February 2020 Construction Spending

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Construction spending during February 2020 was estimated at a seasonally adjusted annual rate (SAAR) of $1,366.7 billion, 1.3% (±0.8%) below the revised January estimate of $1,384.5 billion (originally $1,369.2 billion); consensus expectations were for +0.7%. The February figure is 6.0% (±1.2%) above the February 2019 SAAR of $1,289.0 billion; the not-seasonally adjusted YoY change (shown in the table below) was +7.8%.

During the first two months of this year, construction spending amounted to $193.5 billion, 8.2% (±1.2%) above the $178.8 billion for the same period in 2019.

* 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 $1,025.8 billion, 1.2% (±0.7%) below the revised January estimate of $1,038.5 billion (originally $1,022.7 billion):
- Residential: $564.3 billion, -0.6% (±1.3%)*;
- Nonresidential: $461.5 billion, -2.0% (±0.7%).

Public Construction

Public construction spending was $340.9 billion, 1.5% (±1.6%)* below the revised January estimate of $345.9 billion (originally $346.5 billion):
- Educational: $79.5 billion, -1.5% (±2.6%)*;
- Highway: $102.4 billion, -1.2% (±4.4%)*. 

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Click here for a discussion of February’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.

February 2020 Residential Sales, Inventory and Prices

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Sales of new single-family houses in February 2020 were at a seasonally adjusted annual rate (SAAR) of 765,000 units (743,000 expected). This is 4.4 percent (±14.8 percent)* below the revised January rate of 800,000 (originally 764,000), but 14.3 percent (±17.5 percent)* above the February 2019 SAAR of 669,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +19.3%. For longer-term perspectives, NSA sales were 44.9% below the “housing bubble” peak but 30.1% above the long-term, pre-2000 average.

The median sales price of new houses sold in February jumped ($20,500 or +6.3% MoM) to a record $345,900; meanwhile, the average sales price increased to $403,800 ($19,800 or +5.2%). Starter homes (defined here as those priced below $200,000) comprised 11.8% of the total sold, up from the year-earlier 8.8%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 2.9% of those sold in February, up from 1.8% 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 February, single-unit completions increased by 127,000 units (+14.1%). Although sales fell (35,000 units; -4.4%) while completions rose, inventory for sale contracted in absolute terms (-3,000 units) but expanded in months-of-inventory (+0.2 month) terms. 

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Existing home sales advanced in February (350,000 units or +6.5%), to a SAAR of 5.77 million units. Inventory of existing homes for sale expanded in absolute terms (+70,000 units) but was unchanged in months-of-inventory terms. Because new-home sales fell while resales rose, the share of total sales comprised of new homes retreated to 11.7%. The median price of previously owned homes sold in February increased to $270,100 ($3,900 or +1.5% MoM). 

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Housing affordability improved (+6.7 percentage points) as the median price of existing homes for sale in January fell by $8,400 (-3.0; +6.9 YoY), to $268,600. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices inched up at a not-seasonally adjusted monthly change of less than +0.1% (+3.9% YoY).

"The trend of stable growth established in 2019 continued into the first month of the new year,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index rose by 3.9% in January 2020, and the 10- and 20-City Composites also advanced (by 2.6% and 3.1% respectively). Results for the month were broad-based, with gains in every city in our 20-City Composite; 14 of the 20 cities saw accelerating prices. As has been the case since mid-2019, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in January than they had done in December.

“At a regional level, Phoenix retains the top spot for the eighth consecutive month, with a gain of 6.9% for January. Seattle, Tampa, and San Diego all rose by 5.1%. Housing prices were particularly strong in the West and South, and comparatively weak in the Midwest and Northeast.

“It is important to bear in mind that today’s report covers real estate transactions closed during the month of January. The COVID-19 pandemic did not begin to take hold in the U.S. until late February, and thus whatever impact it will have on housing prices is not reflected in today’s data.” 

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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.

4Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) bumped the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.12% (+2.1% expected), up 0.02 percentage point (PP) from the second estimate (“4Qv2”) and +0.01PP from 3Q2019.

As noted in prior 4Q reports, three of the four groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX) and government consumption expenditures (GCE) -- contributed to 4Q growth; private domestic investment (PDI) detracted.

Changes in this report were truly statistical noise: No component aggregate was revised by more than ±0.07PP; even at the next level down in line items, revisions were smaller than ±0.09PP. Contribution to the GDP headline from PCE was shown to be marginally stronger than in 4Qv2, whereas contributions from the other categories were even more marginally weaker. To provide an idea of just how insignificant the revisions were, the largest positive change was to health care spending (+$8.8 billion), while the largest negative change was to gross output of nonprofit institutions (-$10.6 billion) -- in an economy of $21.7 trillion (nominal dollars). 

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Consumer Metric Institute’s Rick Davis put the above numbers in further context: “March 2020 has made this report completely irrelevant,” he wrote. “The BEA has metaphorically fine-tuned the deck chairs on the Titanic. In a matter of weeks we have transitioned from the above numbers to the reality of unprecedented economic contraction and soaring unemployment rates last seen 90 years ago.

