March 2014 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 0.7 percent in March after having advanced 1.2 percent in February. The rise in February was higher than previously reported primarily because of stronger gains for durable goods manufacturing and for mining. For 1Q2014 as a whole, industrial production moved up at an annual rate of 4.4 percent, just slightly slower than in 4Q2013. In March, the output of manufacturing rose 0.5 percent, the output of utilities increased 1.0 percent, and the output of mines gained 1.5 percent. At 103.2 percent of its 2007 average, total industrial production in March was 3.8 percent above its level of a year earlier.

Wood Products output rose by 2.5 percent while Paper grew by 1.1 percent. 

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Capacity utilization for total industry increased in March to 79.2 percent, a rate that is 0.9 percentage point below its long-run (1972–2013) average but 1.2 percentage points higher than a year prior. Wood Products capacity utilization increased by 2.2 percent, and Paper 1.2 percent.

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Capacity at the all-industries and manufacturing levels both moved higher by 0.2 in March. Wood Products appears to have definitely turned a corner; capacity increased by 0.3 percent. Paper, on the other hand, contracted by 0.1 percent to another new low.

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.

March 2014 Consumer and Producer Price Indices (incl. Forest Products)

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment. Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas.

The seasonally adjusted Producer Price Index for final demand advanced 0.5 percent in March. This increase followed a decline of 0.1 percent in February and a rise of 0.2 percent in January. On an unadjusted basis, the index for final demand moved up 1.4 percent for the 12 months ended in March, the largest 12-month advance since a 1.7 percent increase in August 2013. In March, the 0.5 percent increase in final demand prices can be traced to the index for final demand services, which rose 0.7 percent. Prices for final demand goods were unchanged.

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Except for Pulp, Paper & Allied Products, the price indices we track increased relative to February. Compared to a year earlier, all indices were higher except for Softwood Lumber. The indices of Lumber & Wood Products, and Wood Fiber achieved new all-time highs.

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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.

February 2014 International Trade (Softwood Lumber)

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Softwood lumber exports increased by 7 MMBF (4.4 percent) in February while imports fell by 27 MMBF (3.1 percent). Exports were 30 MMBF (24.0 percent) above year-earlier levels; imports were 55 MMBF (6.9 percent) higher. 

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Asia (especially China and Japan) retained the “top spot” for U.S. softwood lumber exports in February. China was also the largest single-country destination by a wide margin; year to date (YTD), exports to China were up nearly 67 percent relative to the same period in 2013. Meanwhile, Canada was the overwhelming source of softwood lumber imports into the United States. Imports from Germany, Latvia, and Austria increased markedly. 

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Just over half of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in February. At the same time, Great Lakes customs districts (especially Duluth, MN) handled over two-thirds of the softwood lumber imports coming into the United States.

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Southern yellow pine comprised 22.6 percent of all softwood lumber exports in February, followed by Douglas-fir with 20.3 percent.

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 2014 International Trade (General)

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Total February exports of $190.4 billion and imports of $232.7 billion resulted in a goods and services deficit of $42.3 billion, up from $39.3 billion in January. February exports were $2.0 billion less than January exports of $192.5 billion. February imports were $1.0 billion more than January imports of $231.7 billion.

In February, the goods deficit increased $2.2 billion from January to $61.7 billion, and the services surplus decreased $0.8 billion from January to $19.4 billion. Exports of goods decreased $2.0 billion to $131.7 billion, and imports of goods increased $0.2 billion to $193.4 billion. Exports of services were virtually unchanged at $58.7 billion, and imports of services increased $0.8 billion to $39.3 billion.

The goods and services deficit decreased $1.0 billion from February 2013 to February 2014. Exports were up $3.6 billion, or 1.9 percent, and imports were up $2.6 billion, or 1.1 percent.

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume increased by 0.6 percent in January while prices fell by 1.2 percent.

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.

