August 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in August at a seasonally adjusted annual rate (SAAR) of 1,283,000 units (1.435 million expected). This is 11.3% (±8.3%) below the revised July estimate of 1,447,000 (originally 1.452 million units) and 14.8% (±9.0%) below the August 2022 SAAR of 1,505,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -15.1%.

Single-family housing starts in August were at a rate of 941,000; this is 4.3% (±8.8%)* below the revised July figure of 983,000 units (+2.1% YoY). Multi-family: 342,000 units (-26.3% MoM; -42.2% 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 1,406,000 units. This is 5.3% (±15.1%)* above the revised July estimate of 1,335,000 (originally 1.321 million units) and 3.8% (±13.2%)* above the August 2022 SAAR of 1,355,000 units; the NSA comparison: +3.1% YoY.

Single-family housing completions were at a SAAR of 961,000 units; this is 6.6% (±11.1%)* below the revised July rate of 1,029,000 units (-7.7% YoY). Multi-family: 445,000 units (+45.4% MoM; +33.2% YoY).

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Total permits were at a SAAR of 1,543,000 units (1.440 million expected). This is 6.9% above the revised July rate of 1,443,000 (originally 1.442 million units) but 2.7% below the August 2022 rate of 1,586,000 units; the NSA comparison: -0.6% YoY.

Single-family permits were at a SAAR of 949,000; this is 2.0% above the revised July figure of 930,000 units (+7.4% YoY). Multi-family: 594,000 units (+15.8% MoM; -11.4% YoY).

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Press release from NAHB’s Robert Dietz:

“Persistently high mortgage rates above 7% continue to erode builder confidence, as sentiment levels have dropped below the key break-even measure of 50 for the first time in five months.

“Builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This follows a six-point drop in August.

“The two-month decline in builder sentiment coincides with when mortgage rates jumped above 7% and significantly eroded buyer purchasing power. And on the supply-side front, builders continue to grapple with shortages of construction workers, buildable lots and distribution transformers, which is further adding to housing affordability woes. Insurance cost and availability is also a growing concern for the housing sector.

“Putting into place policies that will allow builders to increase the housing supply is the best remedy to ease the nation’s housing affordability crisis and curb shelter inflation. Shelter inflation posted a 7.3% year-over-year gain in August, compared to an overall 3.7% consumer inflation reading.

“As mortgage rates stayed above 7% over the last month, more builders are reducing home prices again to bolster sales. In September, 32% of builders reported cutting home prices, compared to 25% in August. That’s the largest share of builders cutting prices since December 2022 (35%). The average price discount remains at 6%. Meanwhile, 59% of builders provided sales incentives of all forms in September, more than any month since April 2023.

“While more pricing-out is now occurring, the lack of resale inventory at the start of 2023 has shifted the new construction buyer mix. A special question in the September HMI survey revealed that 42% of new single-family home buyers were first-time buyers on a year-to-date basis in 2023. This is significantly higher than the 27% reading from a more normalized market in 2018.”

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 International Trade (Softwood Lumber)

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With July exports of goods and services at $251.7 billion (+1.6% MoM; -3.5% YoY) and imports at $316.7 billion (+1.7% MoM; -4.7% YoY), the net trade deficit was $65.0 billion (+2.0% MoM; -9.3% YoY). 

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Softwood lumber exports edged down (3 MMBF or -2.8%) in July, along with imports (54 MMBF or -4.4%). Exports were 9 MMBF (-8.0%) below year-earlier levels; imports: 150 MMBF (-11.4%) lower. As a result, the year-over-year (YoY) net export deficit was 141 MMBF (-11.8%) smaller. Also, the average net export deficit for the 12 months ending July 2023 was 3.3% 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 (53.4% of total softwood lumber exports; of which Mexico: 36.1%; Canada: 17.3%), Asia (13.0%; especially China: 4.1%), and the Caribbean (26.6%; especially the Dominican Republic: 14.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 78.0% higher than the same month of the prior year. Meanwhile, Canada was the source of most (85.9%) softwood lumber imports into the United States. Imports from Canada were 8.2% lower YTD/YTD. Overall, YTD exports were down 2.9% compared to the prior year; imports: -7.1%.

