April 2017 Currency Exchange Rates

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In April the monthly average value of the U.S. dollar appreciated against one of the three major currencies we track (+0.4% against Canada’s “loonie”) but depreciated against the other two (euro: -0.2%; yen: -2.5%). On a trade-weighted index basis, the dollar weakened by 0.7% 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.

March 2017 Construction Spending

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Construction spending during March 2017 was estimated at a seasonally adjusted annual rate (SAAR) of $1,218.3 billion, 0.2% (±2.1%)* below the revised February estimate of $1,220.7 billion (originally $1,192.8 billion); analysts had expected a 0.5% increase rather than the reported 0.2% decline. The March figure is 3.6% (±1.5%) above the March 2016 SAAR of $1,176.4 billion; the not-seasonally adjusted YoY change (shown in the above table) was +4.5%. During 1Q2017, construction spending amounted to $259.5 billion, 4.9% (±1.6%) above the $247.5 billion for the same period in 2016.

Private Construction

Spending on private construction was at a SAAR of $940.2 billion, nearly the same as (± 3.3%)* the revised February estimate of $940.1 billion.
- Residential: $503.4 billion, +1.2% (±1.3%)*.
- Nonresidential: $436.8 billion, -1.3% (± 3.3%)*.

Public Construction

Public construction spending was $278.1 billion, 0.9% (±2.0%)* below the revised February estimate of $280.7 billion. 

- Educational: $70.2 billion, -2.0% (±2.6%)*.
- Highway: $91.5 billion, +0.5% (±4.9%)*.

* 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 March’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.

1Q2017 Gross Domestic Product: Advance Estimate

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In its advance (first) estimate of 1Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +0.69% (+1.1% expected), down by roughly two-thirds (-1.39 percentage points) from 4Q2016’s +2.08%. On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2017 was +1.92% relative to 1Q2016; that was marginally lower than 4Q2016’s +1.96% relative to 4Q2015.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and net exports (NetX) -- contributed to 1Q growth. Government consumption expenditures (GCE) detracted from it. 

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Broken down by components, the headline number reflected increases in business investment, exports, and housing investment that were partially offset by a big slowdown in consumer spending.

Positives:

* Business investment reflected increases in both structures and equipment, notably a significant rise in mining exploration, shafts, and wells. In fact, the contribution from commercial fixed investment was the strongest since 1Q2012

* Exports reflected an increase in nondurable industrial supplies and materials, especially petroleum. However, imports, which subtract from the headline number, also increased. On net, then, trade contributed a modest 0.1% to the 1Q headline.

Negatives:

* The biggest driver of the fall-off in GDP growth was a near stall-out in consumer spending, which rose at a SAAR of just 0.23%, the lowest increase since 2009 -- reflecting an increase in services offset by a decrease in motor vehicles and parts. Once again, the bulk of the PCE growth came from rising healthcare services, and recreational goods and vehicles.

* Growth in private inventory investment decelerated, along with federal, and state and local government spending.

Real final sales of domestic product (the BEA’s “bottom line” indicator of economic activity that excludes the influence of inventories) provided a slightly more positive perspective by growing +1.62%, up 0.55 percentage point from the 1.07% rate recorded in 4Q2016.

Also, the BEA used an inflation rate of 2.25% to arrive at its 1Q real GDP estimate. Concurrent inflation recorded by the Bureau of Labor Statistics (BLS) in its CPI-U index was 1.54%. Overestimating inflation results in correspondingly overly pessimistic growth rates; were the BEA’s “nominal” data deflated using the CPI-U, the headline GDP growth number would have been a more positive +1.41% annualized rate.

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.

March 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in March 2017 were at a seasonally adjusted annual rate (SAAR) of 621,000 units (584,000 expected). This is 5.8% (±15.5%)* above the revised February rate of 587,000 (originally 592,000) and 15.6% (±15.0%) above the March 2016 SAAR of 537,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was 16.0%. For a longer-term perspective, March sales were 55.3% below the “bubble” peak but 10.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in March 2017 was $315,100 (+$22,000 or 7.5%). The average sales price was $388,200 (+$14,600 or 3.9%). Starter homes (those priced below $200,000) comprised 17.2% of the total sold, up from March 2016’s 14.0%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 6.9% of those sold in March, a modest rise from March 2016’s 4.0%.

