August 2014 U.S. Home Sales, Inventory and Prices

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Sales of new single-family homes in August rose by 77,000 units (18.0 percent) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 504,000. Sales in August were 32.3 percent above year-earlier levels. Meanwhile, the median price of new homes sold fell (by $4,500 or -1.6 percent) to $275,600. Because single-family starts decreased while sales rose, the three-month average ratio of starts to sales dropped to 1.41. Click here for our post on August’s housing permits, starts and completions. 

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Single-unit completions fell by 53,000 units (-8.2 percent) in August. Nonetheless, new-home inventory expanded in absolute terms (+2,000 units) but shrank in months-of-inventory terms (-0.8 month). 

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Existing home sales retreated in August, by 90,000 units (-1.8 percent) to 5.05 million units (SAAR). With sales of new homes rising but existing homes falling, the share of total sales comprised of new homes jumped to 9.1 percent. The median price of previously owned homes sold in August dropped again (by $1,800 or -0.8 percent) to $219,800. Inventory of existing homes inched lower in absolute terms (-40,000 units) but was unchanged in months-of-inventory terms. 

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Housing affordability nudged down again in July, to its lowest level since November 2008, because the median price of existing homes for sale rose by $900 to $223,900. 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 +0.5 percent in July (+5.6 percent relative to a year earlier).

“The broad-based deceleration in home prices continued in the most recent data,” said David Blitzer, Chair of the Index Committee at S&P Dow Jones Indices. “However, home prices continue to rise at two to three times the rate of inflation. The slower pace of home price appreciation is consistent with most of the other housing data on housing starts and home sales. The rise in August new home sales -- which are not covered by the S&P/Case-Shiller indices -- is a welcome exception to recent trends.

“While the year-over-year figures are trending downward, home prices are still rising month-to-month although at a slower rate than what we are used to seeing over the past couple of years. The National Index rose 0.5%, its seventh consecutive increase. At the bottom was San Francisco with its first decline this year and the only city in the red. New York tended to underperform over the past few years but it was on top for the last two months.” 

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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: Third (Final) Estimate

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According to the Bureau of Economic Analysis' (BEA) “final” estimate, 2Q2014 growth in real U.S. gross domestic product (GDP) expanded at a seasonally adjusted and annualized rate of 4.6 percent. The revised 2Q rate of expansion is 0.6 percentage point greater than the initial (“advance”) estimate, and 6.7 percentage points above 1Q’s -2.1 percent contraction. This is the best positive quarter-to-quarter improvement in GDP growth since 2Q2000, and the second best since the 2Q1982. 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 positive revisions to 2Q's growth contributions were in:

• Commercial fixed investments (+0.20 percentage point relative to the previous or “preliminary” 2Q estimate);
• Exports (+0.12 percentage point);
• Consumer expenditures (+0.05 percentage point);
• Governmental expenditures (+0.04 percentage point); and
• Inventories (+0.03 percentage point).

The only downward revision was to imports (-0.03 percentage point).

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 +3.17 percent.

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For this report the BEA assumed annualized net aggregate inflation of 2.15 percent. By comparison, the growth rate of the Bureau of Labor Statistics’ concurrent seasonally adjusted CPI-U index was 3.53 percent (annualized); meanwhile, the price index reported by the Billion Prices Project (BPP) was 2.72 percent. Were the BEA’s nominal estimates corrected for inflation using the CPI-U, 2Q real GDP would have grown by 3.3 percent; if using the BPP inflation rate, growth would have been 4.1 percent.

Taken at “face value,” this report strengthens the Federal Reserve’s hand for completing its quantitative easing “taper” in October. We caution against a face-value reading, though, for the following reasons:

• Consumer spending reportedly provided a little more than one-third of the headline growth; but, real per-capita disposable income has grown by only 2 percent in aggregate since 2008 (or just 0.37 percent per year). Other BEA reports show household spending remains constrained; moreover, the current savings rate suggests most consumers continue to be skeptical about the veracity and sustainability of this recovery.
• Inventories tend to be “mean reverting.” I.e., 2Q’s inventory growth was essentially the flip side of 1Q’s contraction in what is (over the long haul) a largely zero-sum outcome.
• Surging exports fly in the face of both softening economic growth among major U.S. trading partners and a strengthening dollar. Exports are likely to take a substantial hit when trade adjusts to the latest exchange rate.

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.

September 2014 Macro Pulse -- On Your Mark, Get Set, Wait!!

The recent string of upbeat economic releases had market watchers and businesses expecting the Federal Reserve would signal a change in its stance on interest rates. Some of those positive data releases included:

· The Bureau of Economic Analysis tweaked its “preliminary” (i.e., second) estimate of 2Q2014 growth in real U.S. gross domestic product (GDP) up to a seasonally adjusted and annualized rate (SAAR) 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.

…

As a result of that positive news, the Bank of America Merrill Lynch Fund (BAML) Manager Survey for September found investors were increasingly expecting the Federal Reserve to raise interest rates in the spring of 2015. …

In the middle of all that good news, however, the August jobs numbers upset the apple cart. 

Click here to read the rest of the September 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.

