February 2024 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) edged up 0.1% in February (0.0% expected) after declining 0.5% in January (originally -0.1%). In February, the output of manufacturing rose 0.8% and the index for mining climbed 2.2%. Both gains partly reflected recoveries from weather-related declines in January; also, January’s data was revised from -0.5% MoM to -1.1%. The index for utilities fell 7.5% in February because of warmer-than-typical temperatures. At 102.3% of its 2017 average, total IP in February was 0.2% below its year-earlier level. 

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Market Groups

The output of most major market groups moved up in February. An exception is the index for consumer goods, which declined 1.4%, driven almost entirely by a utilities-related decrease of 8.6% in the index for consumer energy. Elsewhere in consumer goods, the indexes for non-energy nondurables and durables rose 0.6 and 0.9%, respectively. Similarly, within materials, all market groups posted gains except energy materials, the output of which fell 0.2%. All other market groups also recorded increases, led by construction supplies and business equipment, the output of which increased 1.9 and 1.7%, respectively.

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Industry Groups

Manufacturing output stepped up 0.8% in February after declining 1.1% in January. In February, durable manufacturing posted a gain of 1%, and the index for nondurable output increased 0.7%. The output of other manufacturing (publishing and logging) inched down 0.1%. Among durables, notable increases were recorded in wood products (2.4%), miscellaneous manufacturing (2.3%), and motor vehicles and parts (1.8%). Nondurables also experienced widespread growth, with the largest increases in the output of chemicals (1.6%), printing and support (1.5%), and paper (1.1%).

Mining output climbed 2.2% in February after falling 2.9% in January. The output of utilities, however, dropped 7.5% in February as the indexes for electric and natural gas utilities decreased 6.5 and 13%, respectively.

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Capacity utilization (CU) for the industrial sector remained at 78.3% in February, a rate that is 1.3 percentage points (PP) below its long-run (1972–2023) average.

Manufacturing CU increased 0.6PP to 77% in February, a rate that is 1.2PP below its long-run average (wood products: +2.3%; paper: +1.1%). The operating rate for mining moved up 2.1PP to 93.8%, a rate that is 7.3PP above its long-run average. The operating rate for utilities slid 5.7PP to 67.8%, well below its long-run average of 84.4%.

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Capacity at the all-industries level edged up by 0.1% MoM (+1.4% YoY) to 130.8% of 2017 output. Manufacturing also increased by 0.1% (+1.5% YoY) to 129.8%. Wood products: +0.1% (+0.4% YoY) to 120.3%; paper products: unchanged (-1.0% YoY) at 105.3%.

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.

February 2024 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 February (+0.4% expected), after rising 0.3% in January. Over the last 12 months, the all-items index increased 3.2% before seasonal adjustment.

The index for shelter rose in February, as did the index for gasoline. Combined, these two indexes contributed over 60% of the monthly increase in the index for all items. The energy index rose 2.3% over the month, as all of its component indexes increased. The food index was unchanged in February, as was the food at home index. The food away from home index rose 0.1% over the month.

The index for all items less food and energy rose 0.4% in February, as it did in January. Indexes which increased in February include shelter, airline fares, motor vehicle insurance, apparel, and recreation. The index for personal care and the index for household furnishings and operations were among those that decreased over the month.

The all-items index rose 3.2% for the 12 months ending February, a larger increase than the 3.1% increase for the 12 months ending January. The index for all items less food and energy rose 3.8% over the last 12 months. The energy index decreased 1.9% for the 12 months ending February, while the food index increased 2.2% over the last year.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) rose 0.6% in February (+0.4% expected). Final-demand prices increased 0.3% in January and edged down 0.1% in December 2023. On an unadjusted basis, the final-demand index advanced 1.6% for the 12 months ended in February, the largest rise since moving up 1.8% for the 12 months ended September 2023.

In February, nearly two-thirds of the rise in final-demand prices can be traced to the index for final demand goods, which advanced 1.2%. Prices for final-demand services moved up 0.3%.

The index for final demand less foods, energy, and trade services increased 0.4% in February after rising 0.6% in January. For the 12 months ended in February, prices for final demand less foods, energy, and trade services moved up 2.8%.