* 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 March, single-unit completions rose by 60,000 units (+7.9%). Since the increase in completions outpaced that of sales, new-home inventory expanded in absolute (+3,000 units) terms; it shrank, however, in months-of-inventory (-0.2 month) terms. 

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Existing home sales jumped by 240,000 units (+4.4%) in March, to a SAAR of 5.710 million units (5.605 million expected). Inventory of existing homes expanded in absolute terms (+100,000 units) but was unchanged in months-of-inventory terms. With new-home sales increasing at a proportionately faster rate than existing-home sales, the share of total sales comprised of new homes inched up to 9.8%. The median price of previously owned homes sold in March increased by $8,200 (+3.6%), to $236,400. 

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Housing affordability remained essentially unchanged as the median price of existing homes for sale in February advanced by $1,200 (+0.5%; +7.6 YoY), to $229,900. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices posted a not-seasonally adjusted monthly change of +0.2% (+5.8% YoY), bringing home prices to a fourth consecutive all-time high.

“Housing and home prices continue to advance,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P Corelogic Case-Shiller National Home Price Index and the two composite indices accelerated since the national index set a new high four months ago. Other housing indicators are also advancing, but not accelerating the way prices are. As per National Association of Realtors sales of existing homes were up 5.6% in the year ended in March. There are still relatively few existing homes listed for sale and the small 3.8 month supply is supporting the recent price increases. Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates.

“Housing’s strength and home building are important contributors to the economic recovery. Housing starts bottomed in March 2009 and, with a few bumps, have advanced over the last eight years. New home construction is now close to a normal pace of about 1.2 million units annually, of which around 800,000 are single family homes. Most housing rebounds following a recession only last for a year or so. The notable exception was the boom that set the stage for the bubble. Housing starts bottomed in 1991, drove through the 2000-2001 recession, and peaked in 2005 after a 14-year run.” 

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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.

April 2017 Macro Pulse -- Are “Soft” Data Hitting a “Hard” Reality?

In the aftermath of last November’s election, and particularly since the start of 2017, a number of surveys (“soft” data) have shown consumers and businesses alike to be almost overwhelmingly upbeat. Examples include the University of Michigan’s U.S. consumer confidence index, which has risen to levels last seen prior to the Great Recession. Also, the Wells Fargo/Gallup Small Business Index survey (posted in mid-March) reported optimism among small-business owners “soaring” to its highest reading in a decade. Finally, a survey published by the National Association of Manufacturers at the end of March found that 93% of the 14,000 companies surveyed felt positive about their economic outlook. That is the highest percentage in the survey’s 20-year history, up from 56.6% one year ago and 77.8% in December.

The rub is that “soft” data rarely correspond to what eventually unfolds in the economy. For example, the correlation between consumer confidence and spending is weak at best. Comparing historical aggregates of consumer and business data also indicates that activity measured by “hard” data typically fluctuates much less than might be expected from the significant swings in “soft” data. Much as we would hope such optimism might provide a late-cycle “second wind,” a plethora of indicators suggest to us the economy will have to contend with tangible headwinds rather than tailwinds from ephemeral optimism. What follows are “hard” data metrics, published during the past month, which provide a mixed perspective regarding economic direction….

Click here to read the rest of the April 2017 Macro Pulse recap.

The Macro Pulse blog is a commentary about recent economic developments affecting the forest products industry. The monthly Macro Pulse newsletter typically summarizes the previous 30 days of commentary available on this website.

March 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.5% in March (+0.2% expected) after moving up 0.1% in February. The increase in March was more than accounted for by a jump of 8.6% in the output of utilities—the largest in the history of the index—as the demand for heating returned to seasonal norms after being suppressed by unusually warm weather in February.

