July 2014 International Trade (General)

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Total July exports of $198.0 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.5 billion, down from $40.8 billion in June. July exports were $1.8 billion more than June exports of $196.2 billion. July imports were $1.6 billion more than June imports of $237.0 billion.

In July, the goods deficit decreased $0.2 billion from June to $60.2 billion, and the services surplus was virtually unchanged at $19.6 billion. Exports of goods increased $1.8 billion to $138.6 billion, and imports of goods increased $1.5 billion to $198.8 billion. Exports of services increased $0.1 billion to $59.4 billion, and imports of services were virtually unchanged at $39.8 billion.

The goods and services deficit increased $1.1 billion from July 2013 to July 2014. Exports were up $8.1 billion, or 4.3 percent, and imports were up $9.2 billion, or 4.0 percent.

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume increased by 0.1 percent in June while prices rose 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.

August 2014 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil tumbled in August, falling $7.05 to $96.54 per barrel. That price drop coincided with a slightly stronger U.S. dollar and the lagged impacts of a 317,000 barrel-per-day (BPD) increase in the amount of oil supplied in June (to 18.8 million BPD), but occurred despite further reductions in crude stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI expanded by $1.89 in August, to $5.07 per barrel.

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ASPO-USA’s Tom Whipple chalked up the nearly $10-per-barrel July-August price drop to “increasing U.S. shale oil production, which is largely offsetting disruptions elsewhere; weaker demand for oil from China; and the growing belief that neither the worsening Middle Eastern situation nor the Ukrainian - EU standoff would lead to disruptions in oil supplies in the immediate future.”

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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 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 since March 2011) in August. The PMI registered 59.0 percent, an increase of 1.9 percentage points from July’s 57.1 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, export and import sub-indices were the main sources of support for the increase.

“Comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee.

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Higher production and employment allowed Wood Products to expand in August. “International markets are slower due to Euro[zone] holidays, political unrest and slowing Chinese markets,” wrote one Wood Products respondent, however, adding, “North American business [is] off slightly.” Paper Products expanded thanks to higher new orders, production, order backlogs and exports.

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- rose to another all-time record. The NMI registered 59.6 percent, 0.9 percentage point higher than June’s 58.7 percent; the push higher was greatest in the Business Activity and Employment sub-indices. “Respondents' comments vary by business and industry,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “The majority of the comments reflect continued optimism in regards to business conditions. Some respondents indicate that there may be some tapering off in the recent strong rate of growth in the non-manufacturing sector.

Last month we reported the manufacturing PMI rose primarily because of seasonal adjustments to the new-orders sub-index that turned an unadjusted six-month low value into a seven-month high value. It was the NMI’s turn for similar treatment this month. Declining unadjusted New Orders and Employment sub-index values were turned into some of the highest values of the past several years. 

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All three service industries we track reported expansion in August, although only Construction had much breadth of support among the sub-indices.

Commodities up in price included: paper, paper products, and lumber. Commodities down in price included: natural gas, gasoline and diesel fuel. 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.

August 2014 Currency Exchange Rates

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In August the monthly average value of the U.S. dollar appreciated against all three major currencies we track: 1.7 percent against Canada’s loonie, 1.6 percent relative to the euro, and 1.2 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 0.9 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.

July 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 $6.0 billion or 1.2 percent to $507.4 billion in July. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.8 percent June increase. Shipments of durable goods increased $8.3 billion or 3.5 percent to $249.3 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $2.3 billion or 0.9 percent to $258.1 billion, led by petroleum and coal products. Wood and Paper shipments rose by 0.4 and 1.1 percent, respectively. 

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Inventories increased $0.9 billion or 0.1 percent to $653.8 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.29, down from 1.30 in June.

Inventories of durable goods increased $1.9 billion or 0.5 percent to $401.5 billion, led by transportation equipment. Nondurable goods inventories decreased $1.1 billion or 0.4 percent to $252.3 billion, led by petroleum and coal products. Inventories of Wood expanded by 0.9 percent, while Paper was unchanged. 

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New orders increased $53.1 billion or 10.5 percent to $558.3 billion, the biggest month-over-month rise on record. Excluding transportation, however, new orders decreased 0.8 percent -- to the lowest level since March 2013. Durable goods orders increased $55.4 billion or 22.6 percent to $300.2 billion, led by transportation equipment. New orders for nondurable goods decreased $2.3 billion or 0.9 percent to $258.1 billion.

Prior to July, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012 -- recouping roughly 75 percent of the losses incurred since the beginning of the Great Recession. With July’s spike, however, real new orders exceeded the previous (December 2007) peak by 2 percent. 

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Unfilled durable-goods orders increased $58.9 billion or 5.4 percent to $1,158.2 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.64, up from 6.47 in June. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders finally in July regained (and exceeded by 3 percent) 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 U.S. Construction Spending

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Overall construction spending in the United States rose by 1.8 percent during July (the largest month-over-month increase since May 2012), to a seasonally adjusted and annualized rate (SAAR) of $981.3 billion. The public construction category led the overall increase on both absolute and percentage bases.

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Click here for a discussion of July’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.

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.