September 2014 International Trade (Softwood Lumber)

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Softwood lumber exports decreased by 5 MMBF (3.2 percent) in September while imports rose by 60 MMBF (5.8 percent). Exports were 20 MMBF (12.8 percent) below year-earlier levels; imports were 172 MMBF (18.7 percent) higher. 

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The rest of North America (i.e., Canada and Mexico) was once again the primary destination for U.S. softwood lumber exports in September, although Asia (especially China) was a close second; Canada was also the largest single-country destination. Year to date (YTD), exports to China were up just 11 percent relative to the same period in 2013 (down from +21 percent YOY in August). Meanwhile, Canada was the source of nearly all (97.2 percent) softwood lumber imports into the United States. Overall, YTD exports were up 3.6 percent compared to the same period in 2013, while imports were up 10.3 percent. 

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Roughly 45 percent of U.S. softwood lumber exports left the country through West Coast (primarily Seattle, WA) customs districts in September. At the same time, Great Lakes customs districts (especially Duluth, MN) handled over 69 percent of the softwood lumber imports coming into the United States. 

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Southern yellow pine comprised 21.6 percent of all softwood lumber exports in September, followed by Douglas-fir with 19.4 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.

September 2014 International Trade (General)

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Total September exports of $195.6 billion and imports of $238.6 billion resulted in a goods and services deficit of $43.0 billion, up from $40.0 billion in August, revised. September exports were $3.0 billion less than August exports of $198.6 billion. September imports were $0.1 billion more than August imports of $238.6 billion.

In September, the goods deficit increased $2.4 billion from August to $62.7 billion, and the services surplus decreased $0.6 billion from August to $19.6 billion. Exports of goods decreased $2.6 billion to $136.1 billion, and imports of goods decreased $0.1 billion to $198.7 billion. Exports of services decreased $0.4 billion to $59.5 billion, and imports of services increased $0.2 billion to $39.9 billion.

The goods and services deficit increased $0.8 billion from September 2013 to September 2014. Exports were up $5.3 billion, or 2.8 percent, and imports were up $6.1 billion, or 2.6 percent.

Excluding petroleum, the U.S. trade deficit rose to $48.3 billion to mark the highest level in four months. 

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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 0.8 percent in August (from the prior month) while prices fell by 1.1 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.

October 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that economic activity in the U.S. manufacturing sector recovered in October the ground lost in September. The PMI jumped back to 59.0 percent, an increase of 2.4 percentage points from September’s 56.6 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. The pickup in activity was primarily supported by increased new and backlogged orders, and slower supplier deliveries (implying suppliers may be having difficulty keeping up with orders).

Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee said comments from the respondent panel “generally cite positive business conditions, with growth in demand and production volumes.”

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Wood Products was unchanged in October, as increased production was offset by declines in new and backlogged orders; “production is oversupplying demand,” one respondent indicated, “and prices have softened.” Paper Products’ expansion, by contrast, exhibited wide-spread 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 -- retreated again in October. The NMI registered 57.1 percent, 1.5 percentage points lower than September’s 58.6 percent; only the employment and imports sub-indices were higher in October than September. “The majority of the respondents’ comments reflect favorable business conditions,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee; “however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months.” 

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All three service industries we track reported expansion in October, although Ag & Forestry’s support among the sub-indices was not that meaningful.

Commodities up in price included envelopes and paper products. Some respondents indicated paying more for fuel, others less. Lumber was the only relevant commodity down in price. No relevant commodities were in short supply.

It is interesting to note that while ISM’s NMI and Markit’s U.S. Services PMI paralleled each other in October (i.e., growth slowed), ISM’s PMI and Markit’s U.S. Manufacturing PMI moved in opposite directions (i.e., ISM increased while Markit decreased). Time will tell which organization’s assessment of U.S. manufacturing is more accurate.

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 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 $0.7 billion or 0.1 percent to $503.4 billion in September. Shipments of durable goods increased $0.7 billion or 0.3 percent to $246.2 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $0.1 billion or less than 0.1 percent to $257.2 billion, led by chemical products. Wood and Paper shipments fell by 1.0 and 0.1 percent, respectively. 

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Inventories increased $1.5 billion or 0.2 percent to $655.2 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.30, unchanged from August.

Inventories of durable goods increased $1.7 billion or 0.4 percent to $404.6 billion, led by transportation equipment. Nondurable goods inventories decreased $0.1 billion or slightly to $250.6 billion, led by petroleum and coal products. Inventories of Wood and Paper expanded by 0.1 and 0.4 percent, respectively. 

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New orders decreased $2.8 billion or 0.6 percent to $499.4 billion. Excluding transportation, new orders decreased less than 0.1 percent -- the fourth drop in the last five months. Durable goods orders decreased $2.8 billion or 1.1 percent to $242.2 billion, led by transportation equipment. New orders for nondurable goods increased $0.1 billion or slightly 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 72 percent or their December 2007 high. 

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Unfilled durable-goods orders increased $3.7 billion or 0.3 percent to $1,168.7 billion, led by computers and electronic products. The unfilled orders-to-shipments ratio was 6.71, unchanged from August. Real unfilled orders, which had been 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, hence, this metric is likely to remain 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.

October 2014 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended its retreat for a fourth month, tumbling $8.16 to $85.05 per barrel. That price drop coincided with a strengthening U.S. dollar, the lagged impacts of a 112,000 barrel-per-day (BPD) increase in the amount of oil supplied in August (to 19.3 million BPD), and an abrupt turnaround in crude oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $1.11 in October, to $2.77 per barrel.

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“So far,” wrote ASPO-USA’s Tom Whipple, “the two major reactions to the precipitous decline in oil prices have been the price war which seems to have broken out within OPEC as some members move to retain their market share, and the issue of whether some of the higher-cost U.S. shale oil production remains an economic proposition.  A new survey shows that OPEC’s production increased by 53,000 BPD in October at the time when it should be declining to counter falling prices. Some members are unhappy, but the indications suggest that there will be no major changes at the 27 November OPEC meeting.

“The issue of whether the drop in oil prices will curtail U.S. shale oil production is beginning to attract more attention. Initially shale oil production operators were running around denying that there was a problem and that prices could drop another 20 percent and shale oil would still be profitable. The people who are saying this are already running at a cash flow deficit and need constant infusions of new Wall Street capital to keep drilling. Other larger oil companies which are now exclusively in the shale oil business, however, are beginning to suggest that some planned production may be curtailed next year. Transportation difficulties and the requirement to reduce natural gas flaring are adding significantly to production costs on Bakken shale oil so that we may see some production curtailment in the coming year if oil prices remain lower than they have been in recent years for an extended period.”

Futures traders apparently see oil prices staying in the low $80s for the next two years. 

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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.

October 2014 Currency Exchange Rates

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In October the monthly average value of the U.S. dollar again appreciated against all three major currencies we track: 1.8 percent against Canada’s loonie, 1.7 percent relative to the euro, and 0.6 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 1.3 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.

September 2014 U.S. Construction Spending

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Overall construction spending in the United States fell by 0.4 percent during September (well below expectations of a 0.7 percent increase), to a seasonally adjusted and annualized rate (SAAR) of $950.9 billion. The public construction category led the decrease on both absolute (-$3.5 billion) and percentage (-1.3 percent) terms. Also, August's spending was lowered to $955.2 billion (from the initial estimate of $961.0 billion).

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Click here for a discussion of September’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.