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U.S. softwood lumber export activity through the Gulf customs region represented 41.7% of the U.S. total; West Coast: 32.2%, and Eastern: 18.7%. Mobile (22.2% of the U.S. total), San Diego (16.7%) Laredo (13.3%), and Seattle (12.7%) were the most active districts. At the same time, the Great Lakes customs region handled 55.7% of softwood lumber imports -- most notably the Duluth, MN district (18.5%) -- coming into the United States. 

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Southern yellow pine comprised 29.2% of all softwood lumber exports; Douglas-fir (12.8%), treated lumber (16.1%), other pine (11.2%) and finger-jointed (7.5%) were also significant.

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 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.4% in August (+0.1% expected), and manufacturing output inched up 0.1%. The August reading for manufacturing was held back by a drop of 5% in the output of motor vehicles and parts; factory output elsewhere rose 0.6%. The index for mining moved up 1.4%, and the index for utilities climbed 0.9%. At 103.5% of its 2017 average, total industrial production in August was 0.2% above its year-earlier level. 

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Market Groups

In August, the drop in the output of motor vehicles and parts contributed to declines in the indexes for consumer durables and transit equipment. Most of the other major market groups posted increases in August. The index for consumer nondurables moved up 0.4%, and the index for materials advanced 0.7%. Within materials, energy materials rose 1.5%, while non-energy materials edged up 0.1%. The production of defense and space equipment jumped 3.5% in August and was up over 10% from its year-earlier level.

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Industry Groups

Manufacturing output rose 0.1% in August for its second consecutive monthly gain but was 0.6% below its year-earlier level (NAICS manufacturing: +0.1% MoM; -0.7% YoY). The index for durable manufacturing edged up 0.1% in August, and the index for nondurable manufacturing increased 0.2%. Other manufacturing (publishing and logging) moved down 0.2%.

Within durable manufacturing, gains of more than 1% were recorded by primary metals (1.6%); machinery (2.0%); aerospace and miscellaneous transportation equipment (3.3%); furniture and related products (1.3%); and miscellaneous (1.5%). Apart from the large drop in the index for motor vehicles and parts, small declines—all less than 1%—were registered by wood products (-0.4%); nonmetallic mineral products; fabricated metal products; and electrical equipment, appliances, and components. Despite the August drop in the output of motor vehicles and parts, the index was 5.9% above its year-earlier level. Within nondurable manufacturing, gains of 1% or more in August in the indexes for printing and support and for chemicals were partially offset by declines elsewhere (e.g., paper products: -0.3%).

In August, mining output rose 1.4% and was 3.9% above its year-earlier level. The August gain in mining resulted primarily from an increase of over 3% in the index for oil and gas extraction. The output of utilities rose 0.9%.

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Capacity utilization (CU) moved up to 79.7% in August, in line with its long-run (1972–2022) average.

Manufacturing CU remained at 77.9% in August, a rate that is 0.3 percentage point (PP) below its long-run (1972–2022) average (wood products: -0.4%; paper: -0.2%). The operating rate for mining jumped 1.4PP to 94.3%, 7.9PP above its long-run average. The operating rate for utilities rose 0.4PP to 73.0%, 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 129.9% of 2017 output. Manufacturing also edged up by 0.1% (+1.4% YoY) to 128.8%. Wood products: less than +0.1% (+0.9% YoY) to 120.1%; paper products: -0.1% (-0.9% YoY) to 105.6%.

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.

August 2023 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 0.6% in August (+0.6% expected). The index for gasoline was the largest contributor to the monthly all-items increase, accounting for over half of the increase. Also contributing to the August monthly increase was continued advancement in the shelter index, which rose for the 40th consecutive month. The energy index rose 5.6% in August as all the major energy component indexes increased. The food index increased 0.2% in August, as it did in July. The index for food at home increased 0.2% over the month while the index for food away from home rose 0.3% in August.

The index for all items less food and energy rose 0.3% in August, following a 0.2% increase in July. Indexes which increased in August include rent, owners' equivalent rent, motor vehicle insurance, medical care, and personal care. The indexes for lodging away from home, used cars and trucks, and recreation were among those that decreased over the month.

