May 2019 Construction Spending

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Construction spending during May 2019 was estimated at a seasonally adjusted annual rate (SAAR) of $1,293.9 billion, 0.8% (±1.2%)* below the revised April estimate of $1,304.0 billion (originally $1,298.5 billion); consensus expectations were for +0.1%. The May figure is 2.3% (±1.5%) below the May 2018 SAAR of $1,324.3 billion; the not-seasonally adjusted YoY change (shown in the table below) was -1.5%.

During the first five months of this year, construction spending amounted to $498.8 billion, 0.3% (±1.3%)* below the $500.3 billion for the same period in 2018.

* 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 $953.2 billion, 0.7% (±0.7%)* below the revised April estimate of $960.3 billion (originally $954.0 billion).
- Residential: $498.9 billion, 0.6% (±1.3%)* below the revised April estimate of $501.7 billion.
- Nonresidential: $454.3 billion, 0.9% (±0.7%) below the revised April estimate of $458.5 billion.

Public Construction

Public construction spending was $340.6 billion, 0.9% (±2.1%)* below the revised April estimate of $343.7 billion (originally $344.6 billion).
- Educational: $79.3 billion, nearly the same as (±2.6%)* the revised April estimate of $79.3 billion.
- Highway: $111.6 billion, 3.2% (±6.1%)* below the revised April estimate of $115.4 billion. 

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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.

1Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 1Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) nudged the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +3.12% (+3.1% expected), up 0.06 percentage point (PP) from the second estimate (“1Qv2”) and +0.95PP from 4Q2018.

As in 1Qv1&2, all four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) -- contributed to 1Q growth. Although the headline number was essentially unchanged in 1Qv3, more material shifts occurred in:

* Consumer spending on goods -- revised from contraction to expansion;
* Consumer spending on services -- growth was cut nearly in half; and
* Fixed investment -- especially in the non-residential and intellectual property products line items -- was increased by more than one-third above the 1Qv2 rate.

A modest reduction (-0.05PP from 1Qv2) in the contribution of private inventories bumped real 1Q final sales of domestic product (which exclude inventories) slightly higher compared to 1Qv2. Moreover, the final 1Q RFSDP estimate of +2.57% was 0.51PP above the 4Q2018 estimate. 

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The key takeaways from the 1Qv3 report are as follows, according to Consumer Metric Institute’s Rick Davis:

-- Although the headline number was largely unchanged, this report shifted a material portion of that growth from the consumer sector to commercial fixed investment.

-- In the 43 quarters since 2Q2008 the cumulative annualized growth rate for real per-capita disposable income has been a dismal 1.27%.

-- The BEA's headline number was more than doubled by an inflation rate that was materially at odds with the inflation recorded by the Bureau of Labor Statistics.

-- Happily for policy makers, this revision left the headline number (for the moment) in the "Goldilocks" zone of economic growth. But if the New York Fed's "NowCast" and/or the Atlanta Fed's "GDPNow" projections for the 2Q2019 are reasonably accurate, we can expect the next report to move the headline somewhat south of where Goldilocks resides.

“We look forward to the BEA's next report,” Davis concluded “which will also contain their annual revisions to historical data.”

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 2019 Residential Sales, Inventory and Prices

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Sales of new single-family houses in May 2019 were at a seasonally adjusted annual rate (SAAR) of 626,000 units (680,000 expected). This is 7.8% (±14.7%)* below the revised April rate of 679,000 (originally 673,000) and 3.7% (±15.0%)* below the May 2018 SAAR of 650,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -3.2%. For longer-term perspectives, not-seasonally adjusted sales were 54.9% below the “housing bubble” peak but 14.8% above the long-term, pre-2000 average.

The median sales price of new houses sold in May 2019 was $308,000 (-$27,100 or 8.1% MoM); meanwhile, the average sales price fell to $377,200 (-$9,300 or 2.4%). Starter homes (defined here as those priced below $200,000) comprised 11.7% of the total sold, down from the year-earlier 16.1%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 3.3% of those sold in May, up fractionally from 3.2% a year earlier.

* 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 May, single-unit completions fell by 47,000 units (-5.0%). Because sales (-53,000 units; 7.8%) fell more dramatically than completions, inventory for sale expanded in both absolute (+1,000 units) and months-of-inventory (+0.3 month) terms. 

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Existing home sales advanced in May (+130,000 units), to a SAAR of 5.34 million units (5.29 million expected). Inventory of existing homes for sale expanded in both absolute (+90,000 units) and months-of-inventory terms (+0.1 month). The median price of previously owned homes sold in May jumped to $277,700 (+$10,800 or 4.0% MoM). Because new-home sales fell while resales rose, the share of total sales comprised of new homes ticked down to 10.5%. 

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Housing affordability was nearly unchanged (-0.3 percentage point) although the median price of existing homes for sale in April rose by $7,800 (+3.0%; +3.7 YoY), to $269,300. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices rose at a not-seasonally adjusted monthly change of +0.9% (+3.5% YoY) -- the slowest rate of annual appreciation since September 2012.

