November 2019 Construction Spending

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Construction spending during November 2019 was estimated at a seasonally adjusted annual rate (SAAR) of $1,324.1 billion, 0.6% (±1.0%)* above the revised October estimate of $1,316.8 billion (originally $1,291.1 billion); consensus expectations were for +0.5%. The November figure is 4.1% (±1.5%) above the November 2018 SAAR of $1,271.4 billion; the not-seasonally adjusted YoY change (shown in the table below) was +3.9%.

During the first 11 months of 2019, construction spending amounted to $1,201.6 billion, 0.8% (±1.2%)* below the $1,211.8 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 $985.5 billion, 0.4% (±0.7%)* above the revised October estimate of $981.1 billion (originally $956.3 billion):
- Residential: $536.1 billion, +1.9% (±1.3%);
- Nonresidential: $449.4 billion, -1.2% (±0.7%).

Public Construction

Public construction spending was $338.6 billion, 0.9% (±1.5%)* above the revised October estimate of $335.7 billion (originally $334.8 billion):
- Educational: virtually unchanged (±1.5%)*;
- Highway: +2.2% (±3.9%)*. 

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Click here for a discussion of November’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.

November 2019 Residential Sales, Inventory and Prices

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Sales of new single-family houses in November 2019 were at a seasonally adjusted annual rate of (SAAR) 719,000 units (735,000 expected). This is 1.3 percent (±11.0 percent)* above the revised October rate of 710,000 (originally 733,000) and 16.9 percent (±19.4 percent)* above the November 2018 SAAR of 615,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +18.2%. For longer-term perspectives, NSA sales were 48.2% below the “housing bubble” peak and 0.5% below the long-term, pre-2000 average.

The median sales price of new houses sold in November rose to $330,800 ($13,900 or +4.4% MoM); meanwhile, the average sales price jumped to $388,200 ($10,300 or +2.7%). Starter homes (defined here as those priced below $200,000) comprised 9.6% of the total sold, down from the year-earlier 11.4%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 1.9% of those sold in November, down from 2.3% 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 November, single-unit completions increased by 39,000 units (+4.5%). Although sales ticked up (9,000 units; +1.3%) while completions fell, inventory for sale was unchanged in absolute terms but shrank in months-of-inventory (-0.1 month) terms. 

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Existing home sales retreated in November (90,000 units or -1.7%), to a SAAR of 5.35 million units. Inventory of existing homes for sale shrank in absolute (-130,000 units) and months-of-inventory (-0.2 month) terms. Because new-home sales rose while resales fell, the share of total sales comprised of new homes advanced to 11.8%. The median price of previously owned homes sold in November inched up to $271,300 ($300 or +0.1% MoM). 

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Housing affordability worsened (-1.3 percentage points) despite the median price of existing homes for sale in October falling by $800 (-0.3%; +6.2 YoY), to $273,600. 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 +0.1% (+3.3% YoY).

"October’s U.S. housing data continue to be reassuring,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “With October’s 3.3% increase in the national composite index, home prices are currently more than 15% above the pre-financial crisis peak reached July 2006. October’s results were broad-based, as both our 10- and 20-city composites rose. Of the 20 cities in the composite, only San Francisco saw a year-over-year price decline in October.

“At a regional level, Phoenix retains the top spot for the fifth consecutive month with October’s 5.8% year-over-year gain. The Southeast region was also strong, as Tampa, Charlotte, and Atlanta all rose by more than 4.0%.

“As was the case last month, after a long period of decelerating price increases, the national, 10-city, and 20-city composites all rose at a modestly faster rate in October compared to September. This stability was broad-based, reflecting data in 12 of 20 cities. It is, of course, still too soon to say whether this marks an end to the deceleration or is merely a pause in the longer-term trend.” 

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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.

3Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) shaved the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.11% (+2.1% expected), down 0.02 percentage point (PP) from the second estimate (“3Qv2”) but +0.10PP from 2Q2019.

Two of the four groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed to 3Q growth; private domestic investment (PDI) and net exports (NetX) detracted.

Although the headline number edged down by only 0.02PP, there were two material shifts in the underlying details: First, the growth rate for consumer spending on services was revised up by 0.22PP (to +1.02%). Second, the growth rate of inventories was trimmed by a nearly offsetting -0.20PP (to -0.03%). The only other somewhat material adjustment was to the growth rate of consumer spending on goods, which was revised down by 0.08PP, to +1.09%. Other details included:

* Personal consumption came in at 2.12% whereas PDI, NetX and GCE netted out to zero, indicating the consumer was once again the driving force behind GDP.

* Fixed investment was revised modestly less negative, to -0.14% from 3Qv2’s -0.18% -- but nevertheless represented the first consecutive QoQ drop in investment since 2009.

* Nonresidential fixed investment (i.e., spending on equipment, structures and intellectual property fell by 0.31% in 3Q after a 0.14% drop in 2Q.

* Private inventories were unexpectedly revised back into negative territory, subtracting 0.03PP from the headline, after adding 0.17PP in 3Qv2.

* Net trade exerted a bit more drag (down 0.03PP, to -0.14%) compared to 3Qv2. 

