August 2014 International Trade (General)

Click image for larger view

Total August exports of $198.5 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.1 billion, down from $40.3 billion in July. August exports were $0.4 billion more than July exports of $198.0 billion. August imports were $0.2 billion more than July imports of $238.3 billion.

In August, the goods deficit increased $0.1 billion from July to $59.9 billion, and the services surplus increased $0.3 billion from July to $19.8 billion. Exports of goods increased $0.1 billion to $138.8 billion, and imports of goods increased $0.1 billion to $198.7 billion. Exports of services increased $0.4 billion to $59.6 billion, and imports of services increased $0.1 billion to $39.9 billion.

The goods and services deficit increased $0.6 billion from August 2013 to August 2014. Exports were up $7.9 billion, or 4.1 percent, and imports were up $8.4 billion, or 3.7 percent.

As MarketWatch explained, however, the smaller trade deficit is thanks to oil exports:

The U.S. exported a record $14.1 billion in petroleum products and imported the least amount, $27.2 billion, since late 2010.

As a result, the nation’s petroleum deficit dropped in August to the lowest level in 10 years.

Oil production is surging in the U.S. because technologies such as fracking are allowing companies to tap reserves previously inaccessible.

Yet excluding petroleum, the U.S. trade deficit rose to $45.1 billion to mark the highest level in three months, mainly because of higher imports. Cheaper foreign currencies and a stronger dollar are enabling Americans to more easily afford foreign goods.

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 1.4 percent in July (from the prior month) 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.

September 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 stumbled in September. The PMI fell back to 56.6 percent, a decrease of 2.4 percentage points from August’s 59.0 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. All of the sub-indices weakened except for Production and Input Prices.

Nonetheless, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee said that “comments from the panel reflect a generally positive business outlook, while noting some labor shortages and continuing concern over geopolitical unrest.”

Click image for larger version

There was fairly wide-spread support among the sub-indices for the expansion in both Wood and Paper Products during September. Although one Paper Products respondent observed, “Outlook is very good; demand seems to be growing,” declining employment and new export orders present some potential future downside risks.

The pace of growth in the non-manufacturing sector -- which accounts for 80 percent of the economy and 90 percent of employment -- also retreated in September. The NMI registered 58.6 percent, 1.0 percentage point lower than August’s 59.6 percent; the drop appears to have been primarily concentrated in the New Orders and Orders Backlog sub-indices. “Respondents’ comments indicate that business seems to be leveling off and there is a slight slowing in the momentum of the past few months of strong growth,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. Even so, “they continue to remain optimistic about business conditions and the overall direction of the economy.”

Click image for larger version

Two of the three service industries we track reported expansion in September, although only Construction had meaningful support among the sub-indices. “In the building industry there continues to be a lot of remodeling and smaller additions with replacement facilities and new buildings lagging,” wrote one Construction respondent. “Many companies would like to build new, but are still concerned about making the large investment at this time.”

Commodities up in price included lumber and paper products. Some respondents indicated paying more for fuel, others less. No relevant commodities were 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 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 decreased $5.0 billion or 1.0 percent to $503.1 billion in August. Shipments of durable goods decreased $4.0 billion or 1.6 percent to $245.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.0 billion or 0.4 percent to $257.2 billion, led by petroleum and coal products. Wood and Paper shipments rose by 1.0 and 0.2 percent, respectively. 

Click image for larger view

Inventories increased $0.8 billion or 0.1 percent to $653.9 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.30, up from 1.29 in July.

Inventories of durable goods increased $1.7 billion or 0.4 percent to $403.1 billion, led by transportation equipment. Nondurable goods inventories decreased $0.9 billion or 0.3 percent to $250.8 billion, led by petroleum and coal products. Inventories of Wood expanded by 0.1 percent, while Paper was unchanged. 

Click image for larger view

New orders decreased $56.1 billion or 10.1 percent to $502.0 billion, more than reversing July’s biggest month-over-month rise on record. Excluding transportation, new orders decreased 0.1 percent -- the third drop in the last four months. Durable goods orders decreased $55.1 billion or 18.4 percent to $244.8 billion, led by transportation equipment. New orders for nondurable goods decreased $1.0 billion or 0.4 percent to $257.2 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 transportation-led spike now in the rearview mirror, new orders have dropped back to around 73 percent or their December 2007 high. 

Click image for larger view

Unfilled durable-goods orders increased $7.0 billion or 0.6 percent to $1,164.5 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.71, up from 6.62 in July. Real unfilled orders, a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders in June were back to just 79 percent of their December 2008 peak. Real unfilled orders jumped to 102 percent of the prior peak in July, thanks to the largest-ever batch of aircraft orders, and are likely to keep this metric elevated for several years.

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 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended its retreat for a third month, falling $3.23 to $93.31 per barrel. That price drop coincided with a notably stronger U.S. dollar and the lagged impacts of a 331,000 barrel-per-day (BPD) increase in the amount of oil supplied in July (to 19.2 million BPD), but occurred despite a continued downward trend in crude oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $1.17 in September, to $3.90 per barrel. 

Click image for larger view

Click image for larger view

“In general the drop in oil prices is being driven by what is perceived to be too much oil chasing too few buyers,” wrote ASPO-USA’s Tom Whipple. “Economies are sagging in the EU and China. U.S. demand is up a bit though not that strong. Credit Suisse says that production cuts are necessary to shore up oil prices. The outlook seems to be that still lower prices are ahead (Iran expects $90/barrel oil by March). If this should happen several crude exporting countries will have trouble keeping their budgets in balance and some U.S. shale oil producers will have trouble making a profit.”