Manufacturing output fell 0.4% (+0.3% expected), led by a large step-down in the production of motor vehicles and parts; factory output aside from motor vehicles and parts moved down 0.2%. The production at mines edged up 0.1%.

For 1Q2017 as a whole, total IP rose at an annual rate of 1.5%. At 104.1% of its 2012 average, total IP in March was 1.5% above its year-earlier level. 

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Industry Groups

Manufacturing output decreased 0.4% in March, and the gains in January and February are now reported to have been smaller than stated earlier. The decline in the manufacturing index in March was its first loss since August 2016; nevertheless, factory output increased at an annual rate of 2.7% in 1Q. The production of durables moved down 0.8% in March. Among its major components, only computer and electronic products registered an increase, about 1%, and motor vehicles and parts recorded the largest decrease, 3.0%; wood products: -0.4%.

The index for nondurables edged up, as gains in petroleum and coal products, in chemicals, and in paper products (+0.2%) offset losses elsewhere. The output of other manufacturing (publishing and logging) fell 0.4%.

Mining output edged up 0.1% in March, with continuing gains in oil and gas extraction and in drilling and support activities slightly outweighing large decreases in coal mining and in nonmetallic mineral mining. After advancing 6.6% at an annual rate in 4Q2016, the index for mining jumped 12.1% in 1Q2017. 

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Capacity utilization (CU) for the industrial sector increased 0.4 percentage point in March to 76.1%, a rate that is 3.8 percentage points below its long-run (1972–2016) average.

Manufacturing CU fell 0.3 percentage point in March to 75.3%, a rate that is 3.1 percentage points below its long-run average. The operating rate for durables declined 0.7 percentage point, to 74.6%, and was 2.3 percentage points below its long-run average (wood products: -0.4%).

The rates for nondurables and for other manufacturing (publishing and logging), little changed in March at 77.0% and 63.6%, respectively, remained substantially below their long-run averages (paper products: +0.3%). Utilization for mining edged down 0.1 percentage point to 81.9%, and the rate for utilities jumped 6.0 percentage points to 75.7%. 

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Capacity at the all-industries level nudged up 0.1% (+0.6% YoY) to 136.9% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.9% YoY) to 136.9%. Wood products: +0.0% (+0.5% YoY) to 155.8%; paper products: -0.1% (-2.2% YoY) to 110.3%.

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.

March 2017 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in March at a seasonally adjusted annual rate (SAAR) of 1,215,000 units (1.262 million expected). This is 6.8% (±12.5%)* below the revised February estimate of 1,303,000 (originally 1.288 million units), and 9.2% (±9.1%) above the March 2016 SAAR of 1,113,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +8.6%.

Single-family housing starts in March were at a SAAR of 821,000; this is 6.2% (±10.0%)* below the revised February figure of 875,000. The March SAAR for multi-family starts was 394,000 units.

* 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 housing completions in March were at a SAAR of 1,205,000 units. This is 3.2% (±13.5%)* above the revised February estimate of 1,168,000 and 13.4% (±16.2%)* above the March 2016 SAAR of 1,063,000; the NSA comparison: +17.9% YoY.

Single-family housing completions were at a SAAR of 819,000; this is 7.9% (±12.9%)* above the revised February rate of 759,000. Multi-family completions: 386,000 (-5.6% MoM). 

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Total building permits were at a SAAR of 1,260,000 units (1.250 million expected). This is 3.6% (±2.8%) above the revised February rate of 1,216,000 units (originally 1.213 million) and 17.0% (±1.2%) above the March 2016 SAAR of 1,077,000; the NSA comparison: +14.5% YoY.

Single-family authorizations in March were at a rate of 823,000; this is 1.1% (±1.9%)* below the revised February figure of 832,000. Multi-family: 437,000 (+13.8% MoM). 

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Builder confidence in the market for newly-built single-family homes remained solid in April, falling three points to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index after an unusually high March reading.

“Even with this month’s modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers,” said NAHB Chairman Granger MacDonald.

“The fact that the HMI measure of current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” said NAHB Chief Economist Robert Dietz. “However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material 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.