Final Demand

Final-demand goods: Prices for final-demand goods advanced 1.2% in February, the largest increase since moving up 1.7% in August 2023. Nearly 70% of the broad-based rise in February can be attributed to the index for final-demand energy, which jumped 4.4%. Prices for final-demand goods less foods and energy and for final-demand foods also increased, moving up 0.3% and 1.0%, respectively.

Product detail: One-third of the February advance in the index for final-demand goods can be traced to a 6.8% increase in prices for gasoline. The indexes for diesel fuel, chicken eggs, jet fuel, beef and veal, and tobacco products also rose. Conversely, prices for hay, hayseeds, and oilseeds decreased 8.3%. The indexes for iron and steel scrap and for asphalt also fell.

Final-demand services: Prices for final-demand services moved up 0.3% in February after rising 0.5% in January. Leading the February increase, the index for final-demand services less trade, transportation, and warehousing advanced 0.5%. Prices for final-demand transportation and warehousing services rose 0.9%. 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 quarter of the February increase in the index for final-demand services can be attributed to a 3.8% rise in prices for traveler accommodation services. The indexes for outpatient care (partial); airline passenger services; loan services (partial); securities brokerage, dealing, and investment advice; and alcohol retailing also moved up. Conversely, margins for chemicals and allied products wholesaling fell 6.4%. The indexes for automobiles and parts retailing and for services related to securities brokerage and dealing (partial) also decreased.

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The not-seasonally adjusted price indexes we track were all higher on a MoM basis except for wood fiber, and 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.

January 2024 International Trade (Softwood Lumber)

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With January exports of goods and services at $257.2 billion (+0.1% MoM; -0.4% YoY) and imports at $324.6 billion (+1.1% MoM; -1.2% YoY), the net trade deficit was $67.4 billion (+5.1% MoM; -4.1% YoY). 

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Softwood lumber exports rose (11 MMBF or +15.2%) in January, while imports fell (31 MMBF or -2.7%). Exports were 2 MMBF (+1.6%) above year-earlier levels; imports: 116 MMBF (-9.4%) lower. As a result, the year-over-year (YoY) net export deficit was 118 MMBF (-10.4%) lower. Also, the average net export deficit for the 12 months ending January 2024 was 9.0% 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 (53.8% of total softwood lumber exports -- of which Mexico: 34.0%; Canada: 19.8%), Asia (16.5% -- especially India: 4.4%; Japan: 3.2%; China: 3.0%), and the Caribbean (22.4% -- especially the Dominican Republic: 10.0%; Bahamas: 2.4%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 16.9% lower than the same month(s) of the prior year. Meanwhile, Canada was the source of most (81.2%) softwood lumber imports into the United States. Imports from Canada were 2.1% higher YTD/YTD. Overall, YTD exports were up 1.6% compared to the prior year; imports: -9.4%.

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U.S. softwood lumber export activity through the Gulf customs region represented 36.2% of the U.S. total; West Coast: 32.4%, and Eastern: 23.4%. Mobile (18.7% of the U.S. total), San Diego (16.4%) Seattle (13.2%), and Laredo (11.2%) were the most active districts. At the same time, the Great Lakes customs region handled 53.4% of softwood lumber imports -- most notably the Duluth, MN district (14.4%) -- coming into the United States. 

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Southern yellow pine comprised 24.7% of all softwood lumber exports; other pine (14.0%), Douglas-fir (13.7%), treated lumber (12.5%), and finger-jointed (10.5%) 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.

February 2024 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed nonfarm employers adding 275,000 jobs in February -- higher than the +190,000 expected and above the top end of the consensus range (+260,000). Also, December 2023 and January 2024 employment changes were revised down by a combined 167,000 (December: -43,000; January: -124,000).

Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked up 0.2 percentage point, to 3.9%, as the labor force expanded (+150,000) but the number of employed fell (-184,000). 

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Observations from the employment reports include:

* The two surveys once again diverged, which erodes their credibility. While the establishment report showed the addition of 275,000 jobs, the household report indicated the number of employed fell by 184,000.