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“As might be expected for a second revision, most of this report's changes can be characterized as statistical noise,” wrote Consumer Metric Institute’s Rick Davis, whose observations can be summarized as follows:

-- We have had two quarters of roughly +2% growth following [one quarter] of 3% growth during 1Q2019. The numbers have not changed materially during the last two quarters, and although we might like slightly higher growth, a steady 2% makes the U.S. economy the envy of most of the developed world.

-- Looking forward, the Fed's forecasting series are of mixed mind. The New York Fed's “Nowcasting” projection for 4Q2019 is substantially weaker and well below 1% growth, while the Atlanta Fed's "GDPNow" forecast is actually pointing modestly upward.

-- And the breathlessly reported holiday retail reports are similarly of mixed mind. Not surprisingly it seems to matter which classes of retailers are being sampled -- or perhaps more importantly, which story line or agenda is being promoted.

-- All of which does not address the fact that we have collectively entered a whole new level of political "Fear, Uncertainty and Doubt" -- just as holiday shoppers head out for their final round of hunting and gathering.

"In summary, mixed messages are all around us," Davis concluded. "By selectively choosing among those messages it is possible to build a plausible argument for just about any future economic scenario. In the end we will simply have to wait and see -- and unfortunately the wait is probably until the upcoming quarter is safely in the rear-view mirror."

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.

November 2019 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in November at a seasonally adjusted annual rate (SAAR) of 1,365,000 units (1.340 million expected). This is 3.2 percent (±10.0 percent)* above the revised October estimate of 1,323,000 (originally 1.314 million units) and 13.6 percent (±12.8 percent) above the November 2018 SAAR of 1,202,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +13.5%.

Single-family housing starts were at a SAAR of 938,000; this is 2.4 percent (±5.8 percent)* above the revised October figure of 916,000 (+16.8% YoY). Multi-family starts: 427,000 units (+4.9% MoM; +7.6% 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 1,188,000 units. This is 6.6 percent (±8.9 percent)* below the revised October estimate of 1,272,000 (originally 1.256 million units), but 7.3 percent (±14.8 percent)* above the November 2018 SAAR of 1,107,000 units; the NSA comparison: +6.7% YoY.

Single-family completions were at a SAAR of 883,000; this is 3.6 percent (±10.0 percent)* below the revised October rate of 916,000 (+12.6% YoY). Multi-family completions: 305,000 units (-14.3% MoM; -8.8% YoY). 

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Total permits amounted to a SAAR of 1,482,000 units (1.410 million expected). This is 1.4 percent (±1.4 percent)* above the revised October rate of 1,461,000 (originally 1.461 million units) and 11.1 percent (±1.8 percent) above the November 2018 SAAR of 1,334,000 units; the NSA comparison: +5.7% YoY.

Single-family permits were at a SAAR of 918,000; this is 0.8 percent (±1.3 percent)* above the revised October figure of 911,000 (+4.1% YoY). Multi-family: 564,000 (+2.5% MoM; +8.0% YoY). 

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Builder confidence in the market for newly-built single-family homes increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since June of 1999.

“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” said NAHB Chairman Greg Ugalde.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB Chief Economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

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.

November 2019 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) and manufacturing production both rebounded 1.1% (+0.9% expected for total IP) in November after declining in October. These sharp November increases were largely due to a bounceback in the output of motor vehicles and parts following the end of a strike at a major manufacturer. Excluding motor vehicles and parts, the indexes for total industrial production and for manufacturing moved up 0.5% and 0.3%, respectively. Mining production edged down 0.2%, while the output of utilities increased 2.9%.

At 109.7% of its 2012 average, total industrial production was 0.8% lower in November than it was a year earlier. 

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Industry Groups

Manufacturing output rose 1.1% in November (NAICS manufacturing: +1.1% MoM; -0.7% YoY) after having been held down in September and October by the strike in the motor vehicle industry. An increase of 2.2% for durables primarily reflected a jump of 12.4% for motor vehicles and parts, but even excluding motor vehicles and parts, the output of durables moved up 0.6%. The indexes for primary metals and for computer and electronic products advanced 1% or more, while the indexes for nonmetallic mineral products, furniture and related products, and machinery declined modestly (wood products: +0.3%). The production of nondurables edged up 0.1%, as increases for plastics and rubber products and for food, beverages, and tobacco products were mostly offset by decreases for petroleum and coal products, for chemicals, and for apparel and leather (paper products: +0.1%). The output of other manufacturing (publishing and logging) fell 1.9%.

Mining output slipped 0.2% in November following a larger decrease in October. Declines in drilling and related support activities for oil and gas wells have weighed down the index for mining for several months. 

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Capacity utilization (CU) for the industrial sector increased 0.7 percentage point (PP) in November to 77.3%, a rate that is 2.5PP below its long-run (1972–2018) average.

Manufacturing CU increased 0.7PP in November to 75.2%, a rate that is 3.1PP below its long-run average (NAICS manufacturing: +1.0%, to 75.7%). The operating rate for durables rose 1.5PP, while the rate for nondurables edged down 0.1PP (wood products: -0.1%; paper products: +0.1%). The utilization rate for mining moved down to 88.6% yet was still 1.5PP higher than its long-run average. The rate for utilities increased 2.1PP but remained well below its long-run average. 

