May 2020 Currency Exchange Rates

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In May the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.5%), euro (-0.3%) and yen (-0.5%). On the broad trade-weighted index basis (goods and services), the USD weakened by 0.4% 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.

April 2020 Construction Spending

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Construction spending during April 2020 was estimated at a seasonally adjusted annual rate (SAAR) of $1,346.2 billion, 2.9% (±0.8%) below the revised March estimate of $1,386.6 billion (originally $1,360.5 billion); consensus expectations were for -5.5%. The April figure is 3.0% (±1.5%) above the April 2019 SAAR of $1,307.1 billion; the not-seasonally adjusted YoY change (shown in the table below) was +3.5%.

During the first four months of this year, construction spending amounted to $412.5 billion, 7.1% (±1.2%) above the $385.2 billion for the same period in 2019.

* 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 $1,004.1 billion, 3.0% (±0.7%) below the revised March estimate of $1,035.6 billion (originally $1,012.5 billion):
- Residential: $536.8 billion, -4.5% (±1.3%);
- Nonresidential: $467.3 billion, -1.3% (±0.7%).

Public Construction

Public construction spending amounted to $342.1 billion, 2.5% (±1.5%) below the revised March estimate of $351.0 billion (originally $348.0 billion):
- Educational: $78.6 billion, -2.3% (±1.5%);
- Highway: $106.1 billion, -5.2% (±4.6%). 

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Click here for a discussion of April’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.

1Q2020 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -5.05% (-3.8% expected), down 0.26 percentage point (PP) from the “advance” estimate (“1Qv1”) and -7.17PP from 4Q2019.

As with 1Qv1, two of the four GDP component groupings -- net exports (NetX) and government consumption expenditures (GCE) -- made positive contributions to the headline; however, personal consumption expenditures (PCE) and private domestic investment (PDI) were overwhelmingly negative.

This report contained few material changes. As for details:

·      PCE. Revisions to consumer spending were either somewhat less negative (services and durable goods) or marginally more positive (nondurable goods). The net effect was a +0.57PP revision from the previous 1Q estimate, but -5.93PP from 4Q2019.

·      PDI. Inventories were revised down by 0.90PP from 1Qv1 (-0.45PP from 4Q2019), while fixed investment was revised slightly upward (+0.02PP). Investment in equipment and residential structures weakened further in this report, however.

·      NetX. The QoQ drop in imports (imports subtract from GDP) remained greater than that in exports, leading to a positive contribution to the headline.

·      GCE. Federal defense and state/local spending were each revised fractionally higher.

The BEA's real final sales of domestic product was revised modestly upward (+0.64PP, to -3.62%), which is 6.72PP below the 4Q estimate. 

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Consumer Metric Institute’s Rick Davis summarized the key points of this report as follows:

-- As expected, this report's headline number is lower than the previous report. But the cause of the downward revision to the headline was inventories, not consumers.

-- Consumer spending was reported to be contracting at a 4.69% annualized rate. But this was actually up 0.57PP from the previous report. All of that reported contraction is in spending for consumer services, and spending on goods is now reported to have continued modest growth.

The BEA's previous report was a ball-park “guesstimate” placeholder under circumstances where their measuring methodologies are woefully inadequate to deal with an economy in drastic transition -- and in a political environment where they wanted to be out in front with the bad news. As a practical matter, they won't even have a good handle on the true state of the economy when initially reporting a much worse second quarter and doing their annual July historical revisions.

If we now understand the value of national and global pandemic response planning exercises, we might also understand the need for more timely reporting from the BEA (e.g., month-by-month series instead of quarterly series, based on something far closer to real-time transaction data). Otherwise you will end up with Congress tossing around multi-trillion dollar relief packages with no quantitative idea about how much of what kind of aid is truly needed.

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 2020 Residential Sales, Inventory and Prices

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Sales of new single-family houses in April 2020 were at a seasonally adjusted annual rate (SAAR) of 623,000 units (495,000 expected). This is 0.6% (±14.9%)* above the revised March rate of 619,000 (originally 627,000), but 6.2% (±17.1%)* below the April 2019 SAAR of 664,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was -7.8%. For longer-term perspectives, NSA sales were 55.1% below the “housing bubble” peak but 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in April fell ($17,000 or -5.2% MoM) to $309,900; meanwhile, the average sales price decreased to $364,500 ($12,900 or -3.4%). Starter homes (defined here as those priced below $200,000) comprised 11.9% of the total sold, up from the year-earlier 7.8%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.7% of those sold in April, up from 1.6% 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 April, single-unit completions decreased by 45,000 units (-4.9%). Since sales ticked higher (by 4,000 units; +0.6%), inventory for sale contracted in both absolute (-6,000 units) and months-of-inventory (-0.1 month) terms. 

