February 2020 Consumer and Producer Price Indices (incl. Forest Products)

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Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in February (+0.1% expected). Increases in the indexes for shelter and for food were the main causes of the increase in the seasonally adjusted all items index, more than offsetting a decline in the energy index. The food index increased 0.4% over the month, with the food at home index rising 0.5%, its largest monthly increase since May 2014. The index for energy fell 2.0% in February, with all of its major component indexes declining.  

The index for all items less food and energy rose 0.2% in February, the same increase as in January. Along with the index for shelter, the indexes for apparel, personal care, used cars and trucks, education, and medical care were among those that increased in February. The indexes for recreation and airline fares declined over the month.  

The all items index increased 2.3% for the 12 months ending February, a smaller increase than the 2.5% figure for the period ending January. The index for all items less food and energy rose 2.4% over the last 12 months. The food index rose 1.8% over the last 12 months, while the energy index increased 2.8% over that period.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) fell 0.6% in February (+0.2% expected). Final demand prices advanced 0.5% in January and 0.2% in December. In February, 60% of the decline in the final demand index can be traced to a 0.9% decrease in prices for final demand goods. The index for final demand services moved down 0.3%.

On an unadjusted basis, the final demand index increased 1.3% for the 12 months ended in February. Prices for final demand less foods, energy, and trade services inched down 0.1% in February, the first decline since falling 0.1% in June 2019. For the 12 months ended in February, the index for final demand less foods, energy, and trade services rose 1.4%.

Final Demand

Final demand goods: The index for final demand goods fell 0.9% in February, the largest decline since moving down 1.1% in September 2015. Over 60% of the broad-based February decrease can be traced to prices for final demand energy, which dropped 3.6%. The indexes for final demand foods and for final demand goods less foods and energy declined 1.6% and 0.1%, respectively.

Product detail: Nearly one-third of the February decrease in the index for final demand goods is attributable to gasoline prices, which dropped 6.5%. The indexes for fresh and dry vegetables, diesel fuel, jet fuel, meats, and light motor trucks also moved lower. In contrast, prices for chicken eggs rose 27.8%. The indexes for pharmaceutical preparations and electric power also increased. (See table 4.)

Final demand services: The index for final demand services fell 0.3% in February, the largest decline since moving down 0.3% in September 2019. In February, over 70% of the broad-based decrease can be traced to margins for final demand trade services, which dropped 0.7%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services declined 0.1% and 0.6%, respectively.

Product detail: Leading the February decrease in prices for final demand services, margins for apparel, jewelry, footwear, and accessories retailing dropped 11.7%. The indexes for guestroom rental; loan services (partial); food and alcohol wholesaling; health, beauty, and optical goods retailing; and airline passenger services also moved lower. Conversely, margins for machinery, equipment, parts, and supplies wholesaling increased 1.3%. The indexes for outpatient care (partial) and wireless telecommunication services also advanced. 

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The not-seasonally adjusted price indexes we track were mixed on both MoM and YoY bases. 

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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.

February 2020 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil dropped by $7.14 (-12.4%), to $50.54 per barrel in February. The decrease occurred within the context of a modestly stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 300,000 barrel-per-day (BPD) decline in the amount of petroleum products supplied during December (to 20.3 million BPD), and a sideways move in accumulated oil stocks (February average: 444 million barrels). 

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From the 2 March 2020 issue of Peak Oil Review:

“As the coronavirus epidemic spreads to some 60 countries, the outlook for the oil industry and, indeed, the global economy is undergoing a sea change.  Oil prices and equities are dropping rapidly as transportation and business activity is already being curtailed in many parts of the world.  Brent futures settled at $50.52 Friday, down $7.98 on the week, and down 22.5 percent since January 20, when the commodities markets began reacting to the virus.  Forecasters are lowering their estimates of how much the growth in oil demand will fall this year, and some are suggesting that demand may even contract.  The IEA has the growth in the need for oil down to 825,000 BPD, but this could turn out to be optimistic. 

“As could be expected, demand for oil by the major Chinese companies CNPC and Sinopec dropped by 15 percentage points since January.  The independent Chinese refiners’ utilization rates have declined by 28 percentage points as compared to operations before the Chinese New Year.  Beijing is making a significant effort to increase its exports of oil products as domestic demand is clearly much lower than usual.

“The implications of what we may be facing are so enormous that if the epidemic spreads widely, the regular forces that drive oil prices and the economy may no longer obtain.  Should the demand for oil fall by millions of barrels per day due to lower global economic activity – a no-longer-unthinkable possibility – then OPEC decisions or central bank moves no longer carry much weight.  Beijing is already trying to buy its way out of the problem by showering money on its economy.

“With U.S. oil prices now down to about $45 a barrel, the prospects for much growth in U.S. shale oil production in the immediate future do not seem good.  Events are overtaking recent forecasts that shale oil will grow by 600,000 to 700,000 BPD in 2020.  Even without the virus phenomenon, some observers are saying that shale oil may be peaking this year because the industry is running out of good places to drill. This, combined with the lack of profitability for shale oil, suggests that the shale oil boom may slow markedly in the next year or so.” 