The all-items index increased 3.7% for the 12 months ending August, a larger increase than the 3.2% increase for the 12 months ending in July. The index for all items less food and energy rose 4.3% over the last 12 months. The energy index decreased 3.6% for the 12 months ending August, and the food index increased 4.3% over the last year.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.7% in August (+0.4% expected). The August advance is the largest increase in final demand prices since moving up 0.9% in June 2022. On an unadjusted basis, the index for final demand rose 1.6% for the 12 months ended in August.

In August, 80% of the rise in final demand prices is attributable to a 2.0% jump in the index for final demand goods. Prices for final demand services advanced 0.2%.

The index for final demand less foods, energy, and trade services increased 0.3% in August, the same as in July. For the 12 months ended in August, prices for final demand less foods, energy, and trade services rose 3.0%, the largest advance since moving up 3.4% for the 12 months ended in April.

Final Demand

Final demand goods: The index for final demand goods jumped 2.0% in August, the largest advance since increasing 2.1% in June 2022. The August rise is mostly attributable to prices for final demand energy, which surged 10.5%. The index for final demand goods less foods and energy edged up 0.1%. In contrast, prices for final demand foods declined 0.5%.

Product detail: Over 60% of the August rise in the index for final demand goods can be traced to prices for gasoline, which jumped 20.0%. The indexes for diesel fuel, jet fuel, home heating oil, beverages and beverage materials, and iron and steel scrap also moved higher. Conversely, prices for fresh and dry vegetables fell 11.5%. The indexes for residential electric power and for industrial chemicals also decreased.

Final demand services: The index for final demand services rose 0.2% in August after increasing 0.5% in July. Leading the advance in August, prices for final demand services less trade, transportation, and warehousing moved up 0.3%. The index for final demand transportation and warehousing services jumped 1.4%. In contrast, margins for final demand trade services declined 0.3%. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: A 1.1% increase in the index for residential real estate services (partial) was a major factor in the August rise in prices for final demand services. The indexes for truck transportation of freight; machinery, equipment, parts, and supplies wholesaling; automotive fuels and lubricants retailing; services related to securities brokerage and dealing (partial); and residential real estate loans (partial) also moved higher. Conversely, margins for chemicals and allied products wholesaling fell 4.7%. The indexes for food wholesaling and for deposit services (partial) also decreased.

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The not-seasonally adjusted price indexes we track were mixed on a MoM basis but all lower YoY.

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purposes of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

August 2023 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil increased by $5.32 (+7.0%) to $81.39/barrel in August. That advance occurred within the context of a somewhat stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of June’s increase of 320,000 barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 20.7 million b/d), and accumulated oil stocks that continued trending downward below the midpoint of the five-year average range (August 2023 average: 435 million barrels). 

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Selected highlights from the 1 September 2023 issue of OilPrice.com’s Oil & Energy Insider include:

Continuous U.S. stock draws equivalent to a 1 million b/d decline over the past five weeks have led to an unusually tight oil market in the United States, adding upward pressure to oil prices despite economic woes. Widespread expectations of OPEC+ extending production and export cuts as well as recovering Chinese manufacturing activity have added to the bullish sentiment, with ICE Brent surpassing $87 per barrel.

Russia Flags OPEC+ Coordination on Track. Russia's deputy prime minister Alexander Novak announced that OPEC+ members have agreed on the main parameters of production over the upcoming months but would only announce it next week, indicating Riyadh's and Moscow's cuts are to continue.

Higher Interest Rates Prompt LNG Plants to Hike Fees. A string of US LNG developers, most notably NextDecade with its Rio Grande LNG project, adjusted term deals signed earlier and increased liquefaction fees to reflect rising interest rates and higher construction costs.

Japan Extends Oil Subsidies Until End-2023. Japan's Trade and Industry Ministry (METI) extended oil product subsidies until the end of December 2023 as retail gasoline prices soared to the highest readings ever this week, reaching $200 per barrel, boosted by higher oil prices and a weaker yen.

