June and 2Q2014 International Trade (Pulp, Paper & Paperboard)

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The picture that emerges for the U.S. pulp, paper, and paperboard sector from reviewing recent U.S. trade data is modestly stronger domestic demand but weakening global demand. June's net pulp, paper, and paperboard exports posted a small decrease over May's level, dropping 0.3 percent. June exports fell by 0.8 percent relative to May; imports fell 1.6 percent. While June's net exports declined, the pace slowed markedly from the prior two month's month-to-month ("M2M") change in net exports.

In the aggregate, 2Q2014's net exports were down over 2 percent from 1Q's trade activity; exports quarter-to-quarter ("Q2Q") were down 0.9 percent and while Q2Q imports expanded by 1.5 percent. Despite M2M and Q2Q declines, June's net exports were 3.8 percent higher than June 2013's level; June exports were 5.1 percent higher than prior year levels and imports 7.9 percent higher. Year-to-date ("YTD") activity through June net exports is 1.7 percent lower than the prior YTD level; YTD imports have expanded by 2.8 percent and exports declined by 0.3 percent.

The six-month export trend became more negative, steepening from a 0.6 percent drop on trend between December and May to a 1.6 percent trend reduction between January and June. The six-month trend on imports remained positive but declined, dropping from a 6.9 percent increase on trend between December  and May to a 3.8 percent increase between January and June.  The net export six-month trend remained essentially unchanged between the period ending in May (-4.1 percent) and June (-4.2 percent).

In terms of notable shifts in country-level details:

• Pulp exports (13.2 million tonnes YTD) have increased by 0.4 percent compared to prior YTD levels. China remains the chief destination of U.S. pulp by a wide margin, representing 56.5 percent of YTD shipments compared to Mexico, the second-ranked destination at 7.4 percent. Nevertheless China's exports have declined by 1.3 percent YTD compared to the same period in 2013. Mexico's receipt of U.S. pulp export are up by over 11 percent YTD and India's, the third ranked destination for U.S. pulp exports, are up by 20 percent. Among 2013's top 10 destinations, the most significant change is Italy where U.S. pulp exports are off by nearly 31 percent from prior YTD levels. 

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• Paper and paperboard exports (1.2 million tonnes) dropped by 6.5 percent (85,000 tonnes) on a YTD basis. The "loss leader" is India (57,000 tonnes, -44.2 percent from prior YTD) followed by China (13,000 tonnes, -36.3 percent) and Mexico (10,000 tonnes, -3.6 percent). Bucking the general decline in paper and paperboard exports, YTD paper and paperboard exports compared to prior YTD levels to Canada are up by 44,000 tonnes (+16.0 percent). Costa Rica, Guatemala, and Peru are also receiving higher levels of U.S. paper and paperboard exports; Costa Rica's YTD receipts are up by over 13,000 tonnes (+48.5 percent), Guatemala's are up nearly 5,000 tonnes (+18.8 percent) and Peru's up over 4,000 tonnes (+66.1 percent). 

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• Pulp imports (3.1 million tonnes YTD) have dropped 1.8 percent compared to prior YTD levels. The most significant drop is from Brazil, which has fallen by 12 percent from prior YTD imports. Imports from Canada are up by 0.5 percent YTD compared to prior year levels. Canada and Brazil, the 1st and 2nd ranked pulp import sources, respectively, account for over 94 percent of the pulp imported. As a supply source, Indonesia has climbed from being the 12th ranked supplier during the first three months of 2013 to the 8th ranked supplier during the first six months of 2014, posting a YTD increase of nearly 66 percent. 

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• Paper and paperboard imports (1.7 million tonnes YTD) have expanded by over 12 percent YTD (186,000 tonnes) compared to prior YTD activity. Once again Canada leads the way, accounting for 85 percent of the increase (158,000 tonnes). Once again Canada is by far the most significant source of imported paper and paperboard in 2014, accounting for 89 percent of all paper and paperboard imported. One notable development on a percentage basis is Australia, which has vaulted from being the 29th ranked supplier during the first six months of 2013 to the 8th ranked supplier during the first six months of 2014, posting an eye-popping increase over 53,000 percent -- from 13 tonnes to 7,105 tonnes. 

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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.

2Q2014 Gross Domestic Product: Second (Preliminary) Estimate

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According to the Bureau of Economic Analysis (BEA), the “preliminary” estimate of 2Q2014 growth in real U.S. gross domestic product (GDP) expanded at a seasonally adjusted and annualized rate of 4.2 percent. The revised 2Q rate of expansion is 0.2 percentage point faster than the initial (“advance”) estimate, and 6.3 percentage points above 1Q’s 2.1 percent contraction. This is the largest positive quarter-to-quarter improvement in GDP growth in roughly 14 years. Three of the four categories -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed to 2Q growth; net exports (NetX) subtracted from growth.

