May 2022 International Trade (Softwood Lumber)

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With May exports of goods and services at $255.9 billion (+1.2% MoM; +21.7% YoY) and imports at $341.4 billion (+0.6% MoM; +23.3% YoY), the net trade deficit was $85.5 billion (-1.3% MoM; +28.4% YoY).

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Softwood lumber exports rose (14 MMBF or +13.4%) in May, along with imports (12 MMBF or +11.4%). Exports were 12 MMBF (+11.4%) above year-earlier levels; imports were 133 MMBF (-8.6%) lower. As a result, the year-over-year (YoY) net export deficit was 145 MMBF (-10.1%) smaller. Also, the average net export deficit for the 12 months ending May 2022 was 7.9% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (58.0% of total softwood lumber exports; of which Mexico: 28.9%; Canada: 29.1%), Asia (13.0%; especially Japan: 4.0%), and the Caribbean: 22.3% especially the Dominican Republic: 5.0%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China (2.0% of U.S. total) were -44.4% relative to the same month of the prior year. Meanwhile, Canada was the source of most (85.0%) softwood lumber imports into the United States. Imports from Canada were 9.8% lower YTD/YTD. Overall, YTD exports were up 5.6% compared to the prior year; imports: -7.2%.

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U.S. softwood lumber export activity through the West Coast customs region represented 35.6% of the U.S. total; Gulf: 31.4%, and Eastern: 22.1%. Seattle (17.6% of the U.S. total), Mobile (16.3%), San Diego (14.0%) and Laredo (9.6%) were among the most active districts. At the same time, Great Lakes customs region handled 57.1% of softwood lumber imports -- most notably the Duluth, MN district (24.6%) -- coming into the United States.

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Southern yellow pine comprised 19.2% of all softwood lumber exports; Douglas-fir (17.2%), treated lumber (17.4%), other pine (9.2%) and finger-jointed (9.6%) were also significant. Southern pine exports were down 10.2% YTD/YTD, while Doug-fir: +27.4%; treated: +16.2%; and finger-jointed: +63.4%.

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.

June 2022 Employment Report

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The Bureau of Labor Statistics‘ (BLS) establishment survey showed nonfarm employers added 372,000 jobs in June, well in excess of the 270,000 expected. However, April and May employment changes were revised down by a combined 74,000 (April: -68,000; May: -6,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was stable at 3.6%, as the change in the number of employed (-315,000) roughly matched the contraction of the civilian labor force (-353,000). Since the number of unemployed also shrank by 38,000 it appears the vast majority of people no longer working left the labor force entirely.

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Observations from the employment reports include:

* The correspondence between the establishment (+372,000 jobs) and household surveys (-315,000 employed) was poor.

* Goods-producing industries added 48,000 jobs; service-providers: +324,000. Notable job gains occurred in professional and business services (+74,000), leisure and hospitality (+67,000), and health care (+56,000). Losses were concentrated in credit intermediation and related activities -- e.g., banks, credit card firms and mortgage originators (-10,700), and the federal government (-13,000). Total nonfarm employment is down by 524,000 (-0.3%) from its pre-pandemic level in February 2020. Private-sector employment has recovered the net job losses due to the pandemic and is 140,000 higher than in February 2020, while government employment is 664,000 lower. Employment is also perhaps 8.1 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing added 29,000 jobs. That result is at odds with the change in the Institute for Supply Management’s (ISM) manufacturing employment subindex, which fell further into contraction in June. Wood products employment retreated by 1,200 (ISM was unchanged); paper and paper products: +1,200 (ISM decreased); construction: +13,000 (ISM increased).

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* The number of employment-age persons not in the labor force jumped (+510,000) to 99.8 million; that level is 4.8 million higher than in February 2020. With the labor force contracting, the employment-population ratio (EPR) edged down to 59.9%; also, the EPR is 1.3PP below the February 2020 level. 