News that Saudi Arabia is cutting its selling price seems to support Whipple’s prediction. “We consider that absent a supply disruption in Iraq, crude prices are likely to remain at subdued levels over the medium term as supply growth exceeds demand growth,” agreed National Australia Bank economist Phin Ziebell. However, “given that crude futures are already at their multiyear lows, we see limited downside risk to prices at this juncture,” said Barnabas Gan, an analyst at Singapore’s OCBC Bank, “especially as geopolitical risk-premiums may have already been substantially narrowed.” 

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.

August 2014 U.S. Construction Spending

Click image for larger view

Click image for larger view

Overall construction spending in the United States fell by 0.8 percent during August (well below expectations of a 0.5 percent increase), to a seasonally adjusted and annualized rate (SAAR) of $961.0 billion. The private non-residential category led the decrease on both absolute (-$5 billion) and percentage (-1.4 percent) bases. Also, July’s increase was lowered to 1.2 percent (from the initial +1.8 percent estimate). 

Click image for larger view

Click here for a discussion of August’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.

September 2014 Currency Exchange Rates

Click image for larger view

In September the monthly average value of the U.S. dollar again appreciated against all three major currencies we track: 0.6 percent against Canada’s loonie, 3.1 percent relative to the euro, and 4.1 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 1.4 percent against a basket of 26 currencies. 

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.

July 2014 International Trade (Pulp, Paper & Paperboard)

Click image for larger view

July's results essentially extended 2Q’s trend in pulp and paper trade: stronger domestic demand but generally weak global demand. Although July exports did tick higher, it barely did so, registering a scant 0.1 percent increase while showing the first increase in imports since April. Imports broke out of their recent trading range between 800,000 and 815,000 tonnes, posting a 15.9 percent increase over June's level. Sharply higher imports and barely higher exports yielded a decline in net exports, dropping by 7.8 percent on month-to-month basis ("M2M"), a year-over-year ("Y2Y") decline of 10.9 percent, and YTD decline of 3.0 percent.

The six-month export trend swapped from marginally negative to marginally positive, switching from a 1.6 percent January-to-June decline to a 1.5 percent February-to-July increase. The six-month trend on imports exploded higher, jumping from a 3.8 percent trend increase between January and June to a 17.4 percent increase between February and July. Despite the export trend shifting from negative to positive, the much higher trend on imports means the six-month net-export trend fell, dropping from -4.2 percent from January to June to -5.9 percent from February to July. 

Click image for larger view

In terms of notable shifts in country-level details: Pulp exports (15.422 million tonnes YTD) increased by 0.3 percent compared to prior YTD levels. China remains the chief destination of U.S. pulp by a wide margin, representing 56 percent of YTD shipments compared to Mexico, the second-ranked destination at 7.3 percent. Nevertheless China's exports have declined by 2.2 percent YTD compared to the same period in 2013. Mexico's receipt of U.S. pulp export are up nearly 10 percent YTD and India's, the third ranked destination for U.S. pulp exports, are up by nearly 22 percent. Among 2013's top 10 destinations, the most significant change is Indonesia where U.S. pulp exports are over 41 percent higher than prior YTD levels, causing it to jump from the ninth-ranked 2013 YTD destination to the sixth-ranked 2014 YTD destination.

Click image for larger view

Paper and paperboard exports (1.422 million tonnes) dropped by 7.0 percent on a YTD basis. Among 2013's Top 10 destinations, the "loss leader" is India (70,000 tonnes, -46.8 percent from prior YTD) followed by China (13,000 tonnes, -32.7 percent), Mexico (24,000 tonnes, -7.1 percent), and Japan (10,000 tonnes, -9.1 percent). Bucking the general decline in paper and paperboard exports, YTD paper and paperboard exports to Canada are up by 57,000 tonnes (+17.9 percent) compared to prior YTD levels. 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 nearly 16,000 tonnes (+48.1 percent), Guatemala is up nearly 6,000 tonnes (+18.5 percent) and Peru is up over 4,000 tonnes (+44.7 percent). 

Click image for larger view

Pulp imports (3.729 million tonnes YTD) increased 2.5 percent compared to prior YTD levels. The most significant drop is from Brazil, which has fallen by 1.9 percent. However, imports from Canada, up by 2.0 percent YTD compared to prior year levels, overwhelms Brazil's reduction. Canada and Brazil, the 1st and 2nd ranked pulp import sources, respectively, account for over 94 percent of the pulp imported. Chile, while maintaining its number three rank, has nearly doubled its imports YTD. As a supply source, Indonesia has climbed from being the twelfth-ranked supplier during the first seven months of 2013 to the ninth-ranked supplier during the first seven months of 2014, posting a YTD increase of nearly 66 percent. 

Click image for larger view

Paper and paperboard imports (1.762 million tonnes YTD) have expanded by over 10 percent year-to-date compared to prior YTD activity. Once again Canada leads the way, accounting for nearly 79 percent of the YTD increase (149,000 tonnes). 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 seven months of 2013 to the 8th ranked supplier during the first seven months of 2014, posting an eye-popping increase over 63,600 percent -- from 13 tonnes to 8,472 tonnes.

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.