The largest positive revisions to the headline number came from:

·     Commercial fixed investments (+0.34 percentage point relative to the “advance” 2Q estimate),

·     Imports (+0.11 percentage point),

·     Exports (+0.08 percentage point) and

·     Consumer expenditures for services (+0.09 percentage point).

The increase in consumer services spending was mostly offset by reduced spending for consumer goods (-0.08 percentage point); the improvement in fixed investment was partially offset by reduced inventory accumulation (-0.27 percentage point), although inventories remained the single largest contributor to the headline number.

Growth in real final sales of domestic product, the BEA’s “bottom line” indicator of economic health (which excludes the ever-volatile inventories) improved by about a half percentage point, to +2.79 percent.

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For this report the BEA assumed annualized net aggregate inflation of 2.2 percent. By way of comparison, the growth rate of the Bureau of Labor Statistics’ concurrent seasonally adjusted CPI-U index was 3.5 percent (annualized); meanwhile, the price index reported by the Billion Prices Project (BPP) was 2.7 percent. Were the BEA’s nominal estimates corrected for inflation using the CPI-U, 2Q real GDP would have grown by 2.9 percent; if using the BPP inflation rate, growth would have been 3.7 percent.

Although we do not want to be guilty of looking for a cloud in the “silver lining,” we continue to question whether the U.S. economy is truly chugging along as strongly as the GDP estimate might suggest. Points to ponder along that vein include:

·     Inventories tend to create a zero-sum game over the long haul. The second quarter’s inventory growth was essentially the “flip side” of 1Q’s contraction.

·     The surge in goods exports (from subtracting 1.18 percentage points from the 1Q headline number to adding 1.22 percentage points in 2Q) seems strange in the context of apparent softening economic growth among the United States’ major trading partners.

·     Our own perception is the economy did not feel like it was growing 6.3 percentage points faster in 2Q than 1Q. 

One must decide whether that phenomenal turnaround in just 90 days is genuine, or “a sign of seriously noisy numbers momentarily pointing towards implausible and/or unsustainable growth.”

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 U.S. Home Sales, Inventory and Prices

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Sales of new single-family homes retreated by 10,000 units (-2.4 percent), to a seasonally adjusted and annualized rate (SAAR) of 412,000 in July. Despite the month-to-month decline, sales in July were 12.1 percent above year-earlier levels. Meanwhile, the median price of new homes sold fell (by $10,300 or 3.7 percent) to $269,800. Although single-family starts increased while sales fell, the three-month average starts-to-sales ratio was essentially unchanged at 1.47. Click here for our post on June’s housing permits, starts and completions.

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Single-unit completions rose (37,000 units or 6.2 percent) in July. As a result, new-home inventory expanded in both absolute and months-of-inventory terms (8,000 units or 0.5 month). 

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Existing home sales advanced in July, by 120,000 units (2.4 percent) to 5.15 million units (SAAR). With sales of existing homes rising but new homes falling, the share of total sales comprised of new homes shrank to 7.4 percent. The median price of previously owned homes sold in June inched higher (by $900 or 0.4 percent) to $222,900. Inventory of existing homes increased in absolute terms (+80,000 units) but was unchanged in months-of-inventory terms.

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Housing affordability tumbled in June, to its lowest level since November 2008, because the median price of existing homes for sale rose by $12,300 to $224,300. Concurrently, Standard & Poor’s reported that the newly published U.S. National Index in the S&P/Case-Shiller Home Price indices posted a not-seasonally adjusted monthly change of +0.9 percent in June (+6.2 percent relative to a year earlier).

“Home price gains continue to ease as they have since last fall,” observed David Blitzer, Chair of the Index Committee at S&P Dow Jones Indices. “For the first time since February 2008, all cities showed lower annual rates than the previous month. Other housing indicators -- starts, existing home sales and builders’ sentiment -- are positive. Taken together, these point to a more normal housing sector.

“The monthly National Index rose 0.9% in June. While all 20 cities saw higher home prices over the last 12 months, all experienced slower gains. In San Francisco, the pace of price increases halved since late last summer. The Sun Belt cities -- Las Vegas, Phoenix, Miami and Tampa -- all remain a third or more below their peak prices set almost a decade ago.

“Bargain basement mortgage rates won’t continue forever; recent improvements in the labor markets and comments from Fed chair Janet Yellen and others hint that interest rates could rise as soon as the first quarter of 2015. Rising mortgage rates won’t send housing into a tailspin, but will further dampen price gains.” 

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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.

