December 2015 International Trade (General)

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The goods and services deficit was $43.4 billion in December, up $1.1 billion from $42.2 billion in November. December exports were $181.5 billion, $0.5 billion less than November exports. December imports were $224.9 billion, up $0.6 billion from November.

The December increase in the goods and services deficit reflected an increase in the goods deficit of $1.3 billion to $62.5 billion and an increase in the services surplus of $0.1 billion to $19.2 billion.

The December figures show surpluses, in billions of dollars, with South and Central America ($2.8), United Kingdom ($0.6), and Brazil ($0.2).  Deficits were recorded, in billions of dollars, with China ($29.7), European Union ($13.3), Germany ($6.4), Japan ($6.3), Mexico ($4.8), South Korea ($2.5), Italy ($2.2), India ($2.0), France ($1.4), Canada ($1.4), Saudi Arabia ($0.5), and OPEC ($0.2).

* The balance with members of OPEC shifted from a surplus of $1.1 billion to a deficit of $0.2 billion in December. Exports decreased $1.2 billion to $5.2 billion and imports increased $0.1 billion to $5.4 billion.

* The deficit with Germany increased $0.8 billion to $6.4 billion in December. Exports decreased less than $0.1 billion to $4.1 billion and imports increased $0.8 billion to $10.5 billion.

For 2015, the goods and services deficit was $531.5 billion, up $23.2 billion (+4.6%) from $508.3 billion in 2014. Exports were $2,230.3 billion in 2015, down $112.9 billion (-4.8%) from 2014. Imports were $2,761.8 billion in 2015, down $89.7 billion (-3.1%) from 2014.

The 2015 increase in the goods and services deficit reflected an increase in the goods deficit of $17.5 billion or 2.4% to $758.9 billion and a decrease in the services surplus of $5.7 billion or 2.4% to $227.4 billion.

As a percentage of U.S. gross domestic product, the goods and services deficit was 3.0% in 2015, up from 2.9% in 2014. 

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On a global scale, data compiled by the Netherlands Bureau for Economic Policy Analysis showed that world trade volume contracted by 0.1% in November (+2.0% year-over-year) while prices fell by 1.3% (-12.8% YoY).

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.

January 2016 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment rose by 151,000 jobs in January -- well below even the lower end of the range of expectations of +170,000 (consensus: +188,000). In addition, combined November and December employment gains were trimmed by 2,000 (November: +28,000; December: -30,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down to 4.9% as the change in the number of people employed (+615,000) more than matched the increase in the civilian labor force (+502,000).

As is customary when reporting on January employment numbers, we caution against taking December 2015 to January 2016 comparisons -- especially in the household survey -- too seriously. The numbers are in considerable flux as a result of seasonal (i.e., post-holiday) employment patterns and adjustments to underlying population estimates. 

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Observations from the employment reports include:

* Revisions to historical establishment data resulted in 105,000 fewer jobs having been created by the end of 2015 than previously estimated.

* Manufacturing added 29,000 jobs in January, and 45,000 during the 12 months ending in January. We find those results somewhat at odds with the behavior of the Institute for Supply Management’s manufacturing employment sub-index, which declined in nine of those 12 months and has been either at the breakeven level or in outright contraction during three of the months since September 2015. Wood Products lost 1,500 jobs in December; Paper and Paper Products declined by 500.

* Mining and logging shed 7,000 jobs, with 5,500 coming from support activities for mining and another 800 from oil and gas extraction. Construction added 18,000 jobs.

* Nearly 74% (116,700) of January’s private-sector job growth occurred in the sectors typically associated with the lowest-paid jobs -- Retail Trade: +57,700; Professional & Business Services: +9,000 (although temp-help lost 25,200 jobs); Education & Health Services: +6,000; and Leisure & Hospitality: +44,000. This is a persistent issue, as we have repeatedly highlighted: There are 1.390 million fewer manufacturing jobs today than at the start of the Great Recession in December 2007, but 1.595 million more Food Services & Drinking Places (i.e., wait staff and bartender) jobs. If 2015 trends continue, in three years there will be as many wait staff and bartender jobs as manufacturing jobs in the United States. 

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* The employment-population ratio edged up to 59.6%; roughly speaking, for every five people added to the population, fewer than three are employed. Meanwhile, the number of employment-age persons not in the labor force retreated by 41,000 to nearly 94.1 million. 

