March 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 $1.4 billion or 0.3 percent to $494.9 billion in March. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.9 percent February increase. Shipments of durable goods increased $2.8 billion or 1.2 percent to $237.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.4 billion or 0.6 percent to $257.9 billion, led by petroleum and coal products. Wood shipments rose by 1.1 percent while Paper shipments slipped by -0.1 percent.

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Inventories increased $0.6 billion or 0.1 percent to $643.1 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.30, unchanged from February.

Inventories of durable goods increased $1.2 billion or 0.3 percent to $393.3 billion, led by transportation equipment. Nondurable goods inventories decreased $0.6 billion or 0.2 percent to $249.7 billion, led by petroleum and coal products. Wood inventories rose by 0.6 percent, while Paper followed behind with a 0.4 percent increase. 

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New orders increased $5.3 billion or 1.1 percent to $493.9 billion; excluding transportation, new orders increased 0.6 percent. Durable goods orders increased $6.7 billion or 2.9 percent to $236.0 billion, led by transportation equipment. New orders for nondurable goods decreased $1.4 billion or 0.6 percent to $257.9 billion.

As can be seen in the graph above, real (inflation-adjusted) new orders have been essentially flat since early 2012, 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 $6.9 billion or 0.6 percent to a new nominal high of $1,069.3 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.44, down from 6.49 in February. 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.

March 2014 U.S. Construction Spending

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Overall construction spending in the United States increased by 0.2 percent during March, to a seasonally adjusted and annualized rate (SAAR) of $942.5 billion -- the highest level since March 2009. The increase derived primarily from a $2.8 billion (0.8 percent) rise in private residential spending. Private non-residential spending ticked up by $0.5 billion (0.2 percent) while the public construction component fell by $1.6 billion (0.6 percent).

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Click here for a discussion of March’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventory and prices.

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.

1Q2014 Gross Domestic Product: First (Advance) Estimate

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According to the Bureau of Economic Analysis (BEA), the “advance” estimate of 1Q2014 growth in real U.S. gross domestic product (GDP) collapsed to a seasonally adjusted and annualized rate of 0.1 percent, down by 2.5 percentage points relative to 4Q2013’s growth rate. It was the weakest performance in three years. Only one of the four categories -- personal consumption expenditures (PCE) contributed to 1Q growth; the other categories -- private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) subtracted from growth.

Commercial activity was especially hard hit in this report. Exports were at the head of the retreat, while commercial investments and inventories also weakened significantly. Fixed investments in both equipment and residential construction contracted sharply. Government spending also shrank, especially among the sub-categories of federal defense spending and state and local governmental infrastructure investment.

Consumer spending for services provided the only significant growth, with outlays for non-discretionary healthcare, housing, utilities and financial services (e.g., interest rates) all increasing. Spending on consumer goods was essentially flat.

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For this report the BEA assumed annualized net aggregate inflation of 1.3 percent. By way of comparison, the growth rate of the Bureau of Labor Statistics’ seasonally adjusted CPI-U index was higher (1.8 percent annualized rate); meanwhile, the price index reported by the Billion Prices Project (BPP) was substantially higher at 3.91 percent. Were the BEA’s nominal estimates corrected for inflation using the BPP inflation rate, the 4Q real GDP would have contracted by 2.5 percent.

Inventories contracted sharply, subtracting nearly 0.6 percentage point from the headline growth rate (also down 0.6 percent from 4Q2013). As we have pointed out previously, the first three quarters of 2013 saw substantial inventory growth that boosted the reported annualized growth rate by an average of 1 percent. The $64 question going forward is -- since inventories are typically a cyclical zero-sum game, with excessive growth or contraction over any period subsequently being reversed -- whether a corresponding multi-quarter contraction might occur to “normalize” inventory levels. On the other hand, if the inclement weather truly was as big a drag on economic activity as many think was the case, the growth rate could conceivably bounce back in 2Q.

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 U.S. Home Sales, Inventory and Prices

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Sales of new single-family homes fell by a seasonally adjusted and annualized rate (SAAR) of 65,000 units (-14.5 percent) to 380,000 in March. Sales were 12.2 percent below year-earlier levels. Meanwhile, the median price of new homes sold jumped (by $29,100 or 11.2 percent) to $290,000. Because starts increased while sales decreased during March, the three-month average starts-to-sales ratio rose to 1.41 (from 1.37). Click here for our post on March housing permits, starts and completions.

