July 2023 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 $2.9 billion or 0.5% to $577.2 billion. Durable goods shipments decreased $0.2 billion or 0.1% to $283.3 billion, led by transportation equipment. Meanwhile, nondurable goods shipments increased $3.1 billion or 1.1% to $293.9 billion, led by petroleum and coal products. Shipments of wood products increased 0.2%; paper: -0.7%.

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Inventories increased $0.6 billion or 0.1% to $852.5 billion. The inventories-to-shipments ratio was 1.48, unchanged from June. Inventories of durable goods decreased $0.3 billion or virtually unchanged to $522.2 billion, led by transportation equipment. Nondurable goods inventories increased $0.9 billion or 0.3% to $330.3 billion, led by petroleum and coal products. Inventories of wood products contracted by 0.3%; paper: -0.8%.

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New orders decreased $12.7 billion or 2.1% to $579.4 billion. Excluding transportation, new orders rose by $3.8 billion or 0.8% (-2.9% YoY). Durable goods orders decreased $15.7 billion or 5.2% to $285.5 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- advanced by $0.04 billion or 0.1% (+0.5% YoY). New orders for nondurable goods increased $3.1 billion or 1.1% to $293.9 billion.

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Unfilled durable-goods orders increased $7.2 billion or 0.5% to $1,332.0 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.80, up from 6.74 in June. 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 104% of their December 2008 peak. Real unfilled orders then jumped to 110% of the prior peak in February 2015, thanks to the largest-ever batch of aircraft orders. Real unfilled orders trended lower through 2020, but have since exhibited a modest upward trend.

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 2023 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 187,000 jobs in August (170,000 expected). June and July 2023 employment changes were revised down by a combined 110,000 (June: -80,000; July: -30,000). Once again, employment gains have now been revised lower for every historical month in 2023; particularly noteworthy, June was originally reported as +209,000 but now stands at +105,000 (versus original expectations of 213,000).

Meanwhile, the unemployment rate (based upon the BLS’s household survey) jumped by 0.3 percentage point (PP) to 3.8%, as the labor force expanded by 736,000 but only 222,000 became employed. 

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Observations from the employment reports include:

* Goods-producing industries added 36,000 jobs; service providers: +151,000. Employment continued to trend up in health care (+70,900), leisure and hospitality (+40,000), social assistance (+26,400), and construction (+22,000). Employment in transportation and warehousing declined (-34,200). Total nonfarm employment (156.3 million) is now 4.0 million jobs above its pre-pandemic level in February 2020 (private sector: +4.3 million; public sector: -213,000). That said, employment is also perhaps 5.4 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing gained 16,000 jobs, led by durable goods (+12,000). That result may be consistent with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which contracted more slowly (rising from 44.4 to 48.5) in August. Wood products manufacturing gained 3,100 jobs (ISM was unchanged); paper manufacturing: -400 (ISM decreased); construction: +22,000 (ISM not yet reported).

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* The number of employment-age persons not in the labor force fell (-525,000) to 99.4 million; that level is 4.2 million higher than in February 2020. Because growth in the number of employed (+222,000) barely outpaced working-age civilian population growth (+211,000), the employment-population ratio (EPR) remained at 60.4%, which is 0.7PP below its February 2020 level. 

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* Because the working-age civilian population grew by 211,000 while the labor force expanded by 736,000, the labor force participation rate rose to 62.8%. Average hourly earnings of all private employees nudged up by $0.08 (to $33.82), and the year-over-year increase decelerated to +4.2%. Despite the average workweek for all employees on private nonfarm payrolls lengthening to 34.4 hours, average weekly earnings rose (+$6.13) to $1,163.41 (+3.9% YoY). With the consumer price index running at an annual rate of +3.2% in July, the average worker appears to have gained a bit of purchasing power. Average hourly wages have generally lagged CPI since April 2021; average weekly wages since June 2021.

