May 2014 Industrial Production, Capacity Utilization and Capacity

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Industrial production rose 0.6 percent in May after having declined 0.3 percent in April. The decrease in April was previously reported to have been 0.6 percent. Manufacturing output increased 0.6 percent in May after having moved down 0.1 percent in the previous month. At 103.7 percent of its 2007 average, total industrial production in May was 4.3 percent above its level of a year earlier.

Wood Products output rose by 1.7 percent while Paper declined by 0.5 percent. 

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The capacity utilization rate for total industry increased 0.2 percentage point in May to 79.1 percent, a rate that is 1.0 percentage point below its long-run (1972-2013) average. Wood Products capacity utilization increased by 1.3 percent, but Paper fell by 0.3 percent. 

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Capacity at the all-industries and manufacturing levels both moved higher by 0.3 in May. Wood Products extended its nearly year-long trend when increasing by 0.4 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.

April 2014 International Trade (Softwood Lumber)

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Softwood lumber exports increased by 4 MMBF (2.4 percent) in April while imports rose by 52 MMBF (5.1 percent). Exports were 18 MMBF (12.3 percent) above year-earlier levels; imports were 19 MMBF (1.8 percent) lower. 

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Asia (especially China and Japan) retained the “top spot” for U.S. softwood lumber exports in April. China was also the largest single-country destination; year to date (YTD), exports to China were up over 75 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, Honduras, and Latvia increased markedly on a percentage basis. Imports from Austria and Sweden have substantially decreased.

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Just under half of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in April. 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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Douglas-fir comprised 22.0 percent of all softwood lumber exports in April, followed by Southern yellow pine with 20.8 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.

April 2014 International Trade (General)

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Total April exports of $193.3 billion and imports of $240.6 billion resulted in a goods and services deficit of $47.2 billion, up from $44.2 billion in March. April exports were $0.3 billion less than March exports of $193.7 billion. April imports were $2.7 billion more than March imports of $237.8 billion.

In April, the goods deficit increased $3.3 billion from March to $65.8 billion, and the services surplus increased $0.2 billion from March to $18.6 billion. Exports of goods decreased $0.6 billion to $135.1 billion, and imports of goods increased $2.7 billion to $200.9 billion. Exports of services increased $0.3 billion to $58.2 billion, and imports of services increased $0.1 billion to $39.7 billion.

The goods and services deficit increased $6.8 billion from April 2013 to April 2014. Exports were up $5.6 billion, or 3.0 percent, and imports were up $12.4 billion, or 5.4 percent.

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume decreased by 0.5 percent in March while prices rose by 0.2 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.

May 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 essentially flat in May, down $0.08 to $102.09 per barrel. That price decrease occurred despite a slightly weaker U.S. dollar; but it coincided with the lagged impacts of another notable drop in the amount of oil supplied in March -- 468,000 barrels per day (BPD), to 18.5 million BPD -- which, in turn, caused crude stocks to contract. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI widened by $1.80 in May, to $7.47 per barrel.

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The increase in oil futures prices appears to be primarily a response to news that perhaps only 4 percent of the previously estimated 13.7 billion barrels of oil in California’s Monterey Shale formation may actually be recoverable. 

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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.

May 2014 ISM Reports

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After two corrections, the Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector quickened again in May. The PMI registered 55.4 percent, an increase of 0.5 percentage point from April's 54.9 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. Jumps in the production and prices-paid sub-indices were the main sources of support for the expansion.

Comments from the [respondent] panel reflect generally steady growth,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “but note some areas of concern regarding raw materials pricing and supply tightness and shortages.”

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Wood Products and Paper Products expanded in May, thanks to gains in production, and new and export orders. Paper Products also exhibited expansion in the inventories and backlogged-order sub-indices.

The non-manufacturing sector, which accounts for 80 percent of the economy and 90 percent of employment, picked up the pace of expansion in May. The NMI registered 56.3 percent, 1.1 percentage points higher than April’s 55.2 percent. Two sub-indexes in the NMI – the Business Activity Index (“Overall activity” in the table below) and the New Orders Index – have good correlations to the economy; both grew faster.

“The majority of respondents' comments indicate that that there is steady incremental growth and project a positive outlook on business conditions,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.

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All three of the individual service industries we track expanded in May; moreover, all of the respective sub-indices were either unchanged or showed growth.

Commodities up in price included gasoline and diesel, various grades of lumber, paper, natural gas, sulfuric acid, and wood pallets. No relevant commodities were down in price. Wood pallets 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.

April 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 $1.7 billion or 0.3 percent to $497.6 billion in April. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent March increase. Shipments of durable goods decreased $0.2 billion or 0.1 percent to $237.8 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $1.9 billion or 0.7 percent to $259.9 billion, led by petroleum and coal products. Wood shipments rose by 4.9 percent while Paper shipments nudged up by 0.9 percent.

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Inventories increased $2.4 billion or 0.4 percent to $645.8 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.30, unchanged from March.

Inventories of durable goods increased $0.7 billion or 0.2 percent to $393.7 billion, led by transportation equipment. Nondurable goods inventories increased $1.7 billion or 0.7 percent to $252.1 billion, led by petroleum and coal products. Wood inventories rose by 0.8 percent, while Paper fell by 0.8 percent. 

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New orders increased $3.4 billion or 0.7 percent to $499.8 billion; excluding transportation, new orders increased 0.5 percent. Durable goods orders increased $1.5 billion or 0.6 percent to $239.9 billion, led by transportation equipment. New orders for nondurable goods increased $1.9 billion or 0.7 percent to $259.9 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 $9.8 billion or 0.9 percent to a new nominal high of $1,080.6 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.48, up from 6.42 in March. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained just over 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.

April 2014 U.S. Construction Spending

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Overall construction spending in the United States increased by 0.2 percent during April, to a seasonally adjusted and annualized rate (SAAR) of $953.5 billion -- the highest level since March 2009. The increase derived primarily from a $2.2 billion (0.8 percent) rise in public spending. Private residential spending ticked up by $0.2 billion (0.1 percent) while the private non-residential construction component fell by $0.5 billion (0.1 percent).

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Click here for a discussion of April’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.