“Home price gains continued in a trend of broad-based moderation,” said Philip Murphy, Managing Director and Global Head of Index Governance at S&P Dow Jones Indices. “Year-over-year price gains remain positive in most cities, though at diminishing rates of change. Seattle is a notable exception, where the YOY change has decreased from 13.1% in April 2018 to 0.0% in April 2019.

“The national average 30-year fixed mortgage rate rose from below 4% in late 2017 to briefly reaching almost 5% by the latter part of 2018. Peak YOY changes in the 20-City Composite coincided with the upward turn in mortgage rates during the first quarter of 2018. In 2019, mortgage rates reversed course again and the 30-year fixed mortgage rate is again under 4%, yet the YOY house price moderation that coincided with the 2018 uptick in rates has not changed course. Other industry statistics are consistent with this observation. For example, the national supply of housing is trending upward and suggesting weaker demand. Perhaps the trend for the moment is toward normalization around the real long run average annual price increase. Comparing the YOY National Index nominal change of 3.5% to April’s inflation rate of 2.0% yields a real house price change of 1.5% -- edging closer to the real long run average of 1.2% cited by David Blitzer last month.” 

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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 2019 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in May at a seasonally adjusted annual rate (SAAR) of 1,269,000 units (1.240 million expected). This is 0.9% (±12.9%)* below the revised April estimate of 1,281,000 (originally 1.235 million units) and 4.7% (±8.9%)* below the May 2018 SAAR of 1,332,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -4.0%.

Single-family housing starts in May were at a SAAR of 820,000; this is 6.4% (±9.5%)* below the revised April figure of 876,000 (-11.7% YoY). Multi-family starts: 449,000 units (+10.9% MoM; +15.4% 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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Completions in May were at a SAAR of 1,213,000 units. This is 9.5% (±13.7%)* below the revised April estimate of 1,340,000 (originally 1.312 million units) and 2.8% (±9.1%)* below the May 2018 SAAR of 1,248,000 units; the NSA comparison: -4.1% YoY.

Single-family completions were at a SAAR of 890,000; this is 5.0% (±12.7%)* below the revised April rate of 937,000 (+1.1% YoY). Multi-family completions: 323,000 units (-19.9% MoM; -16.1% YoY). 

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Total permits were at a SAAR of 1,294,000 units (1.290 million expected). This is 0.3% (±1.3%)* above the revised April rate of 1,290,000 (originally 1.296 million units), but 0.5% (±1.4%)* below the May 2018 SAAR of 1,301,000 units; the NSA comparison: -0.8% YoY.

Single-family permits were at a SAAR of 815,000; this is 3.7% (±1.2%) above the revised April figure of 786,000 (-3.8% YoY). Multi-family: 479,000 (-5.0% MoM; +5.4% YoY). 

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Builder confidence in the market for newly-built single-family homes fell two points to 64 in June, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Sentiment levels have held at a solid range in the low- to mid-60s for the past five months.

“While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues,” said NAHB Chairman Greg Ugalde.

“Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers,” said NAHB Chief Economist Robert Dietz. “And while new home sales picked up in March and April, builders continue to grapple with excessive regulations, a shortage of lots and lack of skilled labor that are hurting affordability and depressing supply.”

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 2019 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in May (+0.2% expected) after falling 0.4% in April (originally -0.5%); also, the rates of change for the five previous months were again revised down on net. The indexes for manufacturing and mining gained 0.2% and 0.1%, respectively, in May; the index for utilities climbed 2.1%. At 109.6% of its 2012 average, total industrial production was 2.0% higher in May than it was a year earlier. 

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Industry Groups

Manufacturing output increased 0.2% in May after having decreased about 0.4% per month, on average, in the first four months of the year (NAICS manufacturing: +0.2% MoM; +0.9% YoY). In May, the production of durable goods rose 0.3%, while the output of nondurable goods edged up 0.1%. Among durables, gains of more than 1% were posted by wood products (+1.3%); machinery; electrical equipment, appliances, and components; and motor vehicles and parts. These increases were partially offset by decreases in primary metals and in aerospace and miscellaneous transportation equipment. Among nondurables, the only gain greater than 1% was recorded by plastics and rubber products (paper products: +0.2%), and the only decline greater than 1% was recorded by apparel and leather products. The index for other manufacturing (publishing and logging) decreased 0.9% last month; it has fallen 6.5% during the past 12 months.

The output of utilities increased 2.1% in May, with identically sized gains in the indexes for both natural gas and electric utilities. Mining output inched up 0.1% in May and was 10.0% above its level of a year earlier. The increase in the mining index for May reflected gains in oil and natural gas extraction that were mostly offset by a large decline for oil and gas well drilling. 

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Capacity utilization (CU) for the industrial sector moved up 0.2 percentage point (PP) in May to 78.1%, a rate that is 1.7PP below its long-run (1972–2018) average.