* Goods-producing industries gained 19,000 jobs; service providers: +256,000. Job gains occurred in health care (+67,000), government (+52,000), food services and drinking places (+42,000), social assistance (+24,000), and in transportation and warehousing (+20,000). Employment declined in the temporary help services (-15,400). Total nonfarm employment (157.8 million) is now nearly 5.5 million jobs above its pre-pandemic level in February 2020 (private sector: +5.19 million; public sector: +313,000). Nonetheless, employment is perhaps 4.7 million below its potential if accounting for growth in the working-age population since January 2006.

Manufacturing lost 4,000 jobs (led by nondurable goods: -6,000 -- especially chemical manufacturing: -2,100). That result seems to be consistent with the change in the Institute for Supply Management (ISM) manufacturing employment subindex, which fell further into contraction (to 45.9) in February. Wood products manufacturing added 1,600 jobs (ISM fell); paper manufacturing: -900 (ISM decreased); construction: +23,000 (ISM increased).

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* The number of employment-age persons not in the labor force edged up (+20,000) to 100.3 million (nearly 5.1 million above February 2020). Because the working-age civilian population expanded (+171,000) while the number of employed fell (-184,000), the employment-population ratio (EPR) ticked down fractionally to 60.1%, which is 1.0PP below its February 2020 level. 

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* Also, because the working-age civilian population rose by 171,000 while the labor force expanded by 150,000, the labor force participation rate was unchanged at 62.5%. Average hourly earnings of all private employees nudged up by $0.05 (to $34.57), and the year-over-year increase accelerated to +4.2%. Because the average workweek for all employees on private nonfarm payrolls lengthened to 34.3 hours, average weekly earnings rose (+$5.17) to $1,185.75 (+3.6% YoY). With the consumer price index running at an annual rate of +3.1% in January, the average worker appears to have gained purchasing power. 

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* Full-time workers receded (-187,000) to 132.9 million; there are now over 2.1 million more full-time jobs than in February 2020. For perspective, however, the non-institutional working-age civilian population has expanded by 8.1 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 -- slipped by 46,000, while those working part time for non-economic reasons climbed (+153,000). Multiple-job holders: -13,000; there are now 238,000 more multi-job holders than in February 2020. 

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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 February retreated by $14.4 billion, to $278.7 billion (-4.9% MoM; +8.2% 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 February was down 2.6% 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.

February 2024 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil advanced by $3.10 (+4.2%) to $77.25/barrel in February. 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 December’s decline of 417,000 barrels per day (b/d) in the amount of petroleum products demanded/supplied (to 20.3 million b/d), and accumulated oil stocks that climbed seasonally higher -- (February 2024 average: 439 million barrels). 

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Selected highlights from the 01 March 2024 issue of OilPrice.com’s Oil & Energy Insider include:

“Oil prices remained stubbornly rangebound in February as signs of a recovering U.S. economy were countered by weaker economic data in both Europe and China,” wrote editor Tom Kool. “Diverging macroeconomic news, with China and Europe continuing to struggle with below-expectations manufacturing activity while the United States is nearing the point of first interest rate cuts, failed to alter the trading patterns of February, keeping Brent around the $83 per barrel mark. The next big thing to happen to the oil markets will be OPEC+ announcing the scrapping or the extension of voluntary production cuts.” As expected, those cuts were extended into 2Q2024.

DoE Solicits Another 3 MMbbls SPR Refill. Having bought 2.95 million barrels of sour crude for an average price of 77.81 per barrel for June-delivery oil, the US Department of Energy announced a new solicitation for 3 million barrels to be delivered in July. 

US Natural Gas Output Hits All-Time High in December. Gross US natural gas production from the lower 48 states soared to a record high in December, reaching 118.2 BCf per day, up 7% year-on-year as the Permian, Marcellus, and Utica basins have all continued their steady rise.

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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.

February 2024 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 a faster rate of contraction in the sector during February. The PMI registered 47.8%, down 1.3 percentage points (PP) from January’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. Exports expanded (+6.4PP, to 51.6%), along with imports (+2.9PP, to 53.0%) while new orders contracted (-3.3PP, to 49.2%). 

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Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-0.8PP, to 52.6%). The employment (-2.5PP, to 48.0%), slow deliveries (-3.5PP, to 48.9%), and inventories (-2.0PP, to 47.1%) subindexes fell below breakeven; only business activity (+1.4PP, to 57.2%) and new orders (+2.2PP, to 55.0%) accelerated.