March 2014 ISM Reports

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According to the Institute for Supply Management’s (ISM) monthly opinion survey, expansion of economic activity in the U.S. manufacturing sector inched up again in March. The PMI registered 53.7 percent, an increase of 0.5 percentage point from February's 53.2 percent (50 percent is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10 percent of U.S. employment and about 20 percent of the overall economy. Expansion in the new- and backlogged-orders sub-indices suggest improving conditions; so, too, do continued growth in exports and imports. The new-orders sub-index correlates reasonably well to overall economic health.

“Several comments from the [respondent] panel reflect favorable demand and good business conditions,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, but “with some lingering concerns about the particularly adverse weather conditions across the country.”

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Wood Products contracted in March, as increased export orders were overwhelmed by a drop in new orders and production. Paper Products grew, with widespread support among the sub-indices.

The non-manufacturing sector, which accounts for 80 percent of the economy and 90 percent of employment, recovered some of the ground lost in February. The NMI registered 53.1 percent, 1.5 percentage points higher than February’s 51.6 percent. Two sub-indexes in the NMI – the Business Activity Index and the New Orders Index – have good correlations to the economy. The Business Activity Index declined while the New Orders Index improved, but both remained in expansion territory.

“Despite the effects of weather on many of the respective businesses, the majority of respondents indicate that business conditions are improving,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “The respondents also project better business activity and economic conditions as weather conditions continue to improve.

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Among the individual service industries we track, Real Estate contracted on weak employment. Construction expanded on the strength of new orders, imports and employment. Increased new orders and imports also boosted activity in Ag & Forestry

Commodities up in price included diesel and gasoline, copier paper, paper products, lumber and wood. Commodities down in price included caustic soda and natural gas. No relevant commodities were in short supply.

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.

March 2014 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil was virtually unchanged in March, easing down by $0.09 to $100.75 per barrel. That price stability coincided with a stable U.S. dollar, and the lagged impacts of a fall-off in oil supplied -- 160,000 barrels per day (BPD), to 18.9 million BPD -- in January that were offset by a more recent continued accumulation of crude stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $1.02 in March, to $7.06 per barrel.

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Oil futures were climbing as our data-collection period came to an end. According to ASPO-USA, “unease over the effect the Ukrainian situation will have on Russian oil and gas exports provided much of the impetus for the move, but some modest improvements in the U.S. economic situation and the continuing drain of crude from Cushing, OK to Gulf Coast depots contributed to the increase in U.S. oil prices. Closure of the Houston ship channel for three days during the last week of March due to an oil spill also contributed to the higher prices.”

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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.

February 2014 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $4.5 billion or 0.9 percent to $493.5 billion in February. Shipments of durable goods increased $1.9 billion or 0.8 percent to $233.8 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $2.7 billion or 1.0 percent to $259.7 billion, led by petroleum and coal products. Wood shipments fell by 0.3 percent while Paper shipments increased by 0.8 percent. 

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Inventories increased $4.1 billion or 0.7 percent to $642.1 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.30, unchanged from January.

Inventories of durable goods increased $3.1 billion or 0.8 percent to $392.0 billion, led by transportation equipment. Nondurable goods inventories increased $1.1 billion or 0.4 percent to $250.0 billion, led by chemical products. Wood inventories rose by 0.6 percent, while Paper edged lower by 0.1 percent.

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New orders increased $7.5 billion or 1.6 percent to $488.8 billion; excluding transportation, new orders increased 0.7 percent. Durable goods orders increased $4.9 billion or 2.2 percent to $229.1 billion, led by transportation equipment. New orders for nondurable goods increased $2.7 billion or 1.0 percent to $259.7 billion.

As can be seen in the graph above, real (inflation-adjusted) new orders have been essentially flat since early 2011, and have recouped a little more than two-thirds the losses incurred since the beginning of the Great Recession. 

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Unfilled durable-goods orders increased $2.9 billion or 0.3 percent to a new nominal high of $1,062.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.50, down from 6.52 in January. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained less than 70 percent of the ground given up during the Great Recession.

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.