“In fairness, the BEA did what it was charged with doing. But even during times of economic stability, the BEA's quarterly ritual of issuing a preliminary growth estimate, followed a month later by a first revision, followed yet a month later by a final estimate, is obscenely antiquated.

“As a further indictment of the BEA's methodologies, current ‘real time’ estimates -- using those exact same methodologies -- provide us with annualized growth estimates for 1Q2020 of 3.1% (GDPNow, Atlanta Fed) and 1.5% (NowCast, New York Fed). If you are a betting person, we would suggest that you take the ‘under.’”

Davis concluded by saying, “Unlike 90 years ago, this economy won't require a decade and a global war for full recovery. But the contraction will certainly spike lower than anything this generation has ever seen.”

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 2020 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in February at a seasonally adjusted annual rate (SAAR) of 1,599,000 units (1.520 million expected). This is 1.5 percent (±12.4 percent)* below the revised January estimate of 1,624,000 (originally 1.567 million units), but 39.2 percent (±17.7 percent) above the February 2019 SAAR of 1,149,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +41.3%.

Single-family housing starts in February were at a rate of 1,072,000; this is 6.7 percent (±13.9 percent)* above the revised January figure of 1,005,000 units (+37.4% YoY). Multi-family starts: 527,000 units (-14.9% MoM; +49.6% 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 1,316,000 units. This is 0.2 percent (±12.4 percent)* below the revised January estimate of 1,319,000 (originally 1.280 million units) and 1.2 percent (±14.8 percent)* below the February 2019 SAAR of 1,332,000 units; the NSA comparison: -0.2% YoY.

Single-family completions were at a SAAR of 1,027,000; this is 14.1 percent (±14.1 percent)* above the revised January rate of 900,000 units (+24.8% YoY). Multi-family completions: 269,000 units (-31.0% MoM; -42.0% YoY). 

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Total permits amounted to a SAAR of 1,464,000 units (1.500 million expected). This is 5.5 percent (±1.5 percent) below the revised January rate of 1,550,000 (originally 1.551 million units), but 13.8 percent (±2.1 percent) above the February 2019 SAAR of 1,287,000 units; the NSA comparison: +12.4% YoY.

Single-family permits were at a SAAR of 1,004,000; this is 1.7 percent (±1.4 percent) above the revised January figure of 987,000 units (+23.0% YoY). Multi-family: 460,000 (-18.3% MoM; -6.5% YoY). 

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Builder confidence in the market for newly-built single-family homes fell two points to 72 in March, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). Sentiment levels have held in a firm range in the low- to mid-70s for the past six months.

“Builder confidence remains solid, although sales expectations for the next six months dropped four points on economic uncertainty stemming from the coronavirus,” said NAHB Chairman Dean Mon. “Interest rates remain low, and a lack of inventory creates market opportunities for single-family builders.”

“It is important to note that half of the builder responses in the March HMI were collected prior to March 4, so the recent stock market declines and the rising economic impact of the coronavirus will be reflected more in next month’s report,” said NAHB Chief Economist Robert Dietz.  “Overall, 21% of builders in the survey report some disruption in supply due to virus concerns in other countries such as China. However, the incidence is higher (33%) among builders who responded to the survey after March 6, indicating that this is an emerging issue.”

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 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.6% in February (+0.4% expected) after falling by a revised 0.5% in January (originally -0.3%). Manufacturing output edged up 0.1% in February; excluding a large gain for motor vehicles and parts and a large drop for civilian aircraft, factory output was unchanged. The index for mining declined 1.5%, but the index for utilities jumped 7.1%, as temperatures returned to more typical levels following an unseasonably warm January. At 109.6% of its 2012 average, the level of total IP in February was unchanged from a year earlier. 

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Industry Groups

Manufacturing output edged up 0.1% in February, but was still 0.4% below its level of a year earlier (NAICS manufacturing: +0.1% MoM; -0.2% YoY). The output of durable goods increased 0.3%. Among the components of durables, motor vehicle and parts recorded the largest gain, while aerospace and miscellaneous transportation equipment recorded the largest decline (wood products: +0.5%). The output of nondurable manufacturing slipped 0.1% as its components posted mixed results. Sizable declines were posted by textile and product mills, by petroleum and coal products, and by chemicals. Sizable gains were posted by food, beverage, and tobacco products; by apparel and leather; and by printing and support (paper products: +0.6%). The output of other manufacturing (publishing and logging) declined 1.0% and was 9.0% below its year-earlier level.

Mining output fell 1.5% in February, reflecting broad-based declines among its components; even so, overall mining production was 2.1% above its year-earlier level. The output of utilities jumped 7.1% in February, with electric and natural gas utilities each posting large gains. 

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Capacity utilization (CU) for the industrial sector increased 0.4 percentage point (PP) in February to 77.0%, a rate that is 2.8PP below its long-run (1972–2019) average.

