June 2014 International Trade (Softwood Lumber)

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Softwood lumber exports decreased by 10 MMBF (6.6 percent) in June while imports fell by 33 MMBF (2.8 percent). Exports were 1 MMBF (0.6 percent) below year-earlier levels; imports were 209 MMBF (22.7 percent) higher. 

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Asia (especially China and Japan) was the primary destination for U.S. softwood lumber exports in June, although the rest of North America (i.e., Canada and Mexico) was a close second. China was also the largest single-country destination; year to date (YTD), exports to China were up over 51 percent relative to the same period in 2013. Meanwhile, Canada was the overwhelming source of softwood lumber imports into the United States. Overall, YTD exports were up 10.0 percent compared to the same period in 2013, while imports were up 8.6 percent. 

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Roughly 47 percent of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in June. At the same time, Great Lakes customs districts (especially Duluth, MN) handled nearly 70 percent of the softwood lumber imports coming into the United States. 

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Douglas-fir comprised 20.8 percent of all softwood lumber exports in June, followed by Southern yellow pine 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.

June 2014 International Trade (General)

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Total June exports of $195.9 billion and imports of $237.4 billion resulted in a goods and services deficit of $41.5 billion, down from $44.7 billion in May, revised. June exports were $0.3 billion more than May exports of $195.6 billion. June imports were $2.9 billion less than May imports of $240.3 billion.

In June, the goods deficit decreased $3.0 billion from May to $60.3 billion, and the services surplus increased $0.1 billion from May to $18.7 billion. Exports of goods increased $0.1 billion to $136.9 billion, and imports of goods decreased $2.9 billion to $197.2 billion. Exports of services increased $0.1 billion to $59.0 billion, and imports of services were virtually unchanged at $40.2 billion.

The goods and services deficit increased $5.0 billion from June 2013 to June 2014. Exports were up $5.5 billion, or 2.9 percent, and imports were up $10.5 billion, or 4.6 percent. 

Alarmingly, if petroleum exports are excluded, the U.S. trade deficit hit nearly $47 billion in June, just shy of May’s $49 billion -- the highest real ex-oil trade deficit ever recorded.

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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 0.6 percent in May while prices fell by 0.3 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.

July 2014 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil eased lower in July, down $2.20 to $103.95 per barrel. That price drop occurred despite a slightly weaker U.S. dollar, the lagged impacts of a 267,000 barrel-per-day (BPD) decrease in the amount of oil supplied in May (to 18.5 million BPD), and further reductions in crude stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI shrank by $2.83 in July, to $3.18 per barrel -- the narrowest differential in a year. 

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“Traders continue to ignore the ever-growing chaos in the Middle East and the sanctions being imposed on Russia’s oil industry,” commented ASPO-USA’s Tom Whipple in response to the noticeable retreat in futures prices, “on the grounds that as yet there has been no significant reduction in global oil supplies. Instead, the markets are reacting to fundamentals such as falling demand for gasoline, inventories, and prospects for economic growth. The ‘risk premium’ has been wrung out of the oil markets in the last few weeks -- perhaps prematurely.” 

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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.

June 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 $2.5 billion or 0.5 percent to $499.8 billion in June. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.1 percent May increase. Shipments of durable goods increased $0.9 billion or 0.4 percent to $239.0 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $1.7 billion or 0.6 percent to $260.9 billion, led by petroleum and coal products. Wood shipments rose by 2.8 percent while Paper shipments fell by 1.3 percent. 

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Inventories increased $1.8 billion or 0.3 percent to $653.8 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.31, unchanged from May.

Inventories of durable goods increased $1.6 billion or 0.4 percent to $399.6 billion, led by transportation equipment. Nondurable goods inventories increased $0.2 billion or 0.1 percent to $254.2 billion, led by petroleum and coal products. Inventories of Wood and Paper expanded, respectively, by 0.6 and 0.8 percent. 

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New orders increased $5.7 billion or 1.1 percent to $503.2 billion; excluding transportation, new orders increased 1.1 percent. Durable goods orders increased $4.0 billion or 1.7 percent to $242.4 billion, led by machinery. New orders for nondurable goods increased $1.7 billion or 0.6 percent to $260.9 billion.

As can be seen in the graph above, real (inflation-adjusted) new orders have been essentially flat since early 2012, and have recouped just under 74 percent of the losses incurred since the beginning of the Great Recession.  

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Unfilled durable-goods orders increased $10.4 billion or 1.0 percent to $1,098.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.52, up from 6.51 in May. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders have regained roughly 78 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.

July 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector picked up speed (to the fastest pace in three years) in July. The PMI registered 57.1 percent, an increase of 1.8 percentage point from June's 55.3 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, production and employment sub-indices were the main sources of support for the expansion. Interestingly, the PMI’s rise appears to have resulted more from the seasonal adjustment applied to the new orders sub-index than from genuine improvement in activity. The not-seasonally adjusted new orders value for July was tied with June’s value at the lowest level since January, but the seasonal adjustment value pushed the new orders sub-index to the highest value since December.

“Comments from the panel are generally positive,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “while some indicate concern over global geopolitical situations.”

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Wood Products contracted in July thanks to shrinking new, backlogged and export orders. Paper Products expanded on the back of widespread support among the sub-indices.

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- jumped to a new, all-time record. The NMI registered 58.7 percent, 2.7 percentage points higher than June’s 56.0 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 more quickly in July, along with employment and imports.

“Respondents’ comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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Real Estate and Construction expanded in July, while Ag & Forestry was unchanged.

Commodities up in price included construction labor, diesel, paper, paper products, and lumber. Natural gas was down in price; some respondents indicated paying more for gasoline, while others paid less. 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.

July 2014 Currency Exchange Rates

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In July the monthly average value of the U.S. dollar depreciated against two of the three major currencies we track: 0.8 percent against Canada’s loonie and 0.3 percent against the yen; the dollar appreciated by 0.5 percent relative to the euro. On a trade-weighted index basis, the dollar weakened by 0.2 percent against a basket of 26 currencies. 

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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.

June 2014 U.S. Construction Spending

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Overall construction spending in the United States fell by 1.8 percent during June (the largest drop since January 2011), to a seasonally adjusted and annualized rate (SAAR) of $950.2 billion. Interestingly, the SAARs of the categories we track were negative “across the board” despite small not-seasonally adjusted gains in all but the private non-residential category.

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Click here for a discussion of June’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories 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.