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Existing home sales retreated in April (940,000 units or -17.8%), to a SAAR of 4.33 million units (4.325 million expected). Inventory of existing homes for sale contracted in absolute terms (-20,000 units) but expanded in months-of-inventory terms (+0.7 month). Because new-home sales edged higher while resales fell, the share of total sales comprised of new homes jumped to 12.6%. The median price of previously owned homes sold in April increased to $286,800 ($6,100 or +2.2% MoM). 

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Housing affordability deteriorated (+7.5 percentage points) as the median price of existing homes for sale in March rose by $9,700 (+3.6; +8.0 YoY), to $282,500. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.4% (+4.4% YoY).

"March’s data witnessed the first impact of the COVID-19 pandemic on the S&P CoreLogic Case-Shiller Indices,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “We have data from only 19 cities this month, since transactions records for Wayne County, Michigan (in the Detroit metropolitan area) were unavailable.

“That said, housing prices continue to be remarkably stable. The National Composite Index rose by 4.4% in March 2020, with comparable growth in the 10- and 20-City Composites (up 3.4% and 3.9%, respectively). In all three cases, March’s year-over-year gains were ahead of February’s, continuing a trend of gently accelerating home prices that began last autumn. March results were broad-based. Prices rose in each of the 19 cities for which we have reported data, and price increases accelerated in 17 cities.

“At a regional level, Phoenix retains the top spot for the tenth consecutive month, with a gain of 8.2% for March. Home prices in Seattle rose by 6.9%, followed by increases in Charlotte (5.8%) and Tampa (5.7%). Prices were particularly strong in the West and Southeast, and comparatively weak in the Midwest and Northeast.

“Importantly, today’s report covers real estate transactions closed during the month of March. Housing prices have not yet registered any adverse effects from the governmental suppression of economic activity in response to the COVID-19 pandemic. As much of the U.S. economy remained shuttered in April, next month’s data may show a more noticeable impact.” 

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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.

April 2020 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in April at a seasonally adjusted annual rate (SAAR) of 891,000 units (968,000 expected). This is 30.2% (±11.0%) below the revised March estimate of 1,276,000 (originally 1.216 million units) and 29.7% (±8.1%) below the April 2019 SAAR of 1,267,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -30.4%.

Single-family housing starts in April were at a rate of 650,000; this is 25.4% (±9.6%) below the revised March figure of 871,000 units (-26.0% YoY). Multi-family starts: 241,000 units (-40.5% MoM; -40.9% 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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Total completions were at a SAAR of 1,176,000 units. This is 8.1% (±13.5%)* below the revised March estimate of 1,279,000 (originally 1.307 million units) and 11.8% (±9.9%) below the April 2019 SAAR of 1,334,000 units; the NSA comparison: -11.3% YoY.

Single-family housing completions were at a SAAR of 865,000; this is 4.9% (±16.7%)* below the revised March rate of 910,000 units (-6.5% YoY). Multi-family completions: 311,000 units (-15.7% MoM; -22.6% YoY). 

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Total permits amounted to a SAAR of 1,074,000 units (1.033 million expected). This is 20.8% (±0.9%) below the revised March rate of 1,356,000 (originally 1.353 million units) and 19.2% (±0.9%) below the April 2019 SAAR of 1,330,000 units; the NSA comparison: -20.0% YoY.

Single-family permits were at a SAAR of 669,000; this is 24.3% (±1.6%) below the revised March figure of 884,000 units (-16.6% YoY). Multi-family: 405,000 (-14.2% MoM; -26.0% YoY). 

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“In a signal that the housing market is showing signs of stabilizing and gradually moving forward in the wake of the COVID-19 pandemic, builder confidence in the market for newly-built single-family homes increased seven points to 37 in May, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI),” wrote NAHB’s Robert Dietz. “The rise in builder sentiment follows the largest single monthly decline in the history of the index in April.”

“The designation of home construction as an essential business during the crisis helped keep most residential construction workers on the job, which is reflected in the May HMI. At the same time, builders are showing flexibility in this new business environment by making sure buyers have the knowledge and access to the homes they are seeking through innovative measures such as social media, virtual tours and online closings. Jurisdictions are also adapting to the new environment with third-party and virtual inspection rules.