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* Because the civilian labor force shrank by 353,000 in June, the labor force participation rate decreased fractionally to 62.2%. Average hourly earnings of all private employees increased by $0.10 (to $32.08), and the year-over-year increase decelerated to +5.1%. For all production and nonsupervisory employees (shown above), the tale was much the same: hourly wages rose by $0.13, to $27.45 (+6.4% YoY). Since the average workweek for all employees on private nonfarm payrolls held at 34.5 hours, average weekly earnings rose (+$3.45) to $1,106.76 (+4.2% YoY). With the consumer price index running at an annual rate of +8.6% in May, the average worker keeps losing purchasing power. In fact, average hourly wages have lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time jobs slipped (-152,000) to 132.6 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 -- slumped by 707,000, while those working part time for non-economic reasons also fell (-204,000); multiple-job holders rose by 239,000.

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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 June decreased by $4.4 billion, to $242.3 billion (-1.8% MoM; +0.5% 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 June was 9.3% 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.

June 2022 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 $5.28 (+4.8%) to $114.84 per barrel in June. That increase occurred within the context of a marginally stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of April’s decrease of 555,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.0 million BPD), and accumulated oil stocks that have almost edged up to the bottom of the five-year-average range (June average: 417 million barrels). 

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Selected highlights from the 1 July 2022 issue of OilPrice.com’s Oil & Energy Insider include:

“As uncertainty builds around the supply capacity of OPEC+ and oil demand rages on despite expectations of demand destruction, bullish sentiment is building in oil markets,” wrote Tom Kool. “Now, to add to that bullish sentiment, another form of supply disruption is springing up around the world: strikes. Operations at France's Fos Refinery were halted by strikes and Norway's offshore production was heavily impacted by them as well. It seems the oil market is under siege from all sides, from fundamental tightness to underinvestment, disruptions related to the war in Ukraine, and now strikes.”

OPEC+ Summit Fails to Impress. OPEC+ agreed to maintain a 648,000 b/d increase in its production target for August, keeping its commitment unchanged despite increasing evidence that spare capacity within the oil group has thinned to its lowest level in years.

US Supreme Court Limits Federal Emission-Setting Powers. In a blow to US President Biden, the US Supreme Court ruled that the Environmental Protection Agency does not have authority to regulate greenhouse gas emissions from existing coal- and gas-fired power plants.

Iran Nuclear Deal Negotiations Fall Apart. According to US officials, as reported by Reuters, the odds of reviving the Iranian nuclear deal are even lower after the Doha talks held this week than before, describing the negotiations as "treading water."

Fossil Fuels Make Roaring EU Comeback. With Europe's statistics for 2021 published by Eurostat, fossil fuels have once again become the largest source of power generation in the European Union, driven largely by a 4% year-on-year increase in gas utilization despite its soaring price.

Libya Declares Force Majeure at Key Oil Ports. After the calls of Libya's National Oil Company were largely ignored, it declared force majeure at the Es Sider and Ras Lanuf ports due to ongoing protests, curbing potential export capacity to a mere 400,000 b/d, a third of the country's exports in February.

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For other oil-related headlines, see the 5 July 2022 edition of The Energy Bulletin Weekly.

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.

June 2022 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey for June 2022 reflected a smaller proportion of U.S. manufacturers reporting expansion. The PMI registered 53.0%, a decrease of 3.1 percentage points (PP). (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. Supply-chain bottlenecks may be subsiding, as the subindexes for slow deliveries (-8.4PP), new orders (-5.9PP), and order backlogs (-5.5PP) exhibited the largest changes. Input price increases decelerated slightly (-3.7PP) but remained significantly elevated.

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The services sector -- which accounts for 80% of the economy and 90% of employment -- grew more slowly in June (-0.6PP, to 55.3%). Order backlogs (+8.5PP), imports (-6.5PP), and inventories (-3.5PP) saw the largest changes. Service input-price increases also decelerated (-2.0PP).

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

Construction. “[Interest] rate increases have slowed sales but have not helped with supply challenges yet.”

 

IHS Markit‘s survey headline results those of their ISM counterparts.

Manufacturing. PMI falls to near two-year low in June amid contraction in client demand.

Key findings:

* Output broadly flat as firms see fresh drop in new orders
* Inflationary pressures ease
* Future output expectations drop to lowest since October 2020

 

Services. New orders decline for first time since July 2020.

Key findings:

* Renewed contraction in new business
* Slower rise in activity, while business optimism drops
* Further sharp increase in input costs

 

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

Manufacturing. “The PMI survey has fallen in June to a level indicative of the manufacturing sector acting as a drag on GDP, with that drag set to intensify as we move through the summer. Forward-looking indicators such as business expectations, new order inflows, backlogs of work and purchasing of inputs have all deteriorated markedly to suggest an increased risk of an industrial downturn.

