May 2011 U.S. Construction

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Overall construction spending in the United States decreased by 0.6 percent during May, to a seasonally adjusted and annualized rate (SAAR) of $753.5 billion. Private non-residential construction was the only category to post an increase, gaining 1.2 percent; by contrast, private residential construction fell 2.1 percent.
 

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Although the value of residential construction put in place fell, total housing starts rose by 3.5 percent -- to 560,000 units (SAAR). Total starts remained 75 percent below the January 2006 peak of nearly 2.3 million units.
 

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Most of the rise in starts occurred in the single-family component (15,000 units); multi-family starts rose by 4,000 units.
 

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New-home sales retreated in May, falling by 2.1 percent to 319,000 (SAAR). The median price of new homes sold rose 2.6 percent to $222,600.
 

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Despite the slowdown in sales and a jump in completions, the inventory of new single-family homes shrank in both months-of-inventory and absolute terms. Inventory stood at 166,000 units and 6.2 months (down from 6.3 months). Once again, 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 May, falling by 190,000 units (SAAR), or -3.8 percent. The share of total sales comprised of new homes ticked up to 6.2 percent.
 

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With the median existing home price rising by $5,400 (3.4 percent), to $166,500 in May, housing affordability retreated noticeably once again. For the first time in about a year, home price data from S&P/Case-Shiller also rose.

“In a welcome shift from recent months, this month is better than last -- April’s numbers beat March,” said David Blitzer, Chairman of the Index Committee at S&P Indices in reference to the S&P/Case-Shiller home price indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.
 

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“Other housing statistics show the same trends,” Blitzer continued. “Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low…. While foreclosures remain a large factor in most parts of the country, the S&P/Experian Consumer Credit Default indices show a small decline in the pace of new defaults since last November. Other reports confirm that banks have tightened lending standards in the past year making it harder to qualify for a mortgage despite very low interest rates.

“In the monthly details, we saw home prices increase in April over March. The 10-City was up 0.8 percent and the 20-City rose 0.7 percent [on a seasonally unadjusted basis]. Only seven cities experienced lower prices compared to 18 in March. However, the seasonally adjusted figures saw less dramatic improvement. The annual rate of change for the 10-City remained the same at -3.1 percent; whereas the 20-City fell further from -3.8 percent reported for March to -4.0 percent for April. For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”
 

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1Q2011 Gross Domestic Product: Third Estimate

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The Bureau of Economic Analysis (BEA) inched up its estimate of 1Q2011 growth in real U.S. gross domestic product (GDP) by 0.1 percent, to a seasonally adjusted and annualized rate of 1.9 percent. Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed virtually all of the growth while government consumption expenditures (GCE) subtracted from it. Net exports (NetX) were a minor positive. Comparing the preliminary and final estimates shows that NetX contributed more to growth than first thought, but the downward revision to GCE nearly offset that increase.
 

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As the Consumer Metrics Institute pointed out, “The BEA raised its GDP price deflator for the annualized inflation rate to 2.0 percent (from the 1.9 percent utilized in the prior reports). The 2.0 percent inflation rate remains curiously low, especially given that their sister Bureau of Labor Statistics (BLS) reported that the non-seasonally adjusted Consumer Price Index (CPI-U) for all items grew more than 2.1 percent during the first quarter alone, which (when annualized) works out to be something like an 8.7 percent. Even the unadjusted year-over-year CPI-U change was 3.2 percent, with the number clearly accelerating over the past couple of quarters. Again, the "deflating" arithmetic used by the BEA means that an understated inflation rate translates into an overstated economic growth.”

“If the BLS CPI-U of 3.2 percent year-over-year inflation is used as the deflator, the reported 1.92 percent annualized growth rate shrinks to a 0.73 percent annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.55 percent rate. Using an annualization of the unadjusted BLS data for the change in CPI-U during just the first quarter (an alarming 8.72 percent annualized), the "real" GDP would be shrinking at a 4.36 percent annualized rate.”

April 2011 International Trade

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According to data compiled by the Netherlands Bureau for Economic Policy Analysis, world trade volume plummeted by 2.5 percent in April from the previous month, following a downwardly revised rise of 1.1 percent in March. Most regions recorded declining trade volumes on either the import or export side, or both. The declines were largest among emerging economies, particularly in Africa, the Middle East and in Asia. The United States’ imports fell by 2.6 percent. Japan’s imports recovered somewhat, but its exports plunged by 7.0 percent. Trade was stagnant in the euro area.

Prices jumped nearly 2.8 percent between March and April, and are now up 27.9 percent from their February 2009 low.
 