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Capacity at the all-industries level nudged up 0.2% (+2.1 % YoY) to 141.9% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.4% YoY) to 140.1%. Wood products: +0.3% (+4.1% YoY) to 168.6%; paper products: 0.0% (-0.3 % YoY) to 109.7%.

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.

November 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) rose 0.3% in November (+0.2% expected), after rising 0.4% in October. Increases in the shelter and energy indexes were major factors in the seasonally adjusted monthly increase of the all items index. Increases in the indexes for medical care, for recreation, and for food also contributed to the overall increase. The gasoline index rose 1.1% in November and the other major energy component indexes also increased. The food index rose 0.1%, with the indexes for both food at home and food away from home increasing over the month.

The index for all items less food and energy rose 0.2% in November, the same increase as in October. Along with the indexes for shelter, for medical care, and for recreation, the indexes for used cars and trucks and for apparel also rose in November. The new vehicles index fell in November, as did the index for airline fares.

The all items index increased 2.1% for the 12 months ending November, a larger rise than the 1.8% increase for the period ending October. The index for all items less food and energy rose 2.3% over the last 12 months. The food index rose 2.0% over the last l2 months, while the energy index declined 0.6% over the last year.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) was unchanged in November (+0.2% expected). Final demand prices increased 0.4% in October and fell 0.3% in September. In November, a 0.3% rise in prices for final demand goods offset a 0.3% decrease in the index for final demand services.

The final demand index advanced 1.1% for the 12 months ended in November. The index for final demand less foods, energy, and trade services was unchanged in November after inching up 0.1% in October. For the 12 months ended in November, prices for final demand less foods, energy, and trade services moved up 1.3%, the smallest advance since climbing 1.3% in the 12 months ended September 2016.

Final Demand

Final demand goods: The index for final demand goods increased 0.3% in November following a 0.7% advance in October. Half of the broad-based rise in November is attributable to a 1.1% advance in prices for final demand foods. The indexes for final demand energy and for final demand goods less foods and energy moved up 0.6% and 0.2%, respectively.

Product detail: A major factor in the increase in prices for final demand goods was the index for meats, which climbed 3.9%. Prices for gasoline, chicken eggs, diesel fuel, fresh and dry vegetables, and tobacco products also moved higher. In contrast, the index for residential electric power fell 0.6%. Prices for unprocessed finfish and industrial chemicals also declined.

Final demand services: The index for final demand services moved down 0.3% in November, the largest decrease since falling 0.3% in February 2017. Over two-thirds of the broad-based decline in November can be traced to margins for final demand trade services, which decreased 0.6%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services fell 0.1% and 0.3%, respectively.

Product detail: Margins for food wholesaling, which dropped 5.0%, were a major factor in the November decline in prices for final demand services. The indexes for hospital outpatient care; machinery and vehicle wholesaling; airline passenger services; professional and commercial equipment wholesaling; and securities brokerage, dealing, investment advice, and related services also moved lower. Conversely, prices for traveler accommodation services increased 2.6%. The indexes for machinery and equipment parts and supplies wholesaling and for long-distance motor carrying also rose. 

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The not-seasonally adjusted price indexes we track were mixed on both MoM and YoY bases. 

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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.

October 2019 International Trade (Softwood Lumber)

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Softwood lumber exports increased (7 MMBF or +6.4%) in October; imports fell (16 MMBF or -1.2%). Exports were 42 MMBF (-27.5%) below year-earlier levels; imports were 61 MMBF (-4.7%) lower. As a result, the year-over-year (YoY) net export deficit was 20 MMBF (-1.7%) smaller. Also, the average net export deficit for the 12 months ending October 2019 was 4.0% smaller 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 (48.8%; of which Canada: 26.1%; Mexico: 22.7%) and Asia (26.4%; especially China: 6.2%; and Japan: 7.0%) were the primary destinations for U.S. softwood lumber exports; the Caribbean ranked third with a 17.8% share. Year-to-date (YTD) exports to China were -62.1% relative to the same months in 2018. Meanwhile, Canada was the source of most (89.0%) of softwood lumber imports into the United States. Imports from Canada were 4.6% lower YTD than the same months in 2018. Overall, YTD exports were down 23.3% compared to 2018; imports: -4.7%. 

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (36.4% of the U.S. total), followed by the Eastern (26.7%) and Gulf (25.8%) regions. Seattle (21.1% of the U.S. total) maintained the lead over Mobile (15.4%) as the single most-active district. At the same time, Great Lakes customs region handled 62.2% of softwood lumber imports -- most notably the Duluth, MN district (23.6%) -- coming into the United States. 

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Southern yellow pine comprised 25.9% of all softwood lumber exports, Douglas-fir (17.4%) and treated lumber (11.5%) were also significant. Southern pine exports were down 37.8% YTD relative to 2018, while treated: -25.4%; Doug-fir: -5.2%.

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.