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* Full-time workers fell (-85,000) to 134.2 million; there are now 3.4 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has risen by nearly 7.6 million during that period. 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 -- jumped by 221,000, while those working part time for non-economic reasons inched higher (+4,000); multiple-job holders: -85,000. 

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For a “sanity test” of the job numbers, we consult employment withholding/FICA taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in August edged up by $0.25 billion, to $242.8 billion (+0.1% MoM; -4.2% 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 August was up 1.0% from 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.

July 2023 Construction Spending

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Construction spending during July 2023 was estimated at a seasonally adjusted annual rate (SAAR) of $1,972.6 billion, 0.7% (±0.5%) above the revised June estimate of $1,958.9 billion (originally $1,938.4 billion); expectations were for +0.5%. The July figure is 5.5% (±1.2%) above the July 2022 SAAR of $1,869.3 billion; the not-seasonally adjusted YoY comparison (shown in the table below) is +5.2%.

During the first seven months of this year, construction spending amounted to $1,101.5 billion, 3.7% (±1.0%) above the $1,062.1 billion for the same period in 2022.

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Private Construction

Spending on private construction was at a SAAR of $1,548.9 billion, 1.0% (±0.3%) above the revised June estimate of $1,533.7 billion (originally $1,516.9 billion):
- Residential. $879.0 billion, +1.4% (±1.3%) of which
- Home improvement. $355.7 billion, +0.3% (-1.7% YoY);
- Nonresidential. $670.0 billion, +0.5% (±0.3%).

Public Construction

Public construction spending was $423.7 billion, 0.4% (±1.0%)* below the revised June estimate of $425.2 billion (originally $421.4 billion):
- Educational. $89.8 billion, +0.1% (±1.3%)*;
- Highway. $128.1 billion, -0.6% (±2.1%)*.

* 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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Click here for a discussion of July’s new residential permits, starts and completions, and 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.

2Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.07% (+2.4% expected), down 0.35 percentage point (PP) from the “advance” estimate (“2Qv1”) but +0.07PP from 1Q2023.

As with 2Qv1, three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 2Q percent-change headline. Net exports (NetX) detracted from it. The 2Qv2 update “primarily reflected downward revisions to private inventory investment and nonresidential fixed investment that were partly offset by an upward revision to state and local government spending,” the BEA wrote.

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As for details (all relative to 2Qv1):

PCE. Consumer spending was revised up by $1.1 billion (chained-2012 dollars), led by spending on services (+$1.6B) -- positive contributions primarily concentrated among food services and accommodations (+$4.3B), transportation services (+$3.6B), and the imputed value of final consumption expenditures of nonprofit institutions (+$3.6B). That gain was partially offset by a -$0.9B revision to goods spending -- especially motor vehicles and parts (-$3.8B), and gasoline and other energy goods (-$2.6B).

PDI. PDI was revised down by $20.8B, led by a drop (-$11.0B) in nonfarm inventories. Fixed investment was also revised lower (-$8.8B), led by equipment (particularly, information processing equipment: -$8.1B); residential investment was boosted by +$0.8B.

NetX. Upward revisions to imports (+$7.8B) -- which are a subtraction in the calculation of GDP -- more than offset the change in exports (+$1.1B).

GCE. Revisions to state and local gross investment (+$6.7B) dominated this category.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +2.16% (-0.12PP from 2Qv1), a level 1.98PP below the 1Q2023 estimate. 

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“Fewer economists think a recession is imminent than was the case as recently as the spring,” wrote MarketWatch’s Jeffry Bartash. Even so, Bartash inserted a note of caution from PNC Financial Services’ Gus Faucher, who observed, “Weaker growth in real gross domestic income [+0.5%], relative to GDP, may be an indication that tighter monetary policy is weighing on the U.S. economy.”

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 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in July 2023 were at a seasonally adjusted annual rate (SAAR) of 714,000 units (705,000 expected). This is 4.4% (±12.8%)* above the revised June rate of 684,000 (originally 697,000 units) and is 31.5% (±16.3%) above the July 2022 SAAR of 543,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +34.10%. For longer-term perspectives, NSA sales were 48.6% below the “housing bubble” peak but 12.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in July was $436,700 (+4.8%, or $20,000). The average sales price was $513,000 (+1.1%, or $5,700). Homes priced at/above $750,000 comprised 10.2% of sales, down from the year-earlier 13.6%.