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The U.S. goods and services deficit narrowed slightly in April, to $43.7 billion (from $46.8 billion in March). Exports totaled $175.6 billion (up from $173.4 billion in March), while imports totaled $219.2 billion (down from $220.2 billion in March).
 

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Paper exports increased by 44,000 tons (1.4 percent) in April, while imports fell by 34,000 tons (8.4 percent). Exports remained 357,000 tons (12.2 percent) above and imports 7,000 tons (1.9 percent) below year-earlier levels.
 

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Softwood lumber exports fell by 4 MMBF (3.0 percent) in April while imports retreated by 47 MMBF (5.6 percent). Exports were 17 MMBF (13.4 percent) higher than year-earlier levels, but imports were 105 MMBF (11.8 percent) lower.

May 2011 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $14.270 trillion as of the end of March 2011, up from $14.025 trillion at the end of 2010 and more than double the level of a decade earlier. As can be seen from the charts above and below, a little over 90 percent of that debt was held by federal intra-governmental holding accounts (over half of which was comprised of the Federal Old-Age and Survivors Insurance Trust Fund, a.k.a., Social Security), and foreign and domestic investors of various types. The Federal Reserve held the remaining 9.3 percent. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.
 

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The distribution of U.S. public debt purchases among the investor types underwent a sea change in 1Q2011: Private investors divested themselves of an estimated $90 billion; intragovernmental holdings also shrank by $14 billion. Foreign and international investors picked up an additional $37 billion in debt, but that was far below the record $753 billion purchased in 4Q2010. The disappearance of the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $317 billion.
 

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The debt picture has continued to worsen since March. The total public debt outstanding grew to $14.345 trillion by the end of May 2011, a change of $75 billion in just three months. Because the debt is growing, tax receipts since the beginning of FY2011 (i.e., October 1, 2010) obviously have not kept pace with budget outlays. Indeed, the red ink deepened again in May as outlays of $232.6 billion and receipts of $174.9 billion added another $57.6 billion to the federal budget deficit.
 

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The amount of U.S. public debt held by foreigners was just shy of $4.5 trillion in april. China remained the largest foreign creditor ($1.153 trillion), having picked up $7.6 billion of Treasury securities. Brazil was the largest purchaser in April, with $13.4 billion.
 

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The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.413 trillion). Interestingly, the Fed’s pace of purchases has slowed somewhat. Earlier this year it would have doubled its holdings had the pace of purchases been maintained for 12 months; that is no longer the case. Nonetheless, more recent data shows the Fed has continued to pile up U.S. Treasury debt since April, and held $1.576 trillion as of mid-June.
 

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The rising three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system indicate that more money flowed into the United States than flowed out in April. Net inflows were $68.2 billion, which raised the moving average to nearly $93 billion per month.

May 2011 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May. Over the last 12 months, the all-items index increased 3.6 percent before seasonal adjustment.

The “core” index (i.e., all items less food and energy) increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) rose 0.2 percent in May. This advance followed increases of 0.8 percent in April and 0.7 percent in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.9 percent in May, and the crude goods index declined 4.1 percent. On an unadjusted basis, prices for finished goods moved up 7.3 percent for the 12 months ended May 2011, the largest year-over-year gain since an 8.8 percent advance in September 2008.
 

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Details at different stages of processing include:

Finished goods -- The May advance in the finished goods index can be traced primarily to prices for finished energy goods, which rose 1.5 percent. The index for finished goods less foods and energy moved up 0.2 percent. By contrast, prices for finished consumer foods fell 1.4 percent in May.

Intermediate goods – This index moved up 0.9 percent in May, the tenth consecutive monthly increase. About two-thirds of the May rise can be traced to a 0.9 percent advance in prices for intermediate goods other than foods and energy. A 1.4 percent jump in the index for intermediate energy goods also contributed to the increase in intermediate goods prices. For the 12 months ended May 2011, intermediate goods prices rose 10.3 percent, the largest gain since a 15.3 percent jump for the 12 months ended September 2008.

Crude goods -- The index for crude goods decreased 4.1 percent in May. For the three-month period ending in May, crude materials prices moved down 0.8 percent following a 13.6 percent increase from November to February. In May, about half of the broad-based monthly decline can be attributed to a 5.2 percent drop in the index for crude energy materials. Also contributing to the May decrease, prices for crude foodstuffs and feedstuffs fell 4.4 percent and the index for crude nonfood materials less energy moved down 0.9 percent.
 

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Price index changes for the forest products that we track were mixed between April and May. Lumber and Wood Products, softwood lumber, and pulpwood price indices fell; year-over-year index changes were also mixed.
 

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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.