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* The labor force participation rate (LFPR) also inched up to 62.7%, comparable to October 1977. Average hourly earnings of all private employees jumped by $0.12 (to $25.39), resulting in a 2.5% year-over-year increase. For all production and nonsupervisory employees (pictured above), however, hourly wages rose by $0.06, to $21.33 (+2.5% YoY). With the CPI running at an official rate of +0.7% YoY, wages are technically rising in real (inflation-adjusted) terms. The average workweek for all employees on private nonfarm payrolls nudged up to 34.6 hours. 

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* Finally, full-time jobs increased by 538,000 while part-time jobs rose by 5,000. Full-time jobs have been trending higher since December 2009, and are now 1.266 million above the pre-recession high (although, for perspective, the non-institutional, working-age civilian population has risen by an estimated 19.2 million during that time period). Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million.

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 2015 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 $6.8 billion or 1.4% to $467.0 billion in December. Shipments of durable goods decreased $5.1 billion or 2.1% to $236.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.7 billion or 0.8% to $230.9 billion, led by petroleum and coal products. Shipments of Wood jumped 3.0% while Paper edged down by 0.1%. 

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Inventories increased $1.0 billion or 0.2% to $642.3 billion. The inventories-to-shipments ratio was 1.38, up from 1.35 in November. Inventories of durable goods increased $1.9 billion or 0.5% to $397.6 billion, led by transportation equipment. Nondurable goods inventories decreased $1.0 billion or 0.4% to $244.7 billion, led by petroleum and coal products. Inventories of both Wood and Paper expanded by 0.1%. 

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New orders decreased $13.5 billion or 2.9% to $456.5 billion. Excluding transportation, new orders decreased 0.8% (and -5.4% YoY -- the 14^th consecutive month of year-over-year contractions). Durable goods orders decreased $11.8 billion or 5.0% to $225.6 billion, led by transportation equipment. New orders for nondurable goods decreased $1.7 billion or 0.8% to $230.9 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- tumbled by 4.3% in December (-7.4% YoY). Business investment contracted on a YoY basis during every month of 2015.

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 on average 70% of the losses incurred since the beginning of the Great Recession. With July 2014’s transportation-led spike gradually receding in the rearview mirror, the recovery in new orders is back to just 50% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders decreased $5.8 billion or 0.5% to $1,187.4 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 7.11, up from 6.94 in November. 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 97% of their December 2008 peak. Real unfilled orders jumped to 122% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Since then, however, real unfilled orders have moved mostly sideways and, in December, fell below the January 2010-to-June 2014 trend line.

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.

January 2016 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil in January dropped to its lowest point since November 2003, retreating by $5.51 (-14.8%), to $31.68 per barrel. The price decline coincided with a stronger U.S. dollar, the lagged impacts of a 162,000 barrel-per-day (BPD) decrease in the amount of oil supplied/demanded in November (to 19.4 million BPD), and another uptick in the accumulation of oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI reversed for the first time since August 2010; Brent was $0.98 per barrel cheaper than WTI. 

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Commentary from ASPO-USA’s Peak Oil Review editor Tom Whipple: 

Last week [i.e., the last week of January] there was a surge in oil prices based on rumors and statements from Iraq's oil minister and a Russian pipeline official that Russia and the Saudis might be considering a meeting to discuss "coordination" of their oil production. The merest hint of a supply cut was enough to send traders into a frenzy. Short positions were covered and prices rose from below $30 a barrel to nearly $36 in London. The story was quickly denied by numerous OPEC officials and even by Russia's deputy prime minister, but oil prices stayed firm closing at $33.62 in New York and $34.74 in London [the rebound can be seen in the graph below].

The bottom line in this frenzy, which took oil prices up nearly 25 percent, is that Iran says flatly it will not cut oil production until its exports increase by 1.5 million BPD; the Saudis say they will not cut unless other exporters including Iran and Russia do; and Moscow says it will not cut unless it is in coordination with OPEC, but hopes for higher prices die hard. This week Venezuela's oil minister will make the rounds, visiting Russia, Qatar, Iran and Saudi Arabia in an effort to set up a meeting in February to "coordinate" oil production. Numerous outside observers have termed the rumors of coordinated production cuts as rubbish and expect further declines in oil prices this winter.

