December 2014 Currency Exchange Rates

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In December the monthly average value of the U.S. dollar once again appreciated against all three major currencies we track: 1.8% against Canada’s loonie, 1.2% relative to the euro, and 2.6% against the yen. On a trade-weighted index basis, the dollar strengthened by 2.4% 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.

November 2014 U.S. Construction Spending

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Overall construction spending in the United States fell by 0.3% during November (against expectations of a 0.4% increase), to a seasonally adjusted and annualized rate (SAAR) of $975.0 billion. The public construction category led the decrease on both absolute ($4.7 billion) and percentage (-1.7%) terms. 

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Click here for a discussion of November’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.

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

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Sales of new single-family homes in November declined for a second month, by 7,000 units (-1.6%) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 438,000. Data for October was revised down from 458,000 to 445,000 units. This data series has undergone significant revisions in recent months; post-revision sales since May are roughly 22% lower than initial estimates. Sales have been flat since early 2013, with June 2013 marking the fastest rate of 459,000 units. Sales in November were 3.1% below year-earlier levels.

Meanwhile, the median price of new homes sold retreated from October’s peak, down by $9,200 (-3.2%) to $280,900. The average price of homes sold fell by an even greater $53,400 (-14.2%). Although single-family starts dropped faster than sales in November, the three-month average ratio of starts to sales jumped to 1.54. 

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As mentioned in our post on November’s housing permits, starts and completions, single-unit completions declined by 18,000 units (-2.9%). Nonetheless, new-home inventory expanded in absolute (+3,000 units) terms while months of inventory were stable. 

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Existing home sales tumbled in November (-320,000 units or 6.1%) to 4.93 million units (SAAR). With sales of new homes falling more slowly than existing homes, the share of total sales comprised of new homes rose to 8.2%. The median price of previously owned homes sold in November slipped (-$2,200 or 1.1%) to $205,300. Inventory of existing homes declined in absolute (-150,000 units) terms, but months of inventory was unchanged at 5.1 months. 

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Housing affordability degraded in October despite the median price of existing homes for sale falling by $900 (-0.4%) to $208,700. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P/Case-Shiller Home Price indices posted a not-seasonally adjusted monthly change of -0.2% in October (+4.6% relative to a year earlier, the smallest annual gain since October 2012).

“After a long period when home prices rose, but at a slower pace with each passing month, we are seeing hints that prices could end 2014 on a strong note and accelerate into 2015,” said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Two months ago, all 20 cities were experiencing weakening annual price increases. Last month, 18 experienced weakness. This time, 12 cities had weaker annual price growth, but eight saw the pace of price gains pick up. Seasonally adjusted, all 20 cities had higher prices than a month ago.

“Most national economic statistics, other than those connected to housing, posted positive reports in November and early December. Third quarter GDP was revised to 5% real growth at annual rates, and unemployment was at 5.8% as payrolls added over 300,000 jobs in November.” However, Blitzer added, “Housing was somber: housing starts pulled back 1.6%, existing home sales were at 4.93 million, down 6.1%, and new home sales were 438,000, down 1.6%, all in November.” 

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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.

3Q2014 Gross Domestic Product: Third (Final) Estimate

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According to the Bureau of Economic Analysis’ (BEA) “final” estimate, 3Q2014 growth in real U.S. gross domestic product (GDP) was upwardly revised to an astounding seasonally adjusted and annualized rate of 5.0% -- roughly 1.04 percentage point above the second (“preliminary”) 3Q estimate and 0.4 percentage point higher than 2Q’s 4.6%. Analysts had expected a more modest revision to 4.3% (ranging from +4.0 to 4.5%). All four categories -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed to 3Q growth. Consumer Metrics Institute provided in-depth analysis of the components of change in this report:  

* Consumers’ goods-and-services contribution to the headline number was 2.21%, +0.46% from 2Q. Consumer expenditures for goods added 1.06% (+0.09% from the previous estimate, but -0.27% from 2Q).