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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 2023 ISM and S&P Global Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected slower contraction in the sector during August. The PMI registered 47.6%, up 1.2 percentage points (PP) from July’s 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. All subindexes remained at or below 50; the largest changes occurred among prices paid (+5.8PP), employment (+4.1PP), and slow deliveries (+2.5PP). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+1.8PP, to 54.5%). Order backlogs (-10.3PP), inventories (+7.3PP), and inventory sentiment (+4.9PP) exhibited the largest changes.

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Of the industries we track, Real Estate and Construction expanded. Respondent comments included the following --

Construction. “Sales on a national level have been strong. Commodity material prices remain stable, and we are finding areas for cost reductions. Material availability has returned to pre-COVID-19 levels.”

Paper Products. “The manufacturing sector continues to be slow, and the low market prices make it difficult to stay profitable. On the positive side, laborers are showing enthusiastic employment interest. Rising energy and fuel prices are of concern to our company.”

Real Estate, Rental & Leasing. “Overall conditions seem quite good, although there is definite slowdown in residential construction driven by rapidly increasing interest rates.”

 

Changes in S&P Global‘s survey headline results were opposite those of ISM’s. Details from S&P Global’s surveys follow --

Manufacturing. Sharper contraction of U.S. manufacturing sector in August.

Key findings:
* Faster decline in new orders pulls output lower
* Slowest rise in employment since January
* Inflationary pressures remain modest despite ticking higher

 

Services. Service sector demand falters sparking weakest growth in activity for seven months.

Key findings:
* Renewed decline in new business
* Cost burdens rise at faster pace but selling price inflation slows
* Employment growth weakest since October 2022

 

Commentary by Chris Williamson, S&P Global’s chief business economist --

Manufacturing. “U.S. manufacturers reported another tough month of trading in August. Output has fallen back into decline after a brief respite in July amid an increasingly steep deterioration in order books. Orders are in fact falling faster than factories are cutting output, suggesting firms will need to continue scaling back their production volumes into the near future.

“An increasing sense of gloom about the near-term outlook has meanwhile hit hiring and led to a further major pullback in purchasing activity.

“The survey meanwhile adds to evidence that the deflationary impact of improving supply chains has peaked, with prices starting to rise at an increased rate again in August. However, falling demand is clearly continuing to dampen pricing power and is keeping overall inflationary pressures in the manufacturing sector very subdued.

“Policy initiatives such as the CHIPS and Science Act and IRA should start to help buoy production in the medium term as capacity in U.S. manufacturing is expanded. A shifting of the inventory cycle toward restocking should also be evident by the end of the year, given improvements in some survey metrics such as the orders-inventory ratio. However, such rays of hope remain currently overshadowed by business confidence turning lower, which indicates that producers anticipate some further near-term headwinds to any manufacturing revival.”

 

Services. “The survey data send a hint of rising stagflation risks, as stubborn price pressures are accompanied by a near-stalling of business activity.

“The PMI numbers for the third quarter so far point to a faltering of economic growth after a robust second quarter, as a renewed manufacturing downturn is accompanied by a deteriorating picture in the service sector.

“While a post-pandemic revival of travel, recreation and hospitality spend contributed to an improved economic performance in the spring and early summer, this tailwind is losing momentum. Companies increasingly report customers to have become reticent to spend amid gloomier prospects as higher interest rates and the increased cost of living take their toll. However, financial services and business services providers are also increasingly feeling the pinch from weakening demand.

“Persistent wage growth is meanwhile being accompanied by renewed upward pressure on energy, fuel and transport costs, as well as some broader firming of materials prices, driving cost growth higher. Competitive forces have kept a lid on selling price inflation, but the rate of increase of service sector charges remains elevated to the extent that consumer price inflation is likely to remain stubbornly above the Fed’s target in the coming months.

“The key data to watch in the coming months will be the degree to which any further waning of demand for services translates into lower pricing power and reduced inflation.”

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 Currency Exchange Rates

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In August, the monthly average value of the U.S. dollar (USD) appreciated against Canada’s “loonie” (+2.0%), the euro (+1.4%), and the Japanese yen (+2.7%). On the broad trade-weighted index basis (goods and services) the USD strengthened by 1.5% 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.