In the meantime, fundamentals continue to worsen. U.S. crude inventories increased by 8.4 million BPD in last week's stocks report; Iraq announced record-high oil production; and OPEC output continues to grow.  According to a Reuters survey, OPEC oil production climbed to its highest level in recent history in January as Iran increased production and sales following the lifting of sanctions, and the Saudis and Iraq increased output.

EIA's Monthly Energy Review is out with new production numbers. U.S. production (crude and condensate) in December is given as 9.19 million BPD down 500,000 BPD from the 9.69 million produced in April. Non-OPEC production was down by 763,000 BPD from 47.2 million BPD in December 2014 to 46.4 million last October. World production (crude and concentrate) which peaked in July at 80.5 million BPD was down by 461,000 BPD to 80.0 million in October.  While non-OPEC production will likely continue to fall for a while due to the massive reduction in capital investment that has and continues to take place, OPEC with increasing Iranian production seems destined to offset the non-OPEC production decline for this year at least.

Last week brought a plethora of bad news concerning falling oil company profits, reduced capital investment, pending bankruptcies, and scrapping of expensive drilling rigs. All this is bound to greatly lower oil production by the end of the decade. 

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Commentary from OilPrice Intelligence Report editor Evan Kelly: 

The prospect of cooperation between OPEC and Russia was always a long shot, and the markets apparently have started to come around to that realization. Crude prices fell sharply at the start of this week as hopes faded for coordinated production cuts.

Russia revealed that it hit another post-Soviet record high in oil production in January, breaking the previous record set in December. Output stood at 10.88 mb/d. Venezuela's oil minister Eulogio Del Pino visited Moscow to discuss the possibility of coordinating with OPEC but nothing new came from the meeting. Venezuela is desperate for oil prices to stabilize, but Russian officials merely issued the same suggestions that they did last week, which was that they were open to discuss the possibility. Investors should not expect much to come from this unless more concrete pledges are issued by all parties involved.

The latest manufacturing data from China also poured cold water on oil prices at the start of the week. China's manufacturing purchasing managers index dropped to 49.4 in January, down from 49.7 in December. A reading below 50 indicates a contraction. January was the sixth consecutive month of a contraction, and manufacturing activity in China is now at its lowest level since August 2012.

BP and ExxonMobil reported earnings on Tuesday. BP posted the worst loss in recent memory, down $6.5 billion for the full-year of 2015. Earnings were down by 91 percent in the fourth quarter, which was also the sixth consecutive quarter in which earnings were lower than the previous. BP's market cap is now below $100 billion for the first time since the Deepwater Horizon disaster in 2010.

ExxonMobil fared better, with earnings of $16.1 billion for the full-year, although those figures were 50 percent lower than for 2014. The oil majors continue to show determination in sticking to their dividend policies, although it is unclear how long that can keep up. Net debt continues to rise in order to fund the generous dividends.

Decommissioning oil rigs in the North Sea could accelerate this year because of low oil prices, according to Wood Mackenzie. The North Sea has high production costs and many producing fields are in the waning years of their operating lifespans. Companies are trying to squeeze out the remaining reserves, but low prices could force up to 50 oil and gas fields to permanently shut in production this year. After that, the platforms and rigs that have been in place for decades would be decommissioned. The smaller and more expensive fields are where the industry will start first, but Wood Mac expects 140 fields in UK waters to be shuttered over the next five years. Decommissioning brings its own set of costs, and some companies might rather continue to pump than take on the costs of dismantling infrastructure. Nevertheless, decommissioning in the North Sea will pick up and will become its own growth industry in the years ahead.

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.

January 2016 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that the contraction in U.S. manufacturing slowed marginally in January. The PMI registered 48.2%, an increase of 0.2 percentage point from the December reading of 48.0%. (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. Changes to key internal sub-indexes included small expansions in new orders and imports, a further decline in employment, and a drop in exports. 

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Wood Products expanded on new and export orders, although one commenter mentioned that the “market is sluggish to start the year.” Paper Products contracted on broad-based erosion.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- tumbled in January. The NMI registered 53.9%, 5.6 percentage points lower than the December reading of 59.5%, and the weakest level since February 2014. With the exception of supplier deliveries and order backlogs, all sub-index values were lower in January than in December. 

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Real Estate and Construction reported increased activity, whereas Ag & Forestry declined.