* The contribution made by consumer services spending to the headline surged to 1.15% (+0.61% from the previous report and +0.73% from 2Q’s 0.42%). Approximately two-thirds ($12.1 billion of $18.6 billion) of additional GDP from consumer spending in this revision can be traced back to health insurance premiums. 

* Commercial private fixed investments provided +1.21% of the headline number (-0.24% from 2Q’s 1.45%), and this continued positive growth is nearly all non-residential. The increases shown in this report came almost equally from spending on structures and the recently added intellectual property category.

* Inventories subtracted only -0.03% from the headline number (-1.45% from 2Q).

* Governmental spending added +0.80% to the headline. The growth in Federal spending was probably pulled forward from 4Q as a result of fiscal year-end budgetary maneuvers -- and is therefore also likely to reverse in 4Q2014.

* Exports are now reported to be adding 0.61% to the headline growth rate (-0.04% from the previous estimate and -0.82% from 2Q).

* Imports added +0.16% to the headline number (+0.04% from the previous estimate, and +1.93% from 2Q).

* The annualized growth rate for the "real final sales of domestic product" is now reported to be 4.99% (+0.98% from the previous report). This is the BEA's “bottom line” measurement of the economy, and it is slightly higher than the headline GDP number (+4.96%) because of the mildly shrinking inventories.

For this report the BEA estimated annualized net aggregate inflation at 1.39% (essentially unchanged from the last month’s 1.40%). By comparison, the growth rate of the Bureau of Labor Statistics’ concurrent seasonally adjusted CPI-U index was -0.10% (annualized); meanwhile, the price index reported by the Billion Prices Project (BPP) was -0.18%. Were the BEA’s nominal estimates corrected for inflation using the CPI-U, real 3Q GDP would have grown by 6.52%; if using the BPP inflation rate, growth would have been 6.60%. 

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CMI posed some points worth pondering:

* The puzzle in these numbers lies in the huge discrepancy between the reported face value of the economy's growth (nearly 5% per annum, sustained for at least two quarters) and the continued public proclamations from the Federal Reserve that the economy still requires further stimulus in the form of extraordinarily low interest rates.

* Is increased consumer spending on non-discretionary healthcare (apparently at the expense of household savings, which fell to the lowest rate in a year) good for the overall economy? Said another way, is this growth sustainable if real household disposable income continues to shrink ($373 less in real annualized per capita disposable income relative to 4Q2012)?

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.

November 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) declined 0.3% in November. Over the last 12 months, the all items index increased 1.3% before seasonal adjustment.

The gasoline index posted its sharpest decline since December 2008 and was the main cause of the decrease in the seasonally adjusted all items index. The indices for fuel oil and natural gas also declined, and the energy index fell 3.8%. The food index rose 0.2% with major grocery store food groups mixed.

The index for all items less food and energy increased 0.1% in November. The shelter index rose 0.3%, and the indexes for medical care, airline fares, and alcoholic beverages also rose. In contrast, the indexes for apparel, used cars and trucks, recreation, household furnishings and operations, personal care, and new vehicles all declined in November.

The all items index increased 1.3% over the last 12 months, a notable decline from the 1.7% figure from the 12 months ending October. The index for all items less food and energy has increased 1.7% over the last 12 months, compared to 1.8% for the 12 months ending October. The food index has risen 3.2% over the span. However, the energy index has declined 4.8% over the past 12 months, with the gasoline and fuel oil indexes both falling over 10%.

The seasonally adjusted Producer Price Index for final demand (PPI) fell 0.2% in November. This decrease followed a 0.2% rise in October and a 0.1% decline in September. On an unadjusted basis, the index for final demand advanced 1.4% for the 12 months ended in November, the smallest 12-month increase since a 1.2% rise in February 2014.

In November, the 0.2% decline in final demand prices can be traced to the index for final demand goods, which decreased 0.7%. In contrast, prices for final demand services advanced 0.1%.