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Respondent comments included the following –

Construction. “Business remains strong across the U.S. industrial construction sector. Construction materials levels have returned to pre-coronavirus pandemic levels, and the outlook for 2024 is strong.”

 

Changes in S&P Global‘s headline index value for manufacturing reflected an “overall rate of growth [that] was the fastest since July 2022.” Also, the services sector “signaled a further solid performance during February.” Details from S&P Global’s surveys follow --

Manufacturing. Manufacturing conditions improve at fastest pace since July 2022.

Key findings:

• Renewed rise in output as supply conditions improve
• New order growth sharpest since May 2022
• Selling price inflation quickens despite slower rise in input costs

 

Services. US service sector reports sustained expansion in February.

Key findings:

• Output grows at second fastest-rate in past seven months
• Cost pressures ease but selling prices rise at faster pace
• Employment growth dips amid cautious outlook

 

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

Manufacturing. “Manufacturing is showing encouraging signs of pulling out of the malaise that has dogged the goods-producing sector over much of the past two years. After a long spell of reducing inventories in order to cut costs, factories are now increasingly rebuilding warehouse stock levels, driving up demand for inputs and pushing production higher at a pace not seen since early 2022. There are also signs of stronger demand for consumer goods, linked in part to signs of the cost-of-living crisis easing.

“Firms are consequently investing in more staff and more equipment, laying the foundations of further production gains in the coming months to hopefully drive a stronger and more sustainable recovery of the manufacturing economy.

“Problems with shipping disruptions and supply chains earlier in the year have eased, taking some pressure off input prices, though factory gate prices are recovering amid stronger customer demand, which will be an area to watch closely in the coming months as policymakers assess the appropriateness and timing of any interest rate cuts.”

 

Services. “A further robust expansion of service sector activity in February follows news of faster manufacturing output growth. The goods and services producing sectors are collectively reporting the sharpest growth since last June, hinting at a further quarter of solid GDP growth.

“The acceleration occurred despite a cooling of growth in financial services, linked to the recent pull-back in rate cut expectations. Demand for consumer goods and services has, however, picked up further in February amid the easing of the cost-of-living crisis and healthy labor market conditions, meaning consumers are once again at the forefront of the economic expansion.

“A concern is that alongside this faster growth, the survey has seen price pressures revive. Although average prices are still rising at one of the slowest rates seen over the past four years, the rate of inflation picked up for goods and services alike in February to hint at some broad-based firming of price pressures that could worry policymakers about cutting interest rates too early.”

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.

January 2024 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 January decreased $5.7 billion or 1.0 percent to $572.3 billion. Durable goods shipments decreased $2.4 billion or 0.9 percent to $278.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $3.3 billion or 1.1 percent to $293.4 billion, led by petroleum and coal products. Shipments of wood products increased 1.0%; paper: -0.1%.

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Inventories decreased $0.8 billion or 0.1 percent to $855.8 billion. The inventories-to-shipments ratio was 1.50, up from 1.48 in December. Inventories of durable goods increased $1.1 billion or 0.2 percent to $527.4 billion, led by transportation equipment. Nondurable goods inventories decreased $1.9 billion or 0.6 percent to $328.4 billion, led by petroleum and coal products. Inventories of wood products expanded by 0.5%; paper: -0.4%.

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New orders decreased $21.5 billion or 3.6 percent to $569.7 billion. Excluding transportation, new orders slid by $4.1 billion or 0.8% (-0.8% YoY). Durable goods orders decreased $18.1 billion or 6.2 percent to $276.3 billion, led by transportation equipment. New orders for non-defense capital goods excluding aircraft -- a proxy for business investment spending -- were essentially unchanged (-0.3% YoY). New orders for nondurable goods decreased $3.3 billion or 1.1 percent to $293.4 billion.

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Unfilled durable-goods orders increased $2.1 billion or 0.2 percent to $1,395.1 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 7.18, up from 7.10 in December. Real (inflation-adjusted) unfilled orders, which -- prior to the pandemic -- had been a good litmus test for potential sector growth, show a more-muted 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 now seem to be exhibiting a quickening 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.