* 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 advanced by 13,000 units (+1.3%). Sales also rose (30,000 units, or +4.4%), resulting in inventory for sale expanding in absolute terms (+11,000 units) but shrinking in months-of-inventory (-0.2 month) terms. 

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Existing home sales fell (-2.2% or 90,000 units) in July to a SAAR of 4.07 million units (4.15 million expected). The inventory of existing homes for sale expanded in both absolute (+40,000 units) and months-of-inventory (+0.2 month) terms. Because resales retreated while new-home sales rose, the share of total sales comprised of new homes increased to 14.9%. The median price of previously owned homes sold in July fell to $406,700 (-0.8% or $3,300).

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Housing affordability slid (-5.9 index points) as the median price of existing homes for sale in June rose by $14,500 (+3.6% MoM; -1.2% YoY) to $416,000. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices decelerated to a not-seasonally adjusted monthly change of +0.9% (-0.02% YoY).

“U.S. home prices continued to increase in June 2023," says Craig J. Lazzara, Managing Director at S&P DJI. "Our National Composite rose by 0.9% in June, and it now stands only -0.02% below its all-time peak from exactly one year ago. Our 10- and 20-City Composites likewise each gained 0.9% in June 2023, and stand -0.5% and -1.2%, respectively, below their June 2022 peaks.

“As we've noted previously, the recovery in home prices is broadly based. Prices rose in all 20 cities in June, both before and after seasonal adjustment. Over the last 12 months, 10 cities show positive returns. Otherwise said, half the cities in our sample now sit at all-time high prices.

“Regional differences continue to be striking. On a year-over-year basis, June's three best-performing cities were Chicago (+4.2%), Cleveland (+4.1%), and New York (+3.4%) – the same three that had topped our May leader board. At the other end of the scale, the worst performers continue to be in the Pacific and Mountain time zones, with San Francisco (-9.7%) and Seattle (-8.8%) at the bottom. The Midwest (+2.8%) continues as the nation's strongest region, followed this month by the Northeast (+1.6%). The West (-5.9%) remains the weakest region.

“June is the fifth consecutive month in which home prices have increased across the U.S. With 2023 half over, the National Composite has risen 4.7%, which is slightly above the median full calendar year increase in more than 35 years of data. We recognize that the market's gains could be truncated by increases in mortgage rates or by general economic weakness, but the breadth and strength of this month's report are consistent with an optimistic view of future results.”

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 2023 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 1,452,000 units (1.455 million expected). This is 3.9% (±16.0%)* above the revised June estimate of 1,398,000 (originally 1.434 million units) and 5.9% (±16.1%)* above the July 2022 SAAR of 1,371,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +5.8%.

Single-family housing starts in July were at a rate of 983,000; this is 6.7% (±13.0%)* above the revised June figure of 921,000 units (+10.0% YoY). Multi-family: 469,000 units (-1.7% MoM; -2.7% 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 1,321,000. This is 11.8% (±7.8%) below the revised June estimate of 1,498,000 (originally 1.468 million units) and 5.4% (±11.1%)* below the July 2022 SAAR of 1,396,000 units; the NSA comparison: -7.8% YoY.

Single-family completions were at a SAAR of 1,018,000; this is 1.3% (±11.6%)* above the revised June rate of 1,005,000 units (-0.5% YoY). Multi-family: 303,000 units (-38.5% MoM; -22.7% YoY).

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Total permits were at a SAAR of 1,442,000 units (1.464 million expected). This is 0.1% above the revised June rate of 1,441,000 (originally 1.440 million units), but 13.0% below the July 2022 SAAR of 1,658,000 units; the NSA comparison: -14.0% YoY.

