September 2021 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) increased 0.4% in September (+0.3% expected) after rising 0.3% in August. The indexes for food and shelter rose in September and together contributed more than half of the monthly all-items seasonally adjusted increase. The index for food rose 0.9%, with the index for food at home increasing 1.2%. The energy index increased 1.3%, with the gasoline index rising 1.2%.

The index for all items less food and energy rose 0.2% in September, after increasing 0.1% in August. Along with the index for shelter, the indexes for new vehicles, household furnishings and operations, and motor vehicle insurance also rose in September. The indexes for airline fares, apparel, and used cars and trucks all declined over the month. 

The all-items index rose 5.4% for the 12 months ending September, compared to a 5.3% rise for the period ending August. The index for all items less food and energy rose 4.0% over the last 12 months, the same increase as the period ending August. The energy index rose 24.8% over the last 12 months, and the food index increased 4.6% over that period.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.5% in September (+0.5% expected). Final demand prices moved up 0.7% in August and 1.0% in July. Nearly 80% of the September increase in the index for final demand can be traced to a 1.3% rise in prices for final demand goods. The index for final demand services moved up 0.2%.

The final demand index rose 8.6% for the 12 months ended in September, the largest advance since 12-month data were first calculated in November 2010. Prices for final demand less foods, energy, and trade services moved up 0.1% in September after increasing 0.3% in August. For the 12 months ended in September, the index for final demand less foods, energy, and trade services rose 5.9%.

Final Demand

Final demand goods: The index for final demand goods moved up 1.3% in September, the largest increase since a 1.5% rise in May. In September, 40% of the broad-based advance can be attributed to a 2.8% jump in prices for final demand energy. The indexes for final demand goods less foods and energy and for final demand foods also moved up, 0.6% and 2.0%, respectively.

Product detail: Leading the advance in the index for final demand goods, prices for gasoline rose 3.9%. The indexes for beef and veal, residential electric power, fresh and dry vegetables, gas fuels, and primary basic organic chemicals also moved higher. In contrast, prices for plastic resins and materials decreased 3.9%. The indexes for corn and for residual fuels also fell.

Final demand services: Prices for final demand services moved up 0.2% in September, the ninth consecutive advance. Leading the increase in September, the index for final demand trade services rose 0.9%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing advanced 0.2%. Conversely, the index for final demand transportation and warehousing services fell 4.0%.

Product detail: Over two-thirds of the September increase in prices for final demand services can be traced to margins for fuels and lubricants retailing, which rose 11.6%. The indexes for machinery and equipment wholesaling, hospital inpatient care, automobiles and automobile parts retailing, portfolio management, and truck transportation of freight also moved up. In contrast, prices for airline passenger services fell 16.9%. The indexes for health, beauty, and optical goods retailing and for bundled wired telecommunications access services also declined.

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

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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.

September 2021 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers added 194,000 jobs in September, well short of the 475,000 expected). On a brighter note, July and August employment changes were revised up by a combined 169,000 (July: +38,000; August: +131,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) tumbled by 0.4 percentage point, to 4.8%, as the number of employed expanded (+526,000) at the same time the civilian labor force shrank (-183,000). 

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Observations from the employment reports include:

* The establishment (+194,000 jobs) and household surveys (+526,000 employed) were not well correlated. 

* Goods-producing industries gained a rather miniscule 52,000 jobs; service-providers: +142,000. Notable job gains occurred in leisure and hospitality (+74,000), professional and business services (+60,000), retail trade (+56,100), and transportation and warehousing (+47,300). Employment in public education declined (-161,000). Commenting on the plunge in local government teachers, the BLS said that "hiring this September was lower than usual, resulting in a decline after seasonal adjustment. Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns. Since February 2020, employment is down by 310,000 in local government education, by 194,000 in state government education, and by 172,000 in private education."

Manufacturing added 26,000 jobs. That result is consistent with the change in the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in September. Wood Products employment rose by 2,300 (ISM was unchanged); Paper and Paper Products: +500 (ISM fell); Construction: +22,000 (ISM rose).

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* The number of employment-age persons not in the labor force jumped (+338,000) to 100.4 million. Consequently, the employment-population ratio (EPR) rose to 58.7%; i.e., nearly six out of 10 in the employment-age population are presently employed. 