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Single-unit completions dipped (-24,000 units or 3.8 percent) while sales fell even further (-65,000 units or 14.5 percent) in March. As a result, new-home inventory rose in both absolute (+6,000 units) and months-of-inventory (+1.0 month) terms. 

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Existing home sales inched lower again in March, by 10,000 units (-0.2 percent) to 4.59 million units (SAAR) -- the slowest rate since July 2012. The share of total sales comprised of new homes retreated below 8 percent. The median price of previously owned homes sold in March advanced (by $10,200 or 5.4 percent), to $198,500. Inventory of existing homes crept up in both absolute (+90,000 units) and months-of-inventory (+0.2 month) terms.

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Housing affordability improved marginally in February even though the median price of existing homes for sale rose by $1,300 to $189,200. Concurrently, Standard & Poor’s reported that the 10- and 20-City Composites in the S&P/Case-Shiller Home Price indices posted not-seasonally adjusted monthly changes of less than ±0.1 percent in February (respectively, +13.1 and +12.9 percent relative to a year earlier).

“Prices remained steady from January to February for the two Composite indices,” observed David Blitzer, Chair of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks. The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even their prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.

“Despite continued price gains, most other housing statistics are weak. Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005. Mortgage interest rates, which jumped in May last year and are steady since then, are blamed by some analysts for the weakness. Others cite difficulties in qualifying for loans and concerns about consumer confidence. The result is less demand and fewer homes being built.

“Five years into the recovery from the recession,” Blitzer concluded, “the economy will need to look to gains in consumer spending and business investment more than housing. Long overdue activity in residential construction would be welcome, but is certainly not assured.” 

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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.

April 2014 Macro Pulse -- Economic Thaw or Just More “Green Shoots”?

The byword regarding the past several months’ less-than-stellar economic news has been “It’s the brutal winter weather.” With winter passing, however, headlines heralding the coming of spring and an anticipated “thaw” of the U.S. economy have proliferated. For example:

Feb 28 – U.S. GDP revised down, but hints of economic thaw emerge offered hope for improvement.

Mar 7 – As Job Creation Increases in February, Economists See Signs of a Spring Thaw, cited easing fears of another prolonged hiring slowdown.

Mar 31 – Everyone Will Be Watching For A Spring Economic Thaw This Week - Here's Your Complete Preview promised that “we are now entering the period when pent-up demand should begin to emerge, and a reacceleration in economic activity will become more apparent.”

Apr 21 – Thawing out: After a bitter winter, warmer spring temperatures are revitalizing the US economy claimed “the economy is regaining momentum...and the improvement appears to be widespread across the country.”

Click here to read the rest of the April 2014 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. The monthly Macro Pulse newsletter summarizes the previous 30 days of commentary available on this website.

February 2014 International Trade (Pulp, Paper & Paperboard)

Because several months have passed since we last published this blog, we provide a few notes on year-end 2013 results before jumping to the most recent (February 2014) trade data.

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• December 2013’s net exports were down sharply compared to December 2012, falling by nearly 20 percent.
• For the year, net exports were down by over 7 percent compared to 2012. Exports were off by 1.1 million metric tons while imports increased by 0.4 million metric tons.
• Further country detail tables for 2013 versus 2012 pulp and paper trade are available upon request. A brief description of results follows:
• Pulp exports for 2013 (26.3 million tonnes) fell by 4.6 percent compared to 2012, falling by 1.3 million tonnes. The top three destinations for 2013 were, in rank order from highest to lowest, China, Mexico, and India. Largest absolute decrease in pulp exports was to China (1.0 million tonnes) and largest absolute increase in pulp exports was to Belgium (0.2 million tonnes).
• Pulp imports for 2013 (6.4 million tonnes) increased by 4.5 percent compared to 2012, increasing by 0.3 million tonnes. The top three sources for 2013 were, in rank order from highest to lowest, Canada, Brazil, and Chile. Largest absolute increase in pulp imports was from Brazil (0.3 million tonnes) and the largest absolute decrease in pulp imports was from Canada (0.1 million tonnes).
• Paper and paperboard imports for 2013 (3.2 million tonnes) increased by 4.2 percent compared to 2012, increasing by 0.1 million tonnes. The top three sources for 2013 were, in rank order from highest to lowest, Canada, China, and Finland. Largest absolute increase in paper and paperboard imports was from Canada (0.1 million tonnes) and the largest absolute decrease in paper and paperboard imports was from South Korea (less than 0.1 million tonnes).
• Paper and paperboard exports for 2013 (2.6 million tonnes) increased by 7.1 percent compared to 2012, increasing 0.2 million tonnes. The top three destinations for 2013 were, in rank order from highest to lowest, Mexico, Canada, and India. Largest absolute increase in paper and paperboard exports was to Canada (0.2 million tonnes) and the largest absolute decrease in paper and paperboard exports was to Japan (less than 0.1 million tonnes).