“Demand growth is cooling from households amid the cost-of-living crisis, and capital spending by companies is also showing signs of moderating due to tightening financial conditions and the gloomier outlook. However, most marked has been a steep drop in orders for inputs by manufacturers, which hints at an inventory correction.

“Some welcome news is that the drop in demand for inputs has brought some pressure off supply chains and calmed prices for a wide variety of goods, which should help alleviate broader inflationary pressures in coming months.”

 

Services. "June saw signs of a broad-based weakening of the economy with demand now falling in both the manufacturing and service sectors. While the survey data point to a stalling of GDP at the end of the second quarter, a downshifting in the forward-looking new orders index and drop in companies' future output expectations hints at falling economic activity as we head through the summer.

"Demand for goods and services from households is showing signs of moderating substantially due to the rising cost of living. Meanwhile, tighter financial conditions are starting to hit, and it was notable that the service sector slowdown was led by a steep drop in financial services activity.

"Meanwhile there was welcome news in terms of a marked easing in upward price pressures, but it's clear that price growth remains elevated despite coming off recent peaks, all of which points to a bout of stagflation in the near term."

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.

June 2022 Currency Exchange Rates

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In June, the monthly average value of the U.S. dollar (USD) depreciated versus Canada’s “loonie” (-0.4%), was unchanged against the euro, and appreciated relative to the Japanese yen (+4.0%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 0.3% 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.

May 2022 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 May increased $9.9 billion or 1.8% to $544.4 billion. Durable goods shipments increased $3.6 billion or 1.4% to $268.5 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $6.3 billion or 2.3% to $275.9 billion, led by petroleum and coal products. Shipments of wood products fell 0.2%; paper: +0.4%.

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Inventories increased $10.0 billion or 1.3% to $797.9 billion. The inventories-to-shipments ratio was 1.47, unchanged from April. Inventories of durable goods increased $2.8 billion or 0.6% to $482.8 billion, led by machinery. Nondurable goods inventories increased $7.2 billion or 2.3% to $315.1 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.2%; paper: +0.4%.

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New orders increased $8.4 billion or 1.6% to $543.4 billion. Excluding transportation, new orders rose by $7.5 billion or 1.7% (+14.9% YoY). Durable goods orders increased $2.1 billion or 0.8% to $267.5 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- rose by $0.4 billion or 0.6% (+11.0% YoY). New orders for nondurable goods increased $6.3 billion or 2.3% to $275.9 billion.

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Unfilled durable-goods orders increased $3.9 billion or 0.4% to $1,110.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 5.98, down from 6.05 in April. Real (inflation-adjusted) unfilled orders, which -- prior to the pandemic -- had been a good litmus test for potential 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 110% of the prior peak in November 2014, thanks to the largest-ever batch of aircraft orders. However, 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.

May 2022 Construction Spending

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Construction spending during May 2022 was estimated at a seasonally adjusted annual rate of (SAAR) $1,779.8 billion, 0.1% (±0.8%)* below the revised April estimate of $1,782.5 billion (originally $1,744.8 billion); expectations were for a 0.4% increase. The May figure is 9.7% (±1.3%) above the May 2021 estimate of $1,621.9 billion; the not-seasonally adjusted YoY comparison (shown in the table below) is +10.3%.

During the first five months of this year, construction spending amounted to $686.9 billion, 11.0% (±1.0%) above the $619.0 billion for the same period in 2021.

* 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 $1,436.0 billion, virtually unchanged (±0.7%)* from the revised April estimate of $1,435.9 billion (originally $1,394.7 billion):
- Residential. $938.2 billion, +0.2% (±1.3%)* of which
- Home improvement. $354.9 billion, +0.6% (+36.0% YoY);
- Nonresidential. $497.8 billion, -0.4% (±0.7%)*.

Public Construction

Public construction spending was $343.8 billion, 0.8% (±1.6%)* below the revised April estimate of $346.6 billion (originally $350.1 billion):
- Educational: $78.4 billion, -0.4% (±3.0%)*
- Highway: $98.1 billion, -2.3% (±4.6%)*.

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Click here for a discussion of May’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.