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* Because the civilian labor force shrank by 183,000 in September, the labor force participation rate edged down to 61.6%. Average hourly earnings of all private employees increased by $0.19 (to $30.85), and the year-over-year increase jumped to +4.6%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.14, to $26.15 (+5.5% YoY). Since the average workweek for all employees on private nonfarm payrolls lengthened (0.2 hour) to 34.8 hours, average weekly earnings increased by $12.74, to $1,073.58 (+4.3% YoY). With the consumer price index running at an annual rate of +5.3% in August, even those who are employed are -- on average -- not keeping up with the official inflation rate.

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* Full-time jobs jumped (+591,000) to 128.0 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 -- edged down by 1,000, whereas those working part time for non-economic reasons rose by 30,000; multiple-job holders advanced by 4,000.

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For a “sanity test” of the job numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in September rose by $3.1 billion, to $233.0 billion (+1.3% MoM; +25.4% 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 September was 20.0% 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.

September 2021 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose by $3.92 (+5.8%), to $71.65 per barrel in September. That increase occurred within the context of an essentially unchanged U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of July’s decrease of 643,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 19.9 million BPD, and a modest retreat in accumulated oil stocks (September average: 418 million barrels).

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From the 27 September 2021 issue of The Energy Bulletin:

Oil: Prices rose for the fifth straight week with the global energy crunch set to boost demand for crude as stockpiles decline from the US to China. Futures in New York gained 2.8% last week. The global benchmark Brent settled at the highest in nearly three years for the second day in a row on Friday. Global onshore crude supplies sank by almost 21 million barrels last week, led by China, while US inventories are near a three-year low.

Royal Dutch Shell, the largest US Gulf of Mexico oil producer, said damage to offshore transfer facilities from Hurricane Ida would cut production until early next year. Shell was the hardest-hit producer from Ida, which tore through the US Gulf of Mexico last month and removed 27 million barrels from the market. The ongoing disruptions have hampered export activity and raised crude prices worldwide, as Asian buyers searched for substitutes for the popular Gulf Mars grade.

Rising US oil consumption and the loss of Gulf of Mexico production this year have led to crude oil inventories at Cushing, Oklahoma, dropping by as much as 42% so far. In the week ending Sept. 10th, crude oil stocks at Cushing were at 32.9 million barrels. Inventories are now 26% lower than usual, based on the previous five-year (2016-2020) average for that time of year. Storage withdrawals from Cushing are consistent with withdrawals from inventories elsewhere in the world, generally indicating that consumption exceeds production.

OPEC: The cartel+ lifted its production in August, but underinvestment and maintenance work has hampered the group's ability to raise production-and supply could be insufficient to meet the world's growing oil demand, Reuters suggested on Tuesday. Global oil demand has recently risen to near-record levels as global activity picks up steam despite the pandemic. In response, OPEC+ agreed to increase oil production starting in August by another 400,000 b/d each month. But not all producers have responded to the call for more barrels. For example, Angola, Nigeria, and Kazakhstan have been unable to lift their oil production to meet the call for more oil.

Shale Oil: US oil production is set to pick up steam again - this time led by little-known privately-owned companies impervious to the demands of the stock market.

Forecasters project that the nation's crude oil output will increase by about 800,000 barrels a day throughout 2022, accelerating sharply from this year and making the US the fastest-growing supplier outside the OPEC+ cartel.

These privately held producers, often smaller companies, will account for more than half of total US output growth next year compared with about 20% in a typical year, said Raoul LeBlanc, an analyst at IHS Markit. The expected output gains come as US oil prices hover at about $70 a barrel, making most shale wells profitable to drill. But many of the largest producers have promised their shareholders they will cap spending on growth after racking up huge losses during a decade-long drilling binge.

Private companies, by contrast, have led the rise in the number of rigs drilling for oil and gas in the US this year, which has more than doubled from this time last year. "The privates are not on board with this whole capital discipline thing. So, for them, this is their window," LeBlanc said. "They're thinking, 'here's my chance, and I'm going to take advantage of it' because they see it as maybe their last, best chance."

