July 2018 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments in July increased less than $0.1 billion or virtually unchanged to $501.7 billion. Durable goods shipments decreased $0.4 billion or 0.2 percent to $251.1 billion led by transportation equipment. Meanwhile, nondurable goods shipments increased $0.5 billion or 0.2 percent to $250.6 billion, led by petroleum and coal products. Shipments of wood products rose by 0.8%; paper: +0.5%. 

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Inventories increased $5.6 billion or 0.8 percent to $675.8 billion. The inventories-to-shipments ratio was 1.35, up from 1.34 in June. Inventories of durable goods increased $5.1 billion or 1.3 percent to $408.6 billion, led by transportation equipment. Nondurable goods inventories increased $0.5 billion or 0.2 percent to $267.3 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.3%; paper: +0.6%. 

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New orders decreased $3.9 billion or 0.8 percent to $497.8 billion. Excluding transportation, new orders rose by 0.2% (+9.8% YoY). Durable goods orders decreased $4.3 billion or 1.7 percent to $247.2 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- accelerated to +1.6% (+10.3% YoY). New orders for nondurable goods increased $0.5 billion or 0.2 percent to $250.6 billion.

As can be seen in the graph above, real (inflation-adjusted) new orders were essentially flat between early 2012 and mid-2014, recouping on average less than 70% of the losses incurred since the beginning of the Great Recession. The recovery in real new orders is back to just under 57% of the ground given up in the Great Recession. 

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Unfilled durable-goods orders increased $0.1 billion or virtually unchanged to $1,164.9 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.73, up from 6.64 in June. 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 then jumped to 102% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Since then, however, real unfilled orders gradually declined and are only now turning higher.

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.

July 2018 International Trade (Softwood Lumber)

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Softwood lumber exports extended their decline (6 MMBF or -4.2%) in July, along with by imports (-33 MMBF or -2.3%). Exports were 5 MMBF (-3.5%) below year-earlier levels; imports were 186 MMBF (+15.8%) higher. As a result, the year-over-year (YoY) net export deficit was 191 MMBF (18.3%) larger. However, the average net export deficit for the 12 months ending July 2018 was 4.4% smaller than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above). 

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North America (of which Canada: 23.0%; Mexico: 17.6%) and Asia (especially China: 15.2%) were the primary destinations for U.S. softwood lumber exports in June; the Caribbean ranked third with a 20.5% share. Year-to-date (YTD) exports to China were +22.6% relative to the same months in 2017. Meanwhile, Canada was the source of most (88.4%) of softwood lumber imports into the United States. Imports from Canada are 3.7% lower YTD than the same months in 2017. Overall, YTD exports were up 10.8% compared to 2017, while imports were down 2.5%.  

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion in July (33.0% of the U.S. total), followed closely by the Eastern region (31.2%) and the Gulf (25.4%) regions. Moreover, Seattle maintained its lead (19.6% of the U.S. total) over Mobile (16.6%) and Savannah (13.0%) as the single most-active district. At the same time, Great Lakes customs region handled 59.8% of softwood lumber imports -- most notably the Duluth, MN district (23.2%) -- coming into the United States. 

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Southern yellow pine comprised 29.9% of all softwood lumber exports in July, Douglas-fir (13.3%) and treated lumber (9.5%). Southern pine exports were up 16.1% YTD relative to 2017, while treated: -3.6%; Doug-fir: -5.1%.

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.

August 2018 Currency Exchange Rates

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In August the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.7%) and yen (-0.5%), but appreciated against the euro (+1.2%). On a trade-weighted index basis, the USD gained 1.0% 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.

July 2018 Construction Spending

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Construction spending during July 2018 was estimated at a seasonally adjusted annual rate (SAAR) of $1,315.4 billion, 0.1% (±1.5%)* above the revised June estimate of $1,314.2 billion (originally $1,317.2 billion); consensus expectations were for +0.4%. The July figure is 5.8% (±1.8%) above the July 2017 SAAR of $1,242.8 billion; the not-seasonally adjusted YoY change (shown in the table below) was +6.5%.

During the first seven months of this year, construction spending amounted to $740.5 billion, 5.2% (±1.2%) above the $703.7 billion for the same period in 2017.

* 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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Private Construction

Spending on private construction was at a SAAR of $1,010.9 billion, 0.1% (±0.7%)* below the revised June estimate of $1,011.9 billion.
- Residential: $560.1 billion, 0.6% (±1.3%)* above June’s $556.7 billion.
- Nonresidential: $450.9 billion, 1.0% (±0.7%) below June’s $455.3 billion.

Public Construction

Public construction spending was $304.5 billion, 0.7% (±3.0%)* above the revised June estimate of $302.3 billion.
- Educational: $71.6 billion, 2.1% (±5.9%)* above June’s $70.1 billion.
- Highway: $94.2 billion, 0.4% (±7.1%)* above June’s $93.8 billion. 

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Click here for a discussion of July’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.

2Q2018 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2018 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) nudged the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +4.23% (roughly in line with consensus expectations), up 0.16 percentage point (PP) from the “advance” estimate (“2Qv1”) and +2.01PP from 1Q2018.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- now show as having contributed to 2Q growth.

Overall, the revisions were quite modest. The growth rate for consumer spending for goods was revised lower by 0.12PP; services: -0.03PP. The contraction of inventories moderated slightly (+0.03PP) to -0.97%, while the growth rate in fixed investment rose by 0.13PP to +1.07%. The growth rate for imports improved +0.13PP (to +0.07%).