Relevant commodities higher in price included some lumber products; oil, diesel fuel and gasoline were cheaper. No relevant commodity was in short supply.

ISM’s and Markit’s surveys paralleled each other again in January: ISM’s PMI contracted more slowly while Markit’s Manufacturing PMI exhibited slightly faster expansion. The pace of growth decelerated in both ISM’s NMI and Markit’s Services PMI.

Comments from Markit Chief Economist Chris Williamson are presented below:

Manufacturing -- “Despite picking up slightly, the January PMI reading is one of the worst seen over the past two years, highlighting the ongoing plight of the manufacturing sector.

“One bright light appeared, in that order book growth picked up, led by an upturn in domestic demand. However, hiring remained in the doldrums, suggesting that firms remain cautious in relation to the business outlook and reluctant to expand capacity.

“The manufacturing sector continues to struggle against the headwinds of weak global demand, the strong dollar, slumping investment in the energy sector and rising financial market uncertainty, all of which mean the goods-producing sector looks set to act as a drag on the wider economy again in the first quarter of 2016.”

Services -- “The PMI surveys show the service sector losing momentum alongside a stalling of growth in the manufacturing sector, pushing the overall rate of economic expansion down to the weakest for a year.

“The US upturn has lost substantial momentum over the past two months, the trend in business activity sliding to the worst for over three years.

“Slower service sector activity, combined with subdued manufacturing growth, means January’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown.

“Deteriorating financial market conditions, global growth uncertainties and the upcoming election are all taking their toll, not to mention the strong dollar, which is not only hurting manufacturing but is also hitting the service sector through reduced tourism and travel.

“Payroll growth remained robust, but backlogs of uncompleted work have been falling in recent months, which usually means that such strong hiring is unlikely to persist unless demand picks up again in coming months.

“While the first quarter may see a rebound in GDP due to technical factors such as an inventory adjustment and weather-related variations, the survey data paint a darker underlying picture of business conditions.”

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.

January 2016 Currency Exchange Rates

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In January the monthly average value of the U.S. dollar was mixed against the three major currencies we track. The greenback gained 3.6% against Canada’s “loonie” and 0.3% against the euro, but depreciated 2.8% against the yen. On a trade-weighted index basis, the dollar strengthened by 2.3% 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.

December 2015 Construction Spending

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Construction spending during December 2015 was estimated at a seasonally adjusted annual rate (SAAR) of $1,116.6 billion, 0.1 percent (±1.2%)* above the revised November estimate of $1,116.0 billion. The December SAAR is 8.2 percent (±1.8%) above the December 2014 SAAR of $1,031.6 billion. The YoY percentage change in the not-seasonally adjusted estimates (shown in the above table) was +8.0%

The value of construction in 2015 was $1,097.3 billion, 10.5 percent (±1.2%) above the $993.4 billion spent in 2014.

PRIVATE CONSTRUCTION

Spending on private construction was at a SAAR of $824.0 billion, 0.6 percent (±0.8%)* below the revised November estimate of $828.8 billion. Residential construction: $429.6 billion, 0.9 percent (±1.3%)* above the revised November estimate of $425.8 billion. Nonresidential construction: $394.4 billion, 2.1 percent (±0.8%) below the revised November estimate of $403.0 billion.

The value of private construction in 2015 was $806.1 billion, 12.3 percent (±1.5%) above the $717.7 billion spent in 2014. Residential: $416.8 billion, 12.6 percent (±2.1%) above the 2014 figure of $370.0 billion; nonresidential: $389.3 billion, 12.0 percent (±1.5%) above the $347.7 billion in 2014.

PUBLIC CONSTRUCTION

In December, the estimated SAAR of public construction spending was $292.5 billion, 1.9 percent (±2.0%)* above the revised November estimate of $287.1 billion. Educational construction: $69.4 billion, -0.5 percent (±3.9%)*. Highways: $95.4 billion, +9.4 percent (±4.4%).

The value of public construction in 2015 was $291.2 billion, 5.6 percent (±1.6%) above the $275.7 billion spent in 2014. Educational construction: $67.3 billion, +6.8 percent (±3.5%); highways: $89.6 billion, +6.7 percent (±3.9%).

* 90% confidence interval includes zero. The U.S. Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero. 

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Click here for a discussion of December’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.