Single-family permits were at a SAAR of 930,000; this is 0.6% above the revised June figure of 924,000 units (+1.3% YoY). Multi-family: 512,000 units (-1.0% MoM; -33.3% YoY).

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Press release from NAHB’s Robert Dietz:

“After steadily rising for seven consecutive months, builder confidence retreated in August as rising mortgage rates nearing 7% (per Freddie Mac) and stubbornly high shelter inflation have further eroded housing affordability and put a damper on consumer demand.

“Builder confidence in the market for newly built single-family homes in August fell six points to 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). But while this latest confidence reading is a reminder that housing affordability is an ongoing challenge, demand for new construction continues to be supported by a lack of resale inventory, as many home owners elect to stay put because they are locked in at a low mortgage rate.

“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%. The best way to bring housing inflation down and ease the housing affordability crisis is to enact policies at all levels of government that will allow builders to construct more homes to address a nationwide shortfall of approximately 1.5 million housing units.

“The August HMI survey also revealed that rising mortgage rates are causing more builders to use sales incentives to attract home buyers. After dropping steadily for four months (from 31% in March to 22% in July), the share of builders cutting prices to bolster sales rose again to 25% in August. The average decline for builders reducing prices remained at 6%. And the share of builders using incentives to bolster sales was 55% in August, higher than in July (52%) but still lower than in December 2022 (62%).”

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 2023 Industrial Production, Capacity Utilization and Capacity

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In July, total industrial production (IP) increased 1.0% (+0.3% expected) following declines in the previous two months. Manufacturing output rose 0.5% in July; the production of motor vehicles and parts jumped 5.2%, while factory output elsewhere edged up 0.1%. The index for mining moved up 0.5%, and the index for utilities climbed 5.4% as very high temperatures in July raised demand for cooling. At 102.9% of its 2017 average, total industrial production in July was 0.2% below its year-earlier level. 

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Market Groups

Most major market groups recorded growth in July. The production of consumer durables was boosted by a jump of 4.8% in the output of automotive products. Similarly, the abnormally hot weather in July lifted the indexes of energy consumer goods and energy materials, which advanced 3.7% and 2.1%, respectively. Elsewhere, there were gains of 1% in consumer nondurables, business equipment, as well as defense and space equipment. Of the major market groups, construction supplies recorded the only decline.

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Industry Groups

Manufacturing output rose 0.5% in July; however, the growth rates for the previous three months were revised down. Altogether, the index for manufacturing in July was 0.7% below its year-earlier level. In July, the indexes for durable and nondurable manufacturing increased 0.8% and 0.1%, respectively. Other manufacturing (publishing and logging) advanced 1.3%.

Within durable manufacturing, gains of 1% or more were registered by motor vehicles and parts (5.2%), machinery (1.3%), and computer and electronic products (1.0%). In contrast, losses of 1% or more were recorded by electrical equipment, appliances, and components (1.7%); primary metals (1.2%); and furniture and related products (1.2%). Within nondurable manufacturing, modest declines in the indexes of paper, of plastics and rubber products, and of apparel and leather were more than offset by gains elsewhere. Wood products: -0.7%; paper products: -0.7%.

Mining output grew 0.5% in July and was 2.0% above its year-earlier level. The output of utilities climbed 5.4% in July, bolstered by a jump of 6.7% for electric utilities.

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Capacity utilization (CU) moved up to 79.3% in July, a rate that is 0.4 percentage point (PP) below its long-run (1972–2022) average.

Manufacturing CU edged up to 77.8% in July, a rate that is 0.4PP below its long-run (1972–2022) average (wood products: +0.6%; paper: 0.0%). The operating rate for mining moved up 0.6PP to 92.4%, 6PP above its long-run average. The operating rate for utilities strengthened 3.5PP to 72.3%, well below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.6% YoY) to 129.7% of 2017 output. Manufacturing also edged up by 0.1% (+1.4% YoY) to 128.6%. Wood products: less than +0.1% (+1.1% YoY) to 120.1%; paper: -0.1% (-0.8% YoY) to 105.9%.

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.