November 2014 International Trade (Softwood Lumber)

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Softwood lumber exports decreased by 32 MMBF (21.2%) in November while imports fell by 180 MMBF (15.3%). Exports were 37 MMBF (23.8%) below year-earlier levels; imports were 2 MMBF (0.2%) lower. 

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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 November (41.8%). Asia (especially China and Japan) was a distant second (32.1%). Canada was also the largest single-country destination (21.7%). Year to date (YTD), exports to China were -7.5% relative to the same period in 2013 (down from roughly +11% YOY as recently as September). Meanwhile, Canada was the source of nearly all (97.2%) softwood lumber imports into the United States. Overall, YTD exports were down 1.2% compared to the same period in 2013, while imports were up 10.5%. 

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U.S. softwood lumber export activity through West Coast customs districts dropped noticeably in November (to roughly 35% of the U.S. total, from 43% in October); Seattle retained the title of most-active district, with 21.7% of the November total. At the same time, Great Lakes customs districts handled over 71% of the softwood lumber imports (especially Duluth, MN with 27.2%) coming into the United States. 

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Southern yellow pine comprised 31.6% of all softwood lumber exports in November (up from 24.9% in October), followed by Douglas-fir with 14.8%. YTD, southern pine exports were up 28.8% relative to the same months in 2013, while Douglas-fir exports were down 19.1%.

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 International Trade (General)

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The goods and services deficit was $39.0 billion in November (below the consensus expectation of $41.5 billion), down $3.2 billion from $42.2 billion in October. November exports were $196.4 billion, $2.0 billion less than October exports. November imports were $235.4 billion, $5.2 billion less than October imports.

The November decrease in the goods and services deficit reflected a decrease in the goods deficit of $3.3 billion to $58.3 billion and a decrease in the services surplus of $0.1 billion to $19.3 billion.

The decrease in exports was primarily due to aircraft. The decline in imports was widespread, except for consumer goods (which grew). Oil imports were down 35 million barrels from last month, and down 24 million barrels from one year ago. On an inflation-adjusted basis, the ex-oil trade deficit was near recent records.

Year-to-date, the goods and services deficit increased $22.3 billion, or 5.1%, from the same period in 2013. Exports increased $60.0 billion or 2.9%. Imports increased $82.4 billion or 3.3%. 

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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% in October (from the prior month) while prices fell by 1.6%.

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 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments decreased $2.8 billion or 0.6% to $495.7 billion in November. Shipments of durable goods decreased $1.6 billion or 0.6% to $244.5 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.3 billion or 0.5% to $251.2 billion, led by food products. Wood shipments fell by 0.9% while Paper decreased 0.8%. 

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Inventories increased $0.7 billion or 0.1% to $656.3 billion (the highest level since the series was first published on a NAICS basis). The inventories-to-shipments ratio was 1.32, unchanged from October.

Inventories of durable goods increased $1.8 billion or 0.4% to $408.4 billion, led by transportation equipment. Nondurable goods inventories decreased $1.1 billion or 0.4% to $247.9 billion, led by petroleum and coal products. Inventories of Wood expanded by 1.7% while Paper was unchanged. 

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New orders decreased $3.5 billion or 0.7% to $492.7 billion. Excluding transportation, new orders decreased 0.6% -- the sixth drop in the last seven months. Durable goods orders decreased $2.3 billion or 0.9% to $241.6 billion, led by transportation equipment. New orders for nondurable goods decreased $1.3 billion or 0.5% to $251.2 billion.

Prior to July 2014, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012, recouping roughly 75% 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 67% of their December 2007 high. 

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Unfilled durable-goods orders increased $4.5 billion or 0.4% to $1,179.1 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.81, up from 6.75 in October. 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 2014 were back to just 79% of their December 2008 peak. Real unfilled orders jumped to 102% of the prior peak in July 2014, 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.

December 2014 ISM Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that growth of economic activity in the U.S. manufacturing sector slowed markedly in December, missing expectations (consensus was 57.5%) by the most since January. The PMI tumbled from November’s 58.7% to 55.5% in December -- its lowest since June (50% is the breakpoint between contraction and expansion). ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. All sub-indices except employment and slow supplier deliveries (implying suppliers may be having difficulty keeping up with orders) were lower in December.

“Comments from the panel are mixed,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown.” 

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Wood Products contracted in December, as virtually all reported changes in the sub-indices pointed to slower activity. Paper Products’ expansion, by contrast, was tarnished only slightly by falling export orders. 

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment – also slowed in December. The NMI registered 56.2%, 3.1 percentage points below November’s 59.3%. It was the biggest miss to expectations (consensus was 58.0%) since September 2013, and the lowest value since June. The sub-indices were lower “across the board” in December. Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, was upbeat nonetheless. “Comments from respondents are mostly positive about business conditions and the overall economy for year-end.” 

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Two of the three service industries we track (Construction and Ag & Forestry) reported expansion in December, although supporting evidence was fairly thin. Apparently the increase in backlogged orders was not enough to move Real Estate’s overall activity “meter.”

Natural gas was the only relevant commodity up in price. Lumber, cardboard and fuel (both gasoline and diesel) were down in price. No relevant commodities were in short supply.

For once, ISM’s and Markit’s surveys were in agreement. ISM’s PMI and Markit’s U.S. Manufacturing PMI paralleled each other in December (i.e., both showed slower expansion); so, too, did ISM’s NMI and Markit’s U.S. Services PMI.

“[Manufacturers] are citing greater uncertainty about the outlook, especially in export markets,” said Chris Williamson, Markit’s chief economist, “leading to some scaling back of expansion plans and a greater reluctance for customers to place orders compared to earlier in the year, which suggests a slowdown could become more entrenched unless demand revives.” Capping off 4Q2014, Williamson said, “[Markit’s] PMI surveys act as good leading indicators of GDP data, and suggest that the pace of U.S. economic growth will have slowed in the fourth quarter. According to the PMIs, fourth quarter growth is looking more like 2.0% rather than the 5.0% annualized rate of expansion enjoyed in the third quarter.

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.

December 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 sixth month, plummeting by $15.95 to $59.84 per barrel; that is the lowest price since May 2009. The price drop coincided with a strengthening U.S. dollar, the lagged impacts of a 591,000 barrel-per-day (BPD) increase in the amount of oil supplied in October (to 19.0 million BPD), and a pick-up in the accumulation of crude oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $0.46 in December, to $3.19 per barrel. 

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Bad Chinese and Eurozone economic news, coupled with excess oil production, were given as reasons for the continuing price slump. Expansion of global manufacturing has fallen to the slowest pace in more than a year. One analyst estimated that roughly 40% of oil’s recent price drop may be attributable to weakness in the global economy. Because the short-term supply and demand curves for oil are very steep, even small changes in the quantity supplied or demanded can have outsized impacts on price.

Although prices of near-term futures contracts have eroded further in January, because prices for later contracts have bounced off their lows of the previous month we do not expect significant additional fallout in spot oil prices. 

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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.

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.