July 2014 Residential Permits, Starts and Completions

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Total housing starts advanced noticeably in July, to a seasonally adjusted and annualized rate (SAAR) of 1.093 million units -- the fastest rate since November 2013. That level was 148,000 more units (15.7 percent) than June’s 945,000 (upwardly revised from the initial estimate of 893,000), and just 1.1 percent below November’s peak of 1.105 million units. Nearly two-thirds of the total increase occurred in the multi-family component (98,000 units or 28.9 percent); single-family starts rose by 50,000 units (8.3 percent). 

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Unsurprisingly, the year-over-year percentage change in total starts also picked up speed in July, jumping to 20.2 percent. Single-family starts were 7.3 percent above their year-earlier level; the more volatile multi-family component surged to 48.1 percent above its July 2013 level. 

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Completions increased by 30,000 units (3.7 percent) in July, to 841,000 units SAAR. All of the increase occurred in the single-family component (+37,000 units or 6.2 percent) as the multi-family component decreased (-7,000 units or 3.3 percent). Total completions were 5.2 percent above their year-earlier level. 

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Total permits rose by 79,000 units (8.1 percent), to 1.052 million SAAR in July. Similar to the case with starts, the increase occurred almost entirely in the multi-family component (73,000 units or 21.5 percent). Single-family permits inched higher (6,000 units or 0.9 percent). Total permits were 7.6 percent above year-earlier levels -- single- and multi-family components were, respectively, 3.9 and 14.6 percent higher.

It is still too early to tell whether the slide in the rate of annual growth in total permits seen since late 2012 has come to an end. That may be the case, as the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose two points in August, to 55; this third consecutive monthly gain brings the index to its highest level since January. An index value above 50 means more builders feel the market is good than feel it is poor. 

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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.

July 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 0.1 percent in July. The all items index posted its smallest seasonally adjusted increase since February; the indexes for shelter and food rose, but were partially offset by declines in the energy index and the index for airline fares. The food index rose 0.4 percent in July; the decrease in the energy index was its first since March and reflected declines in the indexes of all the major energy components.

The all items index increased 2.0 percent over the last 12 months, a slight decline from the 2.1 percent figure for the 12 months ending June. The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as for the 12 months ending June. The energy index has increased 2.6 percent, and the food index has risen 2.5 percent over the span.

The seasonally adjusted Producer Price Index for final demand rose 0.1 percent in July. This increase followed a 0.4-percent advance in June and a 0.2-percent decline in May. On an unadjusted basis, the index for final demand climbed 1.7 percent for the 12 months ended in July.

In July, the 0.1 percent increase in final demand prices can be traced to the index for final demand services, especially truck transportation of freight. Prices for final demand goods were unchanged, as a 0.2 percent rise in the index for “core” goods (i.e., less foods and energy) and a 0.4 percent increase in prices for foods offset a 0.6 percent decline in the index for energy. 

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The price indices we track were mixed in July (relative to June). Compared to a year earlier, all indices were higher. The indices for Intermediate Materials; and Lumber & Wood Products set new highs in July. 

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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.

August 2014 Macro Pulse -- Still a Two Percent Growth Economy

That was American Action Forum President Douglas Holtz-Eakin’s reaction to the news that 2Q2014 real gross domestic product (GDP) grew at a seasonally adjusted and annualized rate (SAAR) of 4.0 percent. Holtz-Eakin’s assessment stemmed from the observation that, although the 4 percent headline growth rate represented the largest positive quarter-to-quarter GDP change in nearly 14 years, inventory accumulation accounted for nearly half of the increase. Because inventories are so volatile, the Bureau of Economic Analysis removes them from real final sales of domestic product, its “bottom-line” indicator of economic activity. By that measure, the U.S. economy grew at a much more modest 2.3 percent.

Given the unexpectedly robust GDP reading, what does the latest data indicate about how the forest products sector is faring? Find out by clicking here to read the rest of the August 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.

July 2014 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 0.4 percent in July for its sixth consecutive monthly gain. Manufacturing output advanced 1.0 percent in July, its largest increase since February. The production of motor vehicles and parts jumped 10.1 percent, while output in the rest of the manufacturing sector rose 0.4 percent. The output of utilities dropped 3.4 percent, as weather that was milder than usual for July reduced demand for air conditioning. At 104.4 percent of its 2007 average, total industrial production in July was 5.0 percent above its year-earlier level.

Wood Products and Paper output both rose by 0.3 percent. 

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Capacity utilization for total industry edged up 0.1 percentage point to 79.2 percent in July, a rate 1.7 percentage points above its level of a year earlier and 0.9 percentage point below its long-run (1972-2013) average. Wood Products capacity utilization decreased by 0.2 percent, but Paper rose by 0.5 percent. 

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Capacity at the all-industries and manufacturing levels moved higher by, respectively, 0.3 and 0.2 percent. Wood Products extended its year-long trend when increasing by 0.4 percent. Paper, on the other hand, contracted by 0.2 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.