Real final sales of domestic product (which exclude inventories) were revised higher (+0.13PP from 2Qv1, to +5.20%), 3.25PP above the 1Q2018 estimate. 

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“Although the revisions in this report can be characterized as statistical noise, a headline number with +4.23% growth is outstanding under any circumstance,” remarked Consumer Metric Institute’s Rick Davis. “The stimulus expected from the Tax Cuts and Jobs Act of 2017 seems to be materializing. And the BEA's own ‘bottom line’ real final sales growth was reported to be +5.20% -- a number that some might consider to be unsustainably high or an early indication of an overheating economy.

“As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be in order.”

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.

July 2018 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2018 were at a seasonally adjusted annual rate (SAAR) of 627,000 units (648,000 expected). This is 1.7% (±14.7%)* below the revised June rate of 638,000 (originally 666,000 units), but 12.8% (±15.7%)* above the July 2017 SAAR of 556,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +10.4%. For longer-term perspectives, not-seasonally adjusted sales were 54.9% below the “housing bubble” peak but 1.4% above the long-term, pre-2000 average.

The median sales price of new houses sold in July was $328,700 (+$18,700 or 6.0% MoM); meanwhile, the average sales price jumped to $394,300 (+$24,800 or 6.7%). Starter homes (defined here as those priced below $200,000) comprised 11.3% of the total sold, down from the year-earlier 12.5%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.9% of those sold in July, little changed from 2.1% a year earlier.

* 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 July, single-unit completions fell by 45,000 units (-5.2%). Because the drop in sales (-11,000 units; 1.7%) was outpaced by that of completions, inventory for sale expanded in both absolute (+6,000 units) and months-of-inventory terms (+0.2 month). 

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Existing home sales fell by 40,000 units (-0.7%) in July, to a SAAR of 5.34 million units (5.425 million expected). Inventory of existing homes for sale shrank in absolute terms (-10,000 units) but months of inventory were unchanged at 4.3 months. Although new-home sales decreased more slowly than existing-home sales, the share of total sales comprised of new homes ticked down to 10.5%. The median price of previously owned homes sold in July retreated to $269,600 (-$4,200 or 1.5% MoM). 

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Housing affordability degraded further as the median price of existing homes for sale in June jumped by $11,500 (+4.3%; +5.2 YoY), to a record-high $279,300. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices posted a not-seasonally adjusted monthly change of +0.8% (+6.2% YoY) -- marking a new all-time high for the index.

“Home prices continue to rise across the U.S.” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “However, even as home prices keep climbing, we are seeing signs that growth is easing in the housing market. Sales of both new and existing homes are roughly flat over the last six months amidst news stories of an increase in the number of homes for sale in some markets. Rising mortgage rates -- 30-year fixed rate mortgages rose from 4% to 4.5% since January -- and the rise in home prices are affecting housing affordability.

“The West still leads the rise in home prices with Las Vegas displacing Seattle as the market with the fastest price increase. Population and employment growth often drive homes prices. Las Vegas is among the fastest growing U.S. cities based on both employment and population, with its unemployment rate dropping below the national average in the last year. The Northeast and Midwest are seeing smaller home price increases. Washington, Chicago and New York City showed the three slowest annual price gains among the 20 cities covered.” 

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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.

July 2018 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in July at a seasonally adjusted annual rate (SAAR) of 1,168,000 units (1.271 million expected). This is 0.9% (±11.5%)* above the revised June estimate of 1,158,000 (originally 1.173 million units), but 1.4% (±11.7%)* below the July 2017 SAAR of 1,185,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -1.7%.

Single-family housing starts in July were at a SAAR of 862,000; this is 0.9% (±9.6%)* above the revised June figure of 854,000 units (+3.0% YoY). Multi-family starts: 306,000 units (+0.7% MoM; -13.1% YoY).

* 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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Completions in July were at a SAAR of 1,188,000 units. This is 1.7% (±10.9%)* below the revised June estimate of 1,209,000 and 0.8% (±11.3%)* below the July 2017 SAAR of 1,197,000 units; the NSA comparison: -1.3% YoY.

Single-family housing completions were at a SAAR of 814,000; this is 5.2% (±7.8%)* below the revised June rate of 859,000 (-4.6% YoY). Multi-family completions: 374,000 units (+6.9% MoM; +5.8% YoY). 

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Total permits in July were at a SAAR of 1,311,000 units (1.304 million expected). This is 1.5% (±1.3%) above the revised June rate of 1,292,000 (originally 1.273 million units) and 4.2% (±1.7%) above the July 2017 SAAR of 1,258,000 units; the NSA comparison: +10.8% YoY.

Single-family authorizations were at a SAAR of 869,000; this is 1.9% (±1.4%) above the revised June figure of 853,000 (+12.1% YoY). Multi-family: 442,000 (+0.7% MoM; +8.0% YoY). 

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Builder confidence in the market for newly-built single-family homes edged down one point to a solid 67 reading in August on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). “The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,” said NAHB Chairman Randy Noel. “However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots.”

“The solid economic expansion and firm job market should spur demand for new single-family homes in the months ahead,” said NAHB Chief Economist Robert Dietz. “Meanwhile, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber. These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges, as indicated by the latest quarterly reading of the NAHB/Wells Fargo Housing Opportunity Index.”

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.