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Selected highlights from the 28 February 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Saudi Arabia seeks larger cut. Saudi Arabia is pushing OPEC to increase its production cut to 1 million BPD. Just a few weeks ago, OPEC’s Joint Technical Committee recommended additional cuts of just 600,000 BPD. Riyadh’s proposal would entail Saudi Arabia taking on the bulk of the new cuts. To date, Russia has been reluctant to sign on, but the sharp drop in prices increases pressure on the group.

China’s emissions fall sharply. Amidst an economic lockdown, China’s CO2 emissions have temporarily fallen by roughly a quarter.

BofA: Oil demand and supply to slow through 2025. A report from Bank of America Merrill Lynch sees oil demand slowing in the years ahead as EVs take hold. But it also sees supply growth slowing as U.S. shale slams on the brakes. The bank sees oil bouncing around between $50 and $70 through 2025.

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.

February 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm payroll employment rising by 273,000 jobs in February (+175,000 expected). Also, combined December and January employment gains were revised up by 85,000 (December: +37,000; January: +48,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down to 3.5% under a combination of a shrinking labor force (-60,000) and an increase in the number of employed persons (+45,000). 

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Observations from the employment reports include:

* The establishment (+273,000 jobs) and household survey results (+45,000 employed), although directionally consistent, were otherwise poorly correlated. Had average (since 2010) February CES (business birth/death model) and seasonal adjustments been used, job gains might have been a more sedate +178,000.

* Goods-producing industries added 61,000 jobs, while service-providing employment jumped by 212,000 (especially health care and social assistance, food services and drinking places, government, professional and technical services, and financial activities). Manufacturing expanded by 15,000 jobs. That result runs counter to the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which contracted at a slower pace in February. Wood Products employment dropped by 200 (ISM unchanged); Paper and Paper Products: -700 (ISM increased); Construction: +42,000 (ISM increased). 

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* The number of employment-age persons not in the labor force (NILF) rose (+186,000) to 95.1 million. As a result, the employment-population ratio (EPR) eased back to 61.1%; roughly, then, for every five people being added to the working-age population, three are employed. 

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* Although the civilian labor force shrank by 60,000 in February, the labor force participation rate was unchanged at 63.4%. Average hourly earnings of all private employees rose by $0.09, to $28.52, resulting in a 3.0% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.08, to $23.96 (+3.3% YoY). Since the average workweek for all employees on private nonfarm payrolls edged up (+0.1 hour) to 34.4 hours, average weekly earnings increased by $5.94, to $981.09 (+4.9% YoY). With the consumer price index running at an annual rate of 2.5% in January, wage earners are gaining purchasing power according to official metrics. 

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* Full-time jobs barely budged (+10,000), to 131.1 million. Workers employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- rose by 136,000. Those working part time for non-economic reasons advanced by 21,000 while multiple-job holders fell by 82,000. 

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For a “sanity test” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in February fell by $9.5 billion, to $222.9 billion (-4.1% MoM; +6.3% YoY). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending February was 6.8% above the year-earlier average.

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 2020 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 January decreased $2.3 billion or 0.5% to $501.8 billion. Durable goods shipments decreased $0.4 billion or 0.2% to $249.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $1.9 billion or 0.8% to $251.9 billion, led by petroleum and coal products. Shipments of wood products rose by 0.9%; paper +0.2%. 

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Inventories decreased $0.5 billion or 0.1% to $703.4 billion. The inventories-to-shipments ratio was 1.40, unchanged from December. Inventories of durable goods decreased less than $0.1 billion or virtually unchanged to $435.3 billion, led by machinery. Nondurable goods inventories decreased $0.5 billion or 0.2% to $268.1 billion, led by chemical products. Inventories of wood products shrank by 0.9%; paper: -0.2%. 

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New orders decreased $2.3 billion or 0.5% to $497.9 billion. Excluding transportation, new orders slipped by 0.1% (+1.4% YoY). Durable goods orders decreased $0.4 billion or 0.2% to $246.0 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by 1.1% (+1.3% YoY). New orders for nondurable goods decreased $1.9 billion or 0.8% to $251.9 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 49% 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 $1,157.0 billion, led by fabricated metal products. The unfilled orders-to-shipments ratio was 6.63, down from 6.65 in December. Real unfilled orders, which had been a good litmus test for sector growth, show a less positive 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 have been trending sideways-to-down.

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.

February 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing barely expanded in February. The PMI registered 50.1%, down 0.8 percentage point (PP) from the January reading. (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. Slumps in imports (-8.7PP) and input prices (-7.4PP), declines in production (-4.0PP) and new orders (-2.2PP), and a surge in slow deliveries (+4.4PP) suggest weakening demand. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+1.8PP, to 57.3%). New orders (+6.9PP), exports (+5.5PP) and employment (+2.5PP) were the main drivers behind the increase. 