“Low interest rates are helping to sustain demand. As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen. Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks. However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors,” Dietz concluded.

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 2020 International Trade (Softwood Lumber)

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Softwood lumber exports retreated (6 MMBF or -5.6%) in March; imports rose (290 MMBF or +27.0%). Exports were 8 MMBF (-7.4%) below year-earlier levels; imports were 103 MMBF (+8.2%) higher. As a result, the year-over-year (YoY) net export deficit was 111 MMBF (+9.6%) larger. However, the average net export deficit for the 12 months ending March 2020 was 0.3% 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 (45.8%; of which Canada: 24.7%; Mexico: 21.2%), Asia (26.8%; especially China: 7.9%; and Japan: 8.0%), and the Caribbean: 19.9% (especially the Dominican Republic: 6.0%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -33.1% relative to the same months in 2019. Meanwhile, Canada was the source of most (88.2%) of softwood lumber imports into the United States. Imports from Canada were 1.9% higher YTD than the same months in 2019. Overall, YTD exports were down 6.4% compared to 2019; imports: +4.8%. 

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (34.6% of the U.S. total), followed by the Eastern (28.9%) and Gulf (26.5%) regions. Seattle (21.8% of the U.S. total) was the single most-active district, followed by Mobile (16.5%). At the same time, Great Lakes customs region handled 60.7% of softwood lumber imports -- most notably the Duluth, MN district (21.6%) -- coming into the United States. 

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Southern yellow pine comprised 30.3% of all softwood lumber exports, Douglas-fir (15.9%) and treated lumber (12.0%) were also significant. Southern pine exports were up 10.6% YTD relative to 2019, while treated: +1.7%; Doug-fir: -8.6%.

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.

April 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) fell 11.2% in April (-11.5% expected) for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month. Manufacturing output dropped 13.7%, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70%; production elsewhere in manufacturing dropped 10.3%. The indexes for utilities and mining decreased 0.9% and 6.1%, respectively. At 92.6% of its 2012 average, the level of total industrial production was 15.0% lower in April than it was a year earlier. 

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Industry Groups

Manufacturing output dropped 13.7% in April (NAICS manufacturing: -13.8% MoM; -18.0% YoY). At 85.5% of its 2012 average, manufacturing production was at its lowest level since August 1997. The index for durable manufacturing fell 19.3%; among its components, the largest decline was posted by motor vehicles and parts. The shutdowns of most motor vehicle assembly plants led to light vehicle production at an annual rate of only 70,000 units, far below the assembly rate of 11.0 million units in February 2020. Among other durable goods industries, decreases of around 20% were recorded by primary metal products, by aerospace and miscellaneous transportation equipment, and by furniture and related products (wood products: --9.0%). The index for nondurables fell 8.2%, with declines of around 20% for textile and product mills, for apparel and leather, for printing and support, and for petroleum and coal products (paper products: -2.6%). The output of other manufacturing (publishing and logging) fell 10.4%.

The output of utilities weakened 0.9% in April, as a decrease for electric utilities was mostly offset by a gain for natural gas utilities that reflected strong demand for heating due to cold temperatures. Mining output fell 6.1%, with the largest decreases in crude oil extraction, in oil and gas well drilling, in coal mining, and in non-energy mining. The index for oil and gas well drilling fell 28%, its largest drop on record (since 1972). 

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Capacity utilization (CU) for the industrial sector decreased 8.3 percentage points (PP) to 64.9% in April, a rate that is 14.9PP below its long-run (1972–2019) average and 1.8PP below its all-time (since 1967) low set in 2009.

Manufacturing CU in April was 61.1%, 9.7PP lower than in March and 2.6PP below its recession trough of June 2009, the previous historical (since 1948) low for the measure (NAICS manufacturing: -13.8%, at 61.4%). The operating rate for durable manufacturing also dropped below its 2009 low to 55.3% and was held down by decreases in every major industry group (wood products: -9.2%). Likewise, capacity utilization for nondurables set a new low, falling 6.1PP to 68.0% (paper products: -2.6%). 

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Capacity at the all-industries level edged up 0.1% (+1.8 % YoY) to 142.7% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.3% YoY) to 140.7%. Wood products: +0.2% (+3.6% YoY) to 170.7%; paper products: 0.0% (-0.2 % YoY) to 109.6%.

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.