Manufacturing CU moved up 0.1PP in May to 75.7%, a rate that is 2.6PP below its long-run average (NAICS manufacturing: +0.1%, to 76.2%). The utilization rates for durable and nondurable manufacturing were little changed (wood products: +1.0%; paper products: +0.2%), while the rate for other manufacturing (publishing and logging) slipped 0.4PP. Capacity utilization for mining dipped to 91.3% but remained well above its long-run average of 87.1%. The operating rate for utilities jumped to 77.5%; even so, it was still about 8PP below its long-run average. 

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Capacity at the all-industries level nudged up 0.2% (+2.1 % YoY) to 140.3% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.2% YoY) to 139.0%. Wood products: +0.3% (+3.8% YoY) to 165.1%; paper products: 0.0% (-0.7 % YoY) to 109.8%.

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 2019 International Trade (Softwood Lumber)

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Softwood lumber exports increased (9 MMBF or +8.6%) in April; meanwhile, imports jumped (183 MMBF or +14.5%). Exports were 48 MMBF (-28.6%) below year-earlier levels; imports were 109 MMBF (+8.2%) higher. As a result, the year-over-year (YoY) net export deficit was 157 MMBF (+13.5%) larger. Also, the average net export deficit for the 12 months ending April 2019 was 4.4% larger than the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the graph above). 

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North America (42.4%; of which Canada: 23.0%; Mexico: 19.4%) and Asia (32.6%; especially China: 14.4%; and Japan: 6.8%) were the primary destinations for U.S. softwood lumber exports; the Caribbean ranked third with an 18.7% share. Year-to-date (YTD) exports to China were -64.5% relative to the same months in 2018. Meanwhile, Canada was the source of most (90.9%) of softwood lumber imports into the United States. Imports from Canada were 0.6% higher YTD than the same months in 2018. Overall, YTD exports were down 26.0% compared to 2018; imports: +0.3%. 

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (35.8% of the U.S. total), followed by the Eastern (28.6%) and Gulf (26.2%) regions. Seattle (23.7% of the U.S. total) maintained the lead over Mobile (16.3%) as the single most-active district. At the same time, Great Lakes customs region handled 65.6% of softwood lumber imports -- most notably the Duluth, MN district (28.4%) -- coming into the United States. 

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Southern yellow pine comprised 24.7% of all softwood lumber exports, Douglas-fir (16.6%) and treated lumber (12.1%). Southern pine exports were down 47.6% YTD relative to 2018, while treated: -29.6%; Doug-fir: -6.6%.

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.

May 2019 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 0.1% in May (+0.1% expected) after rising 0.3% in April. The food index rose 0.3% in May after declining in April, with the food index accounting for nearly half of the May seasonally adjusted all items monthly increase. The energy index fell 0.6% in May, with the gasoline index falling 0.5% and the indexes for electricity and natural gas also declining in May.

The index for all items less food and energy increased 0.1% for the fourth consecutive month. The indexes for shelter, medical care, airline fares, education, household furnishings and operations, and new vehicles all rose in May. The indexes for used cars and trucks, recreation, and motor vehicle insurance were among those that declined over the month.   

Over the last 12 months, the all items index increased 1.8% before seasonal adjustment. The all items index increased 1.8% for the 12 months ending May. The index for all items less food and energy rose 2.0% over the last 12 months, and the food index also rose 2.0%. The energy index decreased 0.5% over the past year.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) rose 0.1% in May (+0.1% expected). Final demand prices advanced 0.2% in April and 0.6% in March. The rise in final demand prices is attributable to a 0.3% increase in the index for final demand services. In contrast, prices for final demand goods declined 0.2%.

On an unadjusted basis, the final demand index increased 1.8% for the 12 months ended in May. The index for final demand less foods, energy, and trade services moved up 0.4% in May, the same as in April. For the 12 months ended in May, prices for final demand less foods, energy, and trade services advanced 2.3%.

Final Demand

Final demand services: Prices for final demand services moved up 0.3% in May, the fourth consecutive increase. Most of the May advance can be traced to the index for final demand services less trade, transportation, and warehousing, which rose 0.5%. Prices for final demand transportation and warehousing services climbed 0.7%. Conversely, margins for final demand trade services fell 0.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Nearly 80% of the May advance in the index for final demand services is attributable to prices for guestroom rental, which jumped 10.1%. The indexes for fuels and lubricants retailing, outpatient care (partial), inpatient care, portfolio management, and transportation of passengers (partial) also moved higher. In contrast, margins for apparel, footwear, and accessories retailing declined 5.2%. The indexes for machinery, equipment, parts, and supplies wholesaling and for loan services (partial) also decreased.

Final demand goods: The index for final demand goods moved down 0.2% in May following three consecutive increases. About three-quarters of the decrease can be traced to prices for final demand energy, which fell 1.0%. The index for final demand foods declined 0.3%, while prices for final demand goods less foods and energy were unchanged.

Product detail: Nearly 40% of the May decrease in the index for final demand goods is attributable to prices for gasoline, which fell 1.7%. The indexes for diesel fuel, iron and steel scrap, chicken eggs, beef and veal, and fresh fruits and melons also moved lower. Conversely, prices for prepared poultry products increased 7.0%. The indexes for light motor trucks and jet fuel also advanced. 

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

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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.