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Of the industries we track, only Ag & Forestry contracted. Respondent comments included the following:

Construction -- "[The] coronavirus has increased lead times for the critical items."

Real Estate -- "Construction activity appears to be getting off to a good start for 2020."

Relevant commodities:

Priced higher -- Construction contractors and labor (general and construction).

Priced lower – Gasoline, corrugate and natural gas.

Prices mixed -- Crude oil and diesel.

In short supply -- Construction contractors and subcontractors; and labor (general, construction and temporary).

As has become common in recent months, findings of IHS Markit’s February surveys were mixed relative to their ISM counterparts.

Manufacturing -- Manufacturing output growth weakens amid slower upturn in new orders.

Key findings:

* Operating conditions improve at softest pace for six months
* New order growth slows to nine-month low
* Business confidence strongest since April 2019

Services -- Fastest contraction in business activity since October 2013.

Key findings:

* Marginal fall in output as demand conditions weaken
* Slower rise in employment amid reduced pressure on capacity
* Business confidence strengthens, but remains relatively muted

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "Manufacturing production and order book trends deteriorated markedly in February as producers struggled against the double headwinds of falling export sales and supply chain delays, both in turn often linked to the coronavirus outbreak.

“Any growth in sales was once again largely driven by domestic consumers, though even here the rate of growth was weakened considerably compared to late last year.

“Historical comparisons against official data indicate that the survey is consistent with factory production and orders both falling at annualized rates of around 3%, with manufacturing jobs being lost at a monthly rate of roughly 20,000.

“While trade war fears have eased, helping push firms’ expectations for future growth to the highest since last April, coronavirus-related supply chain issues threaten to constrain production in coming months. At the same time, companies have become increasingly concerned that the COVID-19 outbreak will also hit demand, which is reportedly already cooling amid uncertainly leading up to the presidential election. Recent stock market volatility could also further dampen consumer spending and deter business investment.”

Services -- "The U.S. service sector took a knock from the coronavirus outbreak and growing uncertainty about the economic and political outlooks in February. The fall in the headline index measuring business activity levels was the second largest seen since the global financial crisis over a decade ago, exceeded only by the brief slump in activity during the 2013 government shutdown.

“Combined with a weak manufacturing survey in February, the data are consistent with annualized GDP growth slipping from around 2% at the start of the year to just 0.7% midway through the first quarter.

“Business sectors such as travel and tourism are reporting weakened activity due to the virus outbreak, most notably in terms of foreign visitors and overseas sales. However, other sectors such as financial services and business services are reporting virus-related hits to demand, suggesting a more broad-based weakening of demand across the economy, exacerbating the supply-shock that is constraining manufacturing.

“Companies have meanwhile grown increasingly concerned about client spending and investment being curbed ahead of the presidential election. Political and economic uncertainty, the coronavirus outbreak and financial market turmoil all risk building into a cocktail of risk aversion that has severely heightened downside risks to the economy in coming months. Much will depend of course on the speed with which the virus can be contained and how quickly business can return to normal.”

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

“The outbreak of COVID-19 disrupted global economic activity in February, with output and new business falling [by] the greatest extents since mid-2009. However, a lot of this owes to China where the composite PMI fell 24PP as rates of decline in activity and new orders accelerated to survey records at manufacturers and service providers alike. The rest of the world fell a bit more than two points to near stagnation though we expect further declines as long as the disruptions continue. Business sentiment held up better, staying close to January's nine-month high.”

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.

February 2020 Currency Exchange Rates

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In February the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+1.5%), the euro (+1.7%) and yen (+0.7%). On the broad trade-weighted index basis (goods and services), the USD gained 1.2% 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.

January 2020 Construction Spending

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Construction spending during January 2020 was estimated at a seasonally adjusted annual rate (SAAR) of $1,369.2 billion, 1.8 percent (±0.8 percent) above the revised December estimate of $1,345.5 billion (originally $1,327.7 billion); consensus expectations were for +0.6%. The January figure is 6.8 percent (±1.3 percent) above the January 2019 SAAR of $1,282.5 billion; the not-seasonally adjusted YoY change (shown in the table below) was +6.9%.

* 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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Private Construction

Spending on private construction was at a SAAR of $1,022.7 billion, 1.5 percent (±0.7 percent) above the revised December estimate of $1,007.6 billion (originally $991.2 billion):
- Residential: $554.8 billion, +2.1 percent (±1.3 percent);
- Nonresidential: $468.0 billion, +0.8 percent (±0.7 percent).

Public Construction

Public construction spending was $346.5 billion, 2.6 percent (±1.5 percent) above the revised December estimate of $337.8 billion (originally $336.4 billion):
- Educational: $81.5 billion, +0.7 percent (±1.8 percent)*;
- Highway: $103.9 billion, +5.4 percent (±4.6 percent). 

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Click here for a discussion of January’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.