March 2016 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 $2.2 billion or 0.5% to $464.7 billion in March. Shipments of durable goods decreased $1.1 billion or 0.5% to $236.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.3 billion or 1.5% to $227.8 billion, led by petroleum and coal products. Shipments of both Wood (1.4%) and Paper (0.5%) rose. 

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Inventories increased $1.1 billion or 0.2% to $635.1 billion. The inventories-to-shipments ratio was 1.37, unchanged from February. Inventories of durable goods increased $0.1 billion or virtually unchanged to $394.2 billion, led by fabricated metal products. Nondurable goods inventories increased $1.0 billion or 0.4% to $240.8 billion, led by petroleum and coal products. Inventories of both Wood (-0.8%) and Paper (-0.1%) declined. 

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New orders increased $5.0 billion or 1.1% to $458.4 billion. Excluding transportation, new orders increased 0.8% (but -1.2% YoY -- the 17^th consecutive month of year-over-year contractions). Durable goods orders increased $1.7 billion or 0.8% to $230.6 billion, led by transportation equipment. New orders for nondurable goods increased $3.3 billion or 1.5% to $227.8 billion. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- inched up by 0.1% (but -1.2% YoY). Business investment spending contracted on a YoY basis during every month of 2015, and two of the three months in 2016.

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 51% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders decreased $1.2 billion or 0.1% to $1,182.6 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 7.01, down from 7.02 in February. 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 are penetrating further 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.

April 2016 Currency Exchange Rates

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In April the monthly average value of the U.S. dollar once again declined against the three major currencies we track. The greenback depreciated by 3.1% against Canada’s “loonie,” 1.9% against the euro, and 3.0% against the yen. On a trade-weighted index basis, the dollar weakened by 1.6% 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.

March 2016 Construction Spending

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Construction spending during March 2016 was estimated at a seasonally adjusted annual rate (SAAR) of $1,137.5 billion (the highest nominal level since October 2007), 0.3 percent (±1.0%)* above the revised February estimate of $1,133.6 billion; expectations were for a 0.5% increase. The March figure is 8.0 percent (±1.6%) above the March 2015 SAAR of $1,052.9 billion. The not-seasonally adjusted YoY change (shown in the above table), was 8.6%.

During 1Q2016, construction spending amounted to $240.4 billion, 9.1 percent (±1.5%) above the $220.3 billion for the same period in 2015.

PRIVATE CONSTRUCTION

Spending on private construction was at a seasonally adjusted annual rate of $842.3 billion, 1.1 percent (±0.8%) above the revised February estimate of $832.8 billion.
- Residential construction: $435.5 billion, +1.6 percent (±1.3%)
- Nonresidential construction: $406.8 billion, +0.7 percent (±0.8%)*.

PUBLIC CONSTRUCTION

Public construction spending was $295.2 billion, 1.9 percent (±2.0%)* below the revised February estimate of $300.8 billion.
- Educational construction: $69.6 billion, +0.4 percent (±2.8%)*
- Highway construction: $97.3 billion, 0.4 percent (±6.6%)*.

* 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 March’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.

1Q2016 Gross Domestic Product: First (Advance) Estimate

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In its first (“advance”) estimate of 1Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +0.54%, down 0.84 percentage points (considerably more than half) from 4Q2015’s +1.38%. The 1Q rate was below consensus expectations of +0.7%. Moreover, 1Q2016’s year-over-year growth rate was +1.95%, marginally slower than 4Q2016’s +1.98%.

Overall, groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 1Q growth. Private domestic investment (PDI) and net exports (NetX) detracted from it.

The quarter-over-quarter (QoQ) deceleration was a broad-based one, with much lower contributions from both consumer expenditures for goods (0.33% below 4Q) and commercial fixed investment (-0.33%) having the greatest impact. Imports (-0.13%), inventories (-0.11%), consumer services (-0.06%), and exports (-0.06%) continued the QoQ declines in growth rates. Only governmental spending showed an improved contribution to the headline number (+0.20%). 

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Consumer Metrics Institute summarized the GDP report as follows:

Although the headline remained positive, this is not a report that shows a robust economy. Among the troubling aspects of the report --

-- The growth rate for consumer spending took another significant hit, dropping substantially for the third consecutive quarter. In fact, the growth rate for consumer spending on goods was barely positive, at a miserable +0.03%. And non-discretionary spending on health care and housing provided most of the remaining growth in consumer services spending.