Manufacturing CU in February was 75.0%, unchanged from its rate in January but 3.2PP below its long-run average (NAICS manufacturing: 0.0%, at 75.6%; wood products: +0.2%; paper products: +0.6%). The utilization rate for mining fell to 88.4%, but it was 1.2PP above its long-run average. The operating rate for utilities advanced to 75.8%, a rate that is 9.4PP below its long-run average. 

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Capacity at the all-industries level nudged up 0.1% (+2.0 % YoY) to 142.4% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.4% YoY) to 140.4%. Wood products: +0.2% (+3.9% YoY) to 169.9%; paper products: 0.0% (-0.2 % 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.

January 2020 International Trade (Softwood Lumber)

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Softwood lumber exports increased (13 MMBF or +13.4%) in January; imports fell (209 MMBF or -16.9%). Exports were 15 MMBF (-12.1%) below year-earlier levels; imports were 19 MMBF (-1.8%) lower. As a result, the year-over-year (YoY) net export deficit was 5 MMBF (-0.5%) smaller. Also, the average net export deficit for the 12 months ending January 2020 was 0.9% 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 (45.1%; of which Canada: 18.4%; Mexico: 26.7%) and Asia (27.3%; especially China: 7.7%; and Japan: 5.9%) were the primary destinations for U.S. softwood lumber exports; the Caribbean ranked third with a 21.7% share (especially the Dominican Republic: 10.5%). Year-to-date (YTD) exports to China were -28.2% relative to the same months in 2019. Meanwhile, Canada was the source of most (86.1%) of softwood lumber imports into the United States. Imports from Canada were 3.1% lower YTD than the same months in 2019. Overall, YTD exports were down 32.3% compared to 2019; imports: -1.8%. 

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U.S. softwood lumber export activity through the Gulf customs region represented the largest proportion (34.2% of the U.S. total), followed by the West Coast (33.5%) and Eastern (26.0%) regions. Seattle (17.4% of the U.S. total) was overtaken by Mobile (20.1%) as the single most-active district. At the same time, Great Lakes customs region handled 59.6% of softwood lumber imports -- most notably the Duluth, MN district (19.8%) -- coming into the United States. 

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Southern yellow pine comprised 27.0% of all softwood lumber exports, Douglas-fir (12.8%) and treated lumber (16.2%) were also significant. Southern pine exports were down 5.3% YTD relative to 2019, while treated: +15.3%; Doug-fir: -3.6%.

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.

February 2020 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 0.1% in February (+0.1% expected). Increases in the indexes for shelter and for food were the main causes of the increase in the seasonally adjusted all items index, more than offsetting a decline in the energy index. The food index increased 0.4% over the month, with the food at home index rising 0.5%, its largest monthly increase since May 2014. The index for energy fell 2.0% in February, with all of its major component indexes declining.  

The index for all items less food and energy rose 0.2% in February, the same increase as in January. Along with the index for shelter, the indexes for apparel, personal care, used cars and trucks, education, and medical care were among those that increased in February. The indexes for recreation and airline fares declined over the month.  

The all items index increased 2.3% for the 12 months ending February, a smaller increase than the 2.5% figure for the period ending January. The index for all items less food and energy rose 2.4% over the last 12 months. The food index rose 1.8% over the last 12 months, while the energy index increased 2.8% over that period.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) fell 0.6% in February (+0.2% expected). Final demand prices advanced 0.5% in January and 0.2% in December. In February, 60% of the decline in the final demand index can be traced to a 0.9% decrease in prices for final demand goods. The index for final demand services moved down 0.3%.

On an unadjusted basis, the final demand index increased 1.3% for the 12 months ended in February. Prices for final demand less foods, energy, and trade services inched down 0.1% in February, the first decline since falling 0.1% in June 2019. For the 12 months ended in February, the index for final demand less foods, energy, and trade services rose 1.4%.

Final Demand

Final demand goods: The index for final demand goods fell 0.9% in February, the largest decline since moving down 1.1% in September 2015. Over 60% of the broad-based February decrease can be traced to prices for final demand energy, which dropped 3.6%. The indexes for final demand foods and for final demand goods less foods and energy declined 1.6% and 0.1%, respectively.

Product detail: Nearly one-third of the February decrease in the index for final demand goods is attributable to gasoline prices, which dropped 6.5%. The indexes for fresh and dry vegetables, diesel fuel, jet fuel, meats, and light motor trucks also moved lower. In contrast, prices for chicken eggs rose 27.8%. The indexes for pharmaceutical preparations and electric power also increased. (See table 4.)

Final demand services: The index for final demand services fell 0.3% in February, the largest decline since moving down 0.3% in September 2019. In February, over 70% of the broad-based decrease can be traced to margins for final demand trade services, which dropped 0.7%. (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 declined 0.1% and 0.6%, respectively.

Product detail: Leading the February decrease in prices for final demand services, margins for apparel, jewelry, footwear, and accessories retailing dropped 11.7%. The indexes for guestroom rental; loan services (partial); food and alcohol wholesaling; health, beauty, and optical goods retailing; and airline passenger services also moved lower. Conversely, margins for machinery, equipment, parts, and supplies wholesaling increased 1.3%. The indexes for outpatient care (partial) and wireless telecommunication services also advanced. 

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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.