July 2014 Macro Pulse -- From Bad to Worse

In June’s Macro Pulse report, we chronicled that the Bureau of Economic Analysis (BEA) had slashed its estimate of 1Q2014 GDP growth from an initial, seasonally adjusted and annualized rate (SAAR) of +0.1 percent (relative to 4Q2013) to -1.0 percent. We now know, thanks to the second revision, that the -1.0 percent estimate was overly optimistic; the BEA now pegs the contraction at -2.9 percent -- the fastest rate of contraction in five years, and 7.0 percentage points lower than in 3Q2013.

Unusually cold winter weather is the most popular scapegoat for the poor 1Q showing. As highlighted in our June 26 GDP blog post, however,…

Click here to read the rest of the July 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.

May 2014 International Trade (Softwood Lumber)

Click image for larger view

Softwood lumber exports decreased by 14 MMBF (8.5 percent) in May while imports rose by 103 MMBF (9.7 percent). Exports were 3 MMBF (2.3 percent) below year-earlier levels; imports were 160 MMBF (15.9 percent) higher. 

Click image for larger view

Asia (especially China and Japan) was the primary destination for U.S. softwood lumber exports in May. China was also the largest single-country destination; year to date (YTD), exports to China were up over 54 percent relative to the same period in 2013. Meanwhile, Canada was the overwhelming source of softwood lumber imports into the United States. Overall, exports were up 12.1 percent YTD compared to the same period in 2013, while imports were up 5.9 percent. 

Click image for larger view 

Click image for larger view

Roughly 44 percent of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in May. 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. 

Click image for larger view 

Click image for larger view

Southern yellow pine comprised 24.7 percent of all softwood lumber exports in May, followed by Douglas-fir with 21.3 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.

May 2014 International Trade (General)

Click image for larger view

Total May exports of $195.5 billion and imports of $239.8 billion resulted in a goods and services deficit of $44.4 billion, down from $47.0 billion in April. May exports were $2.0 billion more than April exports of $193.5 billion. May imports were $0.7 billion less than April imports of $240.5 billion.

In May, the goods deficit decreased $2.4 billion from April to $63.3 billion, and the services surplus increased $0.3 billion from April to $18.9 billion. Exports of goods increased $1.6 billion to $136.7 billion, and imports of goods decreased $0.7 billion to $200.0 billion. Exports of services increased $0.3 billion to $58.8 billion, and imports of services were virtually unchanged at $39.9 billion.

The goods and services deficit decreased $0.4 billion from May 2013 to May 2014. Exports were up $8.3 billion, or 4.4 percent, and imports were up $7.8 billion, or 3.4 percent.

Alarmingly, if petroleum exports are excluded, the U.S. trade deficit hit $49 billion dollars in May, the highest real trade deficit ever recorded.

Click image for larger view

On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume increased by 1.3 percent in April while prices fell by 0.4 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.

June 2014 ISM Reports

Click image for larger version

The Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector slowed slightly in June. The PMI registered 55.3 percent, a decrease of 0.1 percentage point from May's 55.4 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 new-orders and imports sub-indices were the main sources of support for the expansion. 

Click image for larger version

Wood Products and Paper Products expanded in June -- although in the case of Wood Products, the only contribution came from new orders. Paper Products exhibited much greater support among the sub-indices. “Orders are picking up, but pricing has declined in last month," wrote one Wood Products respondent. “Not the norm for this time of year.”

The pace of expansion in the non-manufacturing sector, which accounts for 80 percent of the economy and 90 percent of employment, also edged down in June. The NMI registered 56.0 percent, 0.3 percentage point lower than May’s 56.3 percent. Two sub-indices 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 expanded in June.

“Respondents’ comments vary by industry and company,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee; “however, the majority indicate that steady economic growth is continuing.” 

Click image for larger version

All three of the individual service industries we track expanded in June; moreover, all of the respective sub-indices were either unchanged or increased. One Construction respondent indicated the “industry is extremely strong [and] business conditions look positive going forward.”

Commodities up in price included gasoline and diesel, lumber, paper, and natural gas. No relevant commodities were down in price. Wood pallets were once again 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.

June 2014 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose by the most since December 2013, up $3.49 to $105.79 per barrel. That price rise occurred despite a slightly stronger U.S. dollar and the lagged impacts of an increase in the amount of oil supplied in April -- 257,000 barrels per day (BPD), to 19.0 million BPD; it coincided with further contractions in crude stocks, however. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $1.24 in June, to $6.00 per barrel.

Click image for larger view

Click image for larger view

The increase in oil futures prices was attributed to a combination of President Obama commenting that “the crisis in Iraq will be long lasting,” the deployment of U.S. military assessment teams to Iraq, and the Obama administration’s clearing the way for the first exports of unrefined American oil in four decades.

Click image for larger view

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 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

Click image for larger view 

Click image for larger view

According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $0.3 billion or 0.1 percent to $498.3 billion in May. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent April increase. Shipments of durable goods increased $0.8 billion or 0.3 percent to $238.9 billion, led by primary metals. Meanwhile, nondurable goods shipments decreased $0.5 billion or 0.2 percent to $259.3 billion, led by chemical products. Wood shipments rose by 1.8 percent while Paper shipments nudged up by 0.2 percent.

Click image for larger view

Inventories increased $5.0 billion or 0.8 percent to $651.5 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.31, up from 1.30 in April.

Inventories of durable goods increased $3.6 billion or 0.9 percent to $397.5 billion, led by transportation equipment. Nondurable goods inventories increased $1.5 billion or 0.6 percent to $254.0 billion, led by petroleum and coal products. Inventories of both Wood and Paper were unchanged. 

Click image for larger view

New orders decreased $2.6 billion or 0.5 percent to $497.7 billion; excluding transportation, new orders decreased 0.1 percent. Durable goods orders decreased $2.2 billion or 0.9 percent to $238.3 billion, led by transportation equipment. New orders for nondurable goods decreased $0.5 billion or 0.2 percent to $259.3 billion.

As can be seen in the graph above, real (inflation-adjusted) new orders have been essentially flat since early 2012, and have recouped 71 percent of the losses incurred since the beginning of the Great Recession. 

Click image for larger view

Unfilled durable-goods orders increased $6.7 billion or 0.6 percent to a new nominal high of $1,087.4 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.51, up from 6.47 in April. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained just three-quarters 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.

May 2014 U.S. Construction Spending

Click image for larger view 

Click image for larger view

Overall construction spending in the United States edged up by 0.1 percent during May, to a seasonally adjusted and annualized rate (SAAR) of $956.1 billion -- the highest level since March 2009. The combination of a $3.6 billion (1.1 percent) jump in private non-residential and $2.8 billion (1.0 percent) rise in public spending contributed to the overall increase. Private residential spending tumbled by $5.3 billion (0.3 percent).

Click image for larger view

Click here for a discussion of May’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.