-- Private investment contracted for the first time since 1Q2011.

-- Exports went deeper into the red.

Looking at the past three quarters as a group, we can see a slow-motion slide into either stagnation or contraction. It is truly sad when stagnation looks to be the better alternative.

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.

March 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate (SAAR) of 511,000 units, below expectations of 522,000. That level of activity was 1.5% (±15.0%)* below the revised February rate of 519,000 units (originally 512,000), but 5.4% (±16.0%)* below the year-earlier SAAR of 485,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +4.3%.

For a longer perspective, March’s sales were roughly 63% below the “bubble” peak and about 8% below the long-term, pre-2000 average. Although single-family starts decreased more quickly than sales, the three-month average ratio of starts to sales rose to 1.53 -- above the average (1.41) since January 1995.

The median price of new houses sold in March slid by $9,400 (-3.2%), to $288,000; the average price, on the other hand, jumped by $14,100 (+4.1%), to $356,200. Starter homes (those priced below $200,000) made up 18.8% of the total sold in March, marginally higher than March 2015’s record low (going back to 2002) of 17.4%; prior to the Great Recession starter homes comprised as much as a 61% share of total sales. If there is anything positive to be gleaned from the sales data, it is that the proportion of total sales represented by the lowest “rung” (i.e., homes prices below $150,000) was near triple year-earlier levels (6.3% in March 2016 versus 2.2% in March 2015).

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

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As mentioned in our post about housing permits, starts and completions in March, single-unit completions retreated by 2,000 units (-0.3%). Because the absolute decrease in sales exceeded that of completions, new-home inventory expanded in both absolute (+5,000 units) and months-of-inventory (0.2 month) terms. 

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Existing home sales rose in March (+260,000 units or 5.1%) to 5.33 million units (SAAR), exceeding expectations of 5.27 million. Inventory of existing homes expanded in both absolute (+100,000 units) and months-of-inventory (+0.1 month) terms. Because new home sales fell while existing sales rose, the share of total sales comprised of new homes retreated to 8.7%. The median price of previously owned homes sold in March jumped by $10,600 (+5.0%), to $222,700. 

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Housing affordability improved as the median price of existing homes for sale in February dropped by another $2,500 (-1.2%; +4.3% YoY) to $212,300. 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% (+5.3% YoY).

“Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The year-over-year figures for the 10-City and 20-City Composites both slowed and 13 of the 20 cities saw slower year-over-year numbers compared to last month. The slower growth rate is evident in the monthly seasonally adjusted numbers: six cities experienced smaller monthly gains in February compared to January, when no city saw growth. Among the six were Seattle, Portland OR, and San Diego, all of which were very strong last time.

“Mortgage defaults are an important measure of the health of the housing market. Memories of the financial crisis are dominated by rising defaults as much as by falling home prices. Today as well, the mortgage default rate continues to mirror the path of home prices. Currently, the default rate on first mortgages is about three-quarters of one percent, a touch lower than in 2004. Moreover, the figure has drifted down in the last two years. While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.” 

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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.

March 2016 Residential Permits, Starts and Completions

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Builders started 1.089 million residential units (SAAR) in March (1.167 million expected), 8.8 percent (±11.1%)* below the revised February estimate of 1.117 million (originally 1.178 million). Most of the MoM decrease in total starts occurred in the single-family component: -77,000 units, to 764,000 units; that was 9.2 percent (±10.3%)* below the revised February figure of 841,000. Multi-family starts declined by 28,000 units, to 325,000 (-7.9% MoM).

* 90% confidence interval (CI) is not statistically different from zero. The Census Bureau does not publish CIs for the entire multi-unit category. 

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March’s SAAR was 14.2 percent (±11.7%) above the year-earlier SAAR of 954,000; the not-seasonally adjusted YoY change (shown in the table above) was +11.3%. Single-family starts were 19.1% higher YoY, while the multi-family component was 4.1% lower. Equally noteworthy, multi-family starts were unchanged on a year-to-date (YTD) basis compared to the same months in 2015. 

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Completions rose by 36,000 units, or 3.5 percent (±13.3%)* to 1.061 million units; that SAAR is 31.6 percent (±15.2%) above the year-earlier figure. The NSA comparison: +28.6% YoY.