With year-end 2013 results out of the way, we now present February 2014 data. 

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U.S. pulp, paper, and paperboard exports fell by 10 percent on a month-to-month basis, turning in the lowest level of exports since February 2010. Not to be outdone, U.S. pulp, paper, and paperboard imports fell by over 12 percent on a month-to-month basis, achieving the lowest level of imports since December 2012. The combination posted a 9 percent drop in net exports on a month-to-month basis.

Compared to prior year levels in February, exports, imports, and net exports all fell, logging a drop of 3.3% on net exports. Year-to-date through February net exports are 5.5 percent below 2013’s year-to-date activity levels; year-to-date imports are essentially flat with prior year-to-date but year-to-date exports are 183 thousand tonnes (3.7 percent) lower.

The six month trend on imports is decidedly declining while the export trend is declining only slightly. Theoretically, the declining import trend could be a result of a weakening U.S. dollar against most other currencies. The problem however is, with the exception of the euro, the U.S. dollar hasn’t been weakening. An alternative explanation is the decline in imports might suggest a slowdown in U.S. industry activity. This could be the case to a degree based on the trend in pulp and paper industrial production levels, which have been declining over the past eight months. However, more likely is the reduction in imports is because exports have also fallen, increasing domestic supplies. The recent reduction in exports suggests slowing global activity that translates into reduced demand for U.S. pulp, paper, and paperboard products.

In terms of notable shifts in country-level details:

• Pulp exports have dropped 3.5 percent compared to prior year-to-date levels. China accounts for 41 percent (67 thousand tonnes) and Italy accounts for 25 percent (40 thousand tonnes) of the 161 thousand tonne drop. Canada (12 thousand tonnes) and India (11 thousand tonnes) have posted the largest year-to-date gains.
• Pulp imports have dropped 4.6 percent (47 thousand tonnes) compared to prior year-to-date levels. The most significant drop is from Brazil, which has fallen by over 34 percent from prior year-to-date imports (116 thousand tonne reduction). Imports from Canada, where the Canadian dollar has been weakening against the U.S. dollar as of late, are up by nearly 9 percent (57 thousand tonnes) year-to-date compared to prior year levels.
• Paper and paperboard imports have expanded by over 10 percent (52 thousand tonnes) year-to-date compared to prior year-to-date activity. Once again Canada leads the way, accounting for virtually all the increase (52 thousand tonnes).
• Paper and paperboard exports have dropped by 5.5 percent (22 thousand tonnes) on a year-to-date basis. The “loss leader” is India (8 thousand tonnes) followed by Mexico (2 thousand tonnes). Bucking the weakening Canadian dollar trend, paper and paperboard exports to Canada are up by 6 thousand tonnes as are exports to Costa Rica.

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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.

March 2014 Residential Permits, Starts and Completions

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Total housing starts rose modestly in March, to a seasonally adjusted and annualized rate (SAAR) of 946,000 units. That was 26,000 more units (2.8 percent) than February’s 920,000, but still 14.1 percent below November’s peak of 1.101 million units. The single-family component contributed all of the increase (36,000 units or 6.0 percent) since the multi-family component decreased by 10,000 units (-3.1 percent).

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The year-over-year percentage change in total starts contracted for a second time, dropping to -5.0 percent. Single-family starts were 2.9 percent above March 2012’s levels; the more volatile multi-family component shrank by 18.5 percent. 

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Completions edged lower (2,000 units or -0.2 percent) in March, to 872,000 units SAAR. The decrease was confined to the single-family component (-24,000 units versus +22,000 multi-family units). Total completions were 9.4 percent above year-earlier levels. 

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Total permits dropped by 24,000 units (-2.4 percent) SAAR, to 0.990 million in March. The decrease occurred entirely in the multi-family component (27,000 units or -6.4 percent); single-family permits nudged higher by 3,000 units (0.5 percent).

Despite March’s uptick in the year-over-year percentage change in total permits (to 9.5 percent), the rate of growth still did not break the slowing trend seen since late 2012. This trend is most readily apparent in the recent erosion of builder confidence. The National Association of Home Builders confidence index rose one point (to 47) in April (recall the index dropped by the largest monthly amount in the survey’s history, into negative sentiment territory, during February). An index reading below 50 means more builders think market conditions are poor than think they are good. 

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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.