August 2020 Construction Spending