All of the MoM increase in completions occurred in the multi-family component (+38,000 units, or 13.1%), to 327,000 units; that was also +41.4% YoY. Single-family completions inched down by 2,000 units, or 0.3 percent (±11.5%)* to 734,000 units. That SAAR is 23.2 percent (±14.3%) higher than the year-earlier level; the NSA comparison is +24.2% YoY. 

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Total permits in March tumbled by 91,000 units, or -7.7 percent (±1.2%) to 1.086 million (1.200 million expected); but that SAAR was 4.6 percent (±0.9%) above the year-earlier figure. The NSA comparison was +7.9% YoY.

Multi-family permits were responsible for most of the MoM drop; they fell by 82,000 units (-18.6%) to 359,000. Moreover, that was 8.9% below year-earlier levels. Single-family permits also fell, although by a more modest 9,000 units, or 1.2 percent (±1.1%) to 727,000. That SAAR was +13.2 percent (±1.1%) YoY; the NSA comparison was +17.7%. Again, it is worth noting that YTD multi-family permits were 3.1% below the same months a year earlier. 

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Builder confidence in the market for newly-built single-family homes was unchanged at 58 in April on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Builder confidence has held firm at 58 for three consecutive months, showing that the single-family housing sector continues to recover at a slow but consistent pace,” said NAHB Chairman Ed Brady.  “As we enter the spring home buying season, we should see the market move forward.”

“Builders remain cautiously optimistic about construction growth in 2016,” said NAHB Chief Economist Robert Dietz. “Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months 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.

March 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.6% in March for a second month in a row (-0.1% expected). For 1Q2016 as a whole, IP fell at an annual rate of 2.2%. A substantial portion of the overall March decrease resulted from declines in the indexes for mining and utilities, which fell 2.9% and 1.2%, respectively; in addition, manufacturing output fell 0.3%. The sizable decrease in mining production continued the industry's recent downward trajectory; the index has fallen in each of the past seven months, at an average pace of 1.6% per month. At 103.4% of its 2012 average, total IP in March was 2.0% below its year-earlier level.

Industry Groups

Manufacturing output decreased 0.3% in March. The production of durables moved down 0.4% (Wood Products: -1.0%). The largest declines, about 1.5%, were registered both by motor vehicles and parts and by electrical equipment, appliances, and components. Several industries posted increases, with the largest, nearly 1%, for computer and electronic products. After increasing 0.9% in January and decreasing 0.5% in February, the output of nondurable manufacturing edged down in March (Paper: -0.6%), as gains in the production of petroleum and coal products and of chemicals nearly offset declines for most other industries. The output of other manufacturing (publishing and logging) fell almost 1%. For the first quarter, manufacturing output moved up at an annual rate of 0.6%, roughly reversing its small decrease in the fourth quarter of last year.

The drop of almost 3% in mining output was its largest monthly loss since September 2008, when production was curtailed because of hurricanes. The decline reflected substantial cutbacks in coal mining and in oil and gas well drilling and servicing, as well as decreases in oil and natural gas extraction. The index for mining has fallen nearly 13% over the past 12 months. The index for utilities moved down again, primarily because of a drop of 4.6% for natural gas utilities. 

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Capacity utilization (CU) for the industrial sector decreased 0.6% (to 74.8%), a rate that is 5.2 percentage points below its long-run (1972–2015) average.

Manufacturing CU fell 0.3% to 75.1%, a rate that is 3.4 percentage points below its long-run average. The operating rates for durables, nondurables, and other manufacturing (publishing and logging) each decreased. The operating rates for both mining and utilities dropped to 73.7%, the lowest rates over the histories of these series. Wood Products fell 1.3% and Paper -0.5%.Click image for larger version

Capacity utilization (CU) for the industrial sector decreased 0.6% (to 74.8%), a rate that is 5.2 percentage points below its long-run (1972–2015) average.

Manufacturing CU fell 0.3% to 75.1%, a rate that is 3.4 percentage points below its long-run average. The operating rates for durables, nondurables, and other manufacturing (publishing and logging) each decreased. The operating rates for both mining and utilities dropped to 73.7%, the lowest rates over the histories of these series. Wood Products fell 1.3% and Paper -0.5%. 

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Capacity at the all-industries level was unchanged (+1.2% YoY) at 138.1% of 2012 output. Manufacturing edged up +0.1% (+1.0% YoY) to 137.4%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+4.6% YoY) to 164.7%. Paper edged down 0.1% (-0.5% YoY) to 117.3%.

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.