase among the durable goods category.

Inventories of nondurable goods increased $4.4 billion (1.9 percent) to $237.2 billion, led by petroleum and coal products. Wood and Paper inventories were mixed; Wood inventories rose by 0.4 percent while Paper shrank by 0.2 percent.
 

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New orders for manufactured goods in April, down two of the last three months, decreased $5.5 billion (1.2 percent) to $440.4 billion. This followed a 3.8 percent March increase. Excluding transportation, new orders decreased 0.2 percent.

Durable goods orders decreased $7.1 billion (3.6 percent) to $190.3 billion, on the heels of a 4.6 percent March increase; transportation equipment had the largest decrease, $4.8 billion (9.3 percent) to $46.9 billion. New orders for nondurable goods increased $1.6 billion (0.6 percent) to $250.1 billion.

May 2011 ISM Reports

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The pace of growth in manufacturing slowed dramatically in May, with the Institute for Supply Management’s (ISM) PMI falling to 53.5, from 60.4 in April. Although the manufacturing sector has been expanding for nearly two years, "this month's index…is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. "Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, [although that] is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs."

Wood and Paper Products reverted to a now-familiar pattern, with only Paper Products reporting growth in May. Paper Products’ improvement was fairly broad, encompassing new export and domestic orders, the need to replenish inventories, and increases in production and employment. One Paper Products respondent wrote that "demand remains strong; however, inflation is evident everywhere in virtually every material purchased."
 

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The non-manufacturing sector grew at a somewhat faster pace in May, reflected by a 1.8 percentage point (to 54.6 percent) rise in the non-manufacturing index (now known simply as the “NMI”). All three service industries we track expanded. One Agriculture, Forestry, Fishing & Hunting respondent indicated that "business is okay[, although fuel] prices and truck availability are starting to be a negative force on our supply chain."

The rate of input price increases slowed for both the manufacturing and service sectors. The index of prices paid by manufacturers tumbled by 9.0 percentage points, to 76.5. At the same time, non-manufacturers saw a 0.5 percentage point decline in their index. Copper and steel were the only commodities down in price during May. No relevant commodity was described as in short supply.

May 2011 Employment Report

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Headline numbers from the May employment report were disappointingly weak. That report showed the U.S. economy added only 54,000 nonfarm jobs, and that the unemployment rate ticked up by a 0.1 percentage point, to 9.1 percent. Taking into consideration downward revisions to the March (-27,000) and April (-12,000) data, only 15,000 jobs were added in May, which brought the change in nonfarm employment back nearly to 5 percent below the December 2007 peak.

The lion’s share of job gains occurred in two service categories -- Professional & Business Services and Education & Health Services. Job losses were concentrated at the local government level.
 

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Breaking the employment data out by full- and part-time categories showed that the number of persons employed full time fell by 142,000 in May, while the number of persons employed part time for economic reasons shrank by 52,000. One would ordinarily expect to see more full-time employees and fewer part-timers in an improving economy.

Over 6.8 million people were not counted as being in the labor force but who would like a job now -- a jump of roughly 300,000 relative to April. On a more positive note, however, the total number of persons not considered part of the labor force fell back to 85.9 million -- slightly below last month’s record above 86.2 million.

Other discouraging aspects of the report included a civilian labor force participation rate that appears anchored at 64.2 percent (a 27-year low) while the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked up by 0.5 percentage point, to 2.1 percent; one might be tempted to think the earnings increase is a positive until realizing that, with the consumer price index for urban consumers rising at a 3.2 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).

April 2011 U.S. Construction

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Overall construction spending in the United States increased by 0.4 percent during April, to a seasonally adjusted and annualized rate (SAAR) of $765.0 billion. Private residential construction rose by the largest margin, gaining 3.1 percent; by contrast, public construction fell 1.9 percent.

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Although the value of residential construction put in place rose, total housing starts declined by 10.6 percent -- to 523,000 units (SAAR). Total starts remained 77 percent below the January 2006 peak of nearly 2.3 million units.
 

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Most of the retreat in starts occurred in the multi-family component (-41,000 units); single-family starts fell by 21,000 units.
 

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New-home sales added to gains experienced in March, increasing by 7.3 percent to 323,000 (SAAR) in April. The median price of new homes sold also rose (by 1.6 percent) to $217,900.
 

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Strangely, the inventory of new single-family homes shrank in both months-of-inventory and absolute terms even though completions outstripped sales by nearly one-third. Inventory stood at 175,000 units and 6.5 months (down from 7.2 months). It is interesting to note that the number of homes for sale was the lowest since such records began in January 1963.
 

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Existing home sales fared worse than their new-home counterparts in April, falling by 40,000 units (SAAR), or -0.8 percent. The share of total sales comprised of new homes remained at 5.1 percent.
 

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With the median existing home price rising by $3,900 (2.4 percent), to $163,700 in April, housing affordability retreated noticeably once again. We find this existing-home price appreciation somewhat surprising in light of other sources of data (e.g., the Federal Housing Finance Agency and S&P/Case-Shiller) that suggest existing home prices are falling -- not rising.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation.” said David M. Blitzer, Chairman of the Index Committee at S&P Indices in reference to the S&P/Case-Shiller home price indices. “The National Index, the 20-City Composite and 12 metropolitan statistical areas (MSAs) all hit new lows with data reported through March 2011. The National Index fell 4.2 percent over the first quarter alone, and is down 5.1 percent compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight. Since December 2010, we have found an increasing number of markets posting new lows. In March 2011, 12 cities -- Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland (OR) and Tampa -- fell to their lowest levels as measured by the current housing cycle. Washington D.C. was the only MSA displaying positive trends with an annual growth rate of +4.3 percent and a 1.1 percent increase from its February level.
 

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“The rebound in prices seen in 2009 and 2010 was largely due to the first-time home buyers tax credit,” Blitzer continued. “Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession. Further, while last year saw signs of an economic recovery, the most recent data do not point to renewed gains.”
 

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