Final demand goods:  The index for final demand goods fell 0.7% in November, the fifth consecutive decrease. The broad-based November decline was led by prices for final demand energy (especially gasoline: -6.3%), which dropped 3.1%. The index for final demand goods less foods and energy edged down 0.1%, and prices for final demand foods fell 0.2%. 

Final demand services:  The index for final demand services inched up 0.1% in November subsequent to a 0.5% rise in October. In November, prices for final demand services less trade, transportation, and warehousing, as well as margins for final demand trade services, rose 0.1%. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, the index for final demand transportation and warehousing services dropped 0.8%. 

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Of the price indices we track, only Pulp, Paper & Allied Products rose in November (relative to October). By contrast, Pulp, Paper & Allied Products and Intermediate Materials were lower compared to a year earlier. 

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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.

November 2014 Residential Permits, Starts and Completions

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Total housing starts retreated in November, to a seasonally adjusted and annualized rate (SAAR) of 1.028 million units. That level was 17,000 fewer (-1.6%) than October’s 1.045 million units (revised up from 1.009 million). All of the decrease in total starts occurred in the single-family component (-39,000 units or 5.4%); multi-family starts rose by 22,000 units (6.7%). 

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The year-over-year percentage change in total starts turned negative in November (-7.5%). Single-family starts were 6.3% below their year-earlier level; the more volatile multi-family component fell to -9.4%. On a year-to-date (YTD) basis, however, all components were above levels seen during the same months in 2013. 

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Completions decreased by 59,000 units (-6.4%) in November, to 863,000 units SAAR. Over two-thirds of the decrease occurred in the multi-family component (-41,000 units or 13.3%); the single-family component shrank by 18,000 units (-2.9%). Total completions were 1.0% above their year-earlier level and 15.1% higher YTD than the same months in 2013. 

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Total permits, which were the bright spot in October, dimmed a bit in November when decreasing by 57,000 units (-5.2%), to 1.035 million SAAR. The vast majority of the decrease occurred in the multi-family component (-49,000 units or 11.0%); single-family permits edged lower (-8,000 units or 1.2%). November total permits were 5.0% below year-earlier levels but 3.0% higher YTD than the same months in 2013.

The latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) shed one point in December (to 57), two points below September’s nine-year high. An index value above 50 means more builders feel the market is good than feel it is poor. “Members in many markets across the country have seen their businesses improve over the course of the year, and we expect builders to remain confident in 2015,” said NAHB Chairman Kevin Kelly. “After a sluggish start to 2014, the HMI has stabilized in the mid-to-high 50s index level trend for the past six months, which is consistent with our assessment that we are in a slow march back to normal,” added NAHB Chief Economist David Crowe. “As we head into 2015, the housing market should continue to recover at a steady, gradual pace.” 

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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.

November 2014 Industrial Production, Capacity Utilization and Capacity

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Industrial production increased 1.3% in November (the biggest month-to-month rise since May 2010, and well above expectations of +0.7%) after edging up in October; output is now reported to have risen at a faster pace over the period from June through October than previously published. In November, manufacturing output increased 1.1%, with widespread gains among industries. The rise in factory output was well above its average monthly pace of 0.3% over the previous five months and was its largest gain since February. In November, the output of utilities jumped 5.1%, as weather that was colder than usual for the month boosted demand for heating. The index for mining decreased 0.1%. At 106.7% of its 2007 average, total industrial production in November was 5.2% above its year-earlier level. Wood Products and Paper output rose by, respectively, 1.3 and 0.1%. 

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Capacity utilization for the industrial sector increased 0.8 percentage point in November to 80.1%, a rate equal to its long-run (1972-2013) average. Wood Products and Paper rose by, respectively, 0.9 and 0.4%. 

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Capacity at the all-industries and manufacturing levels moved higher by, respectively, 0.3 and 0.2%. Wood Products extended its ongoing upward trend (since July 2013) when increasing by 0.4%. Paper, on the other hand, contracted by 0.2% 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.