August 2014 Residential Permits, Starts and Completions

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Total housing starts retreated in August, to a seasonally adjusted and annualized rate (SAAR) of 956,000 units. That level was 161,000 fewer units (-14.4 percent) than July’s 1.117 million (upwardly revised from the initial estimate of 1.093 million) – which was the fastest rate since November 2007. Ninety percent of the decrease in total starts occurred in the multi-family component (-145,000 units or 31.7 percent); single-family starts fell by 16,000 units (-2.4 percent).

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Unsurprisingly, the year-over-year percentage change in total starts also slowed in August, falling back to 7.0 percent. Single-family starts were 4.1 percent above their year-earlier level; the more volatile multi-family component dropped to 13.8 percent above its August 2013 level. 

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Completions increased by 28,000 units (3.2 percent) in August, to 892,000 units SAAR. All of the increase occurred in the multi-family component (+81,000 units or 36.8 percent) as the single-family component decreased (-53,000 units or 8.2 percent). Total completions were 19.8 percent above their year-earlier level. 

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Total permits decreased by 59,000 units (-5.6 percent), to 998,000 SAAR in August. As was the case with starts, the decrease occurred almost entirely in the multi-family component (-54,000 units or 12.7 percent). Single-family permits inched lower (5,000 units or 0.8 percent). Total permits were 0.3 percent below year-earlier levels; single- and multi-family components were, respectively, 5.2 and 9.3 percent lower.

It appears the slide in the rate of annual growth in total permits seen since late 2012 has come to an end, but it is still too early to tell whether the trend is poised to turn back up. That may be the case, as the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose four points in August, to 59; this fourth consecutive monthly gain brings the index to its highest level since November 2005. An index value above 50 means more builders feel the market is good than feel it is poor.

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly. However, “we are still not seeing much activity from first-time home buyers,” said NAHB Chief Economist David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”

Based on the observation that not-seasonally adjusted completions were nearly equal to permits in August, Global Economic Intersection’s Steven Hansen believes potential for future growth in the housing sector is limited. Also, “whenever permits rate of growth is lower than completions,” Hansen wrote, “this industry is decelerating.” 

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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 Consumer and Producer Price Indices (incl. Forest Products)

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in August, the first such decline since April 2013. The indexes for food and shelter rose, but the increases were more than offset by declines in energy indexes, especially gasoline. The energy index fell 2.6 percent, with the gasoline index declining 4.1 percent and the indexes for natural gas and fuel oil also decreasing.

The "core" index (i.e., all items less food and energy) was unchanged in August; this was the first month since October 2010 that the index did not increase. While the shelter index increased and the indexes for new vehicles and for alcoholic beverages also rose, these advances were offset by declines in several indexes, including airline fares, recreation, household furnishings and operations, apparel, and used cars and trucks.

The all-items index increased 1.7 percent over the last 12 months, a decline from the 2.0 percent figure for the 12 months ending July, and the smallest 12-month change since March. The index for all items less food and energy also rose 1.7 percent over the last 12 months. The food index has risen 2.7 percent over the span, while the energy index has increased 0.4 percent.

The seasonally adjusted Producer Price Index for final demand (PPI) was unchanged in August. Final demand prices advanced 0.1 percent in July and 0.4 percent in June. On an unadjusted basis, the index for final demand increased 1.8 percent for the 12 months ended in August.

In August, a 0.3 percent rise in prices for final demand services offset a 0.3 percent decrease in the index for final demand goods. The advance in final demand services can be traced mainly to a 0.3 percent rise in prices for final demand services less trade, transportation, and warehousing. The decline in final demand goods is mainly attributable to prices for final demand energy, which fell 1.5 percent. The index for final demand foods decreased 0.5 percent. Prices for final demand goods less foods and energy were unchanged.  

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

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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 Industrial Production, Capacity Utilization and Capacity

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Industrial production edged down 0.1 percent in August, and the index for manufacturing output decreased 0.4 percent; the declines were the first for each since January. The gains in July for both indexes were revised down. The declines in total industrial production and in manufacturing output in August reflected a decrease of 7.6 percent in the production of motor vehicles and parts, which had jumped more than 9 percent in July. Excluding motor vehicles and parts, factory output rose 0.1 percent in both July and August. Meanwhile, the output of utilities rose 1.0 percent. At 104.1 percent of its 2007 average, total industrial production in August was 4.1 percent above its year-earlier level.

Wood Products and Paper output rose by 0.2 and 0.3 percent, respectively. 

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Capacity utilization for total industry decreased 0.3 percentage point in August to 78.8 percent, a rate 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972-2013) average. Manufacturing capacity utilization declined by 0.6 percent; Wood Products fell by 0.3 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.

July 2014 International Trade (Softwood Lumber)

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Softwood lumber exports increased by 3 MMBF (2.3 percent) in July while imports fell by 20 MMBF (1.8 percent). Exports were 6 MMBF (3.8 percent) below year-earlier levels; imports were 73 MMBF (7.0 percent) higher. 

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Asia (especially China and Japan) was the primary destination for U.S. softwood lumber exports in July, 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 35 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 7.9 percent compared to the same period in 2013, while imports were up 8.4 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 July. At the same time, Great Lakes customs districts (especially Duluth, MN) handled nearly 69 percent of the softwood lumber imports coming into the United States. 

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Douglas-fir comprised 22.6 percent of all softwood lumber exports in July, followed by Southern yellow pine with 21.4 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.