The US Energy Information Administration now expects domestic crude oil production to begin to tick higher this autumn after Hurricane Ida disrupted offshore supplies, eventually reaching about 12.2 million b/d by the end of 2022. As a result, spending on drilling and bringing new wells into production in shale patches onshore will rise from about $65 billion in 2021 to more than $80 billion next year as activity picks up, LeBlanc said.

Prognosis: Brent could reach $90 per barrel if the weather in the northern hemisphere turns out to be colder than usual this winter, Goldman Sachs' Jeff Currie said on Wednesday. This is $10 per barrel more than Goldman's current forecast. The call for higher oil prices would come on top of the already too-high natural gas prices, which have sunk some natural gas power providers in Europe. The natural gas situation in Europe will have a spillover effect on the oil market, with natural gas in short supply and crude oil one of the only viable alternatives as wind and solar power prove insufficient at this time. On Tuesday, commodity trader Vitol said that weather was the key to stopping the panic in the market-with warmer winter weather the only hope for falling prices.

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Selected highlights from the 5 October 2021 issue of OilPrice.com’s Intelligence Report include:

The October OPEC+ Ministerial Meeting brought no surprising announcements as all participating states agreed that sticking to the pre-charted course would be in the collective interest of the group. As a consequence, crude prices rose to their highest in 3 years (with WTI moving in close to a 7-year peak) as the December ICE Brent contract was already trading above $82 per barrel. Whilst there remain downside risks that could throw cold water on the price rally, most notably China's power crunch that could bite into October refining rates, it will take several days if not weeks until the market starts noticing those signs.

Phillips 66 Plans to Rebuild Alliance Refinery. Following weeks of speculation about a potential sale or even closure of the Hurricane Ida-damaged Alliance Refinery in Louisiana, US refiner Phillips 66 has reportedly decided to repair and restart the 255,000 bpd capacity refinery.

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 2021 International Trade (Softwood Lumber)

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Softwood lumber exports rose (21 MMBF or +16.1%) in August, along with imports (51 MMBF or +4.1%). Exports were 61 MMBF (+68.0%) above year-earlier levels; imports were 45 MMBF (-3.3%) lower. As a result, the year-over-year (YoY) net export deficit was 105 MMBF (-8.4%) smaller. Also, the average net export deficit for the 12 months ending August 2021 was 17.0% higher 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 (51.7% of total exports; of which Canada: 21.2%; Mexico: 30.5%), Asia (20.4%; especially China: 6.8%; and Japan: 4.6%), and the Caribbean: 20.3% especially the Dominican Republic: 9.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -41.1% relative to the same months in 2020. Meanwhile, Canada was the source of most (82.8%) of softwood lumber imports into the United States. Imports from Canada were 12.8% higher YTD than the same months in 2020. Overall, YTD exports were up 20.1% compared to 2020; imports: +14.9%.

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U.S. softwood lumber export activity through the West Coast customs region represented 31.1% of the U.S. total; Gulf: 36.8%, and Eastern: 24.9%. Seattle (17.7% of the U.S. total) was the single most-active district, followed by Mobile (17.3%), Savannah (12.7%), Laredo (12.4%) and San Diego (11.1%). At the same time, Great Lakes customs region handled 55.1% of softwood lumber imports -- most notably the Duluth, MN district (21.7%) -- coming into the United States. 

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Southern yellow pine comprised 26.6% of all softwood lumber exports; Douglas-fir (14.7%), treated lumber (10.6%), other pine (12.4%) and finger-jointed (13.7%) were also significant. Southern pine exports were up 3.2% YTD relative to 2020, while Doug-fir: +10.6%; and treated: +17.6%.

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.

September 2021 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed an increase in the proportion of U.S. manufacturers reporting expansion in September. The PMI registered 61.1%, a rise of 1.2 percentage points (PP) from the August 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. The sub-indexes for slow deliveries (+3.9PP), order backlogs (-3.4PP), and exports (-3.2PP) exhibited the largest changes.

“Companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand,” said Timothy Fiore, chair of the Manufacturing Business Survey Committee. “All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems -- continue to limit manufacturing growth potential. However, optimistic panel sentiment remains strong, with three positive growth comments for every cautious comment. Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”

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The services sector -- which accounts for 80% of the economy and 90% of employment -- showed a marginal increase in respondents reporting expansion (+0.2PP, to 61.9%). The most noteworthy changes in the sub-indexes included business activity (+2.2PP) and input prices (+2.1PP).

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

Paper Products. “We are still amazed by the labor market. We used to have 100 applicants for an opening; we are now seeing about 10 -- and often, the applicant does not show for the interview.”

Construction. “Constraints on logistics from a cost and availability standpoint continue to be an issue.”

Real Estate. “Business volumes remain remarkably high, although material shortages persist.”

 

Findings of IHS Markit‘s September survey headline results were mixed relative to their ISM counterparts. Manufacturing: Markit’s headline decelerated while ISM rose; services: Markit and ISM both edged higher.

Manufacturing. PMI drops to five-month low as production hampered by ongoing material and labor shortages

Key findings:

* Output growth slows again as shortages exacerbate capacity issues
* Backlogs of work rise at series record pace
* Output charge inflation accelerates to fastest on record

 

Services. Business activity expands at slowest pace in nine months amid softer demand

Key findings:

* Output growth slows amid softest rise in new business for 13 months
* Backlogs of work increase at series record pace
* Cost pressures intensify

 

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

Manufacturing. “The US manufacturing sector continues to run hot, with demand once again racing well ahead of production capacity as firms report widespread issues with supply chains and the availability of labor.

“The inability to meet demand amid near-record shortages of inputs and labor not only led to an unprecedented rise in backlogs of work as orders sat unfulfilled, but prices charged for those goods leaving the factory gate also surged higher again in September, rising at a rate exceeding anything seen in nearly 15 years of survey history.

“With COVID-19 cases showing signs of having peaked early [in September] both domestically and globally, some of the supply chain and labor shortage issues should start to ease, in turn taking some of the pressure off prices. But a dip in manufacturers’ expectations for the year ahead to the lowest for four months due to supply worries underscores how production is likely to be adversely affected by shortages for some time to come.”

 

Services. “The service sector showed further signs of struggling amid the COVID-19 Delta wave in September. While business activity is growing at a rate in line with the long-run average seen prior to the pandemic, this represents a marked downshifting from the spring and summer months.

“High virus case numbers have not only subdued demand for many services, notably among consumers in the hospitality sector, the pandemic continues to hit the labor market both in terms of staff absences amid the spread of the virus and low labor market participation rates meaning it is difficult to fill vacancies.

“With COVID-19 cases numbers appearing to have peaked early in September, the situation in terms of demand and labor supply should start to improve as we head into the fourth quarter; a sentiment supported by business optimism rising in the service sector to the highest since June and an unprecedented strong build-up of back orders.”

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.

September 2021 Currency Exchange Rates

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In September, the monthly average value of the U.S. dollar (USD) appreciated versus Canada’s “loonie” (+0.6%) and the Japanese yen (+0.3%) but was unchanged against the euro. On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.1% 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.

August 2021 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 August increased $0.3 billion or 0.1% to $508.3 billion. Durable goods shipments decreased $1.2 billion or 0.5% to $256.1 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $1.5 billion or 0.6% to $252.1 billion, led by petroleum and coal products. Shipments of wood products fell by 1.1%; paper: +0.3%.

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Inventories increased $4.1 billion or 0.6% to $749.3 billion. The inventories-to-shipments ratio was 1.47, unchanged from July. Inventories of durable goods increased $3.5 billion or 0.8% to $457.9 billion, led by transportation equipment. Nondurable goods inventories increased $0.7 billion or 0.2% to $291.4 billion, led by plastics and rubber products. Inventories of wood products shrank by 0.1%; paper: +0.4%.

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New orders increased $6.2 billion or 1.2% to $515.7 billion. Excluding transportation, new orders rose by $2.1 billion or 0.5% (+16.3% YoY). Durable goods orders increased $4.7 billion or 1.8% to $263.6 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- increased by $0.5 billion or 0.6% (+16.0% YoY). New orders for nondurable goods increased $1.5 billion or 0.6% to $252.1 billion.

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Unfilled durable-goods orders increased $11.9 billion or 1.0% to $1,239.4 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.86, up from 6.81 in July. 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 103% of their December 2008 peak. Real unfilled orders then jumped to 109% of the prior peak in July 2014, thanks to the largest-ever batch of aircraft orders. Except for the year-long run up during 2019, real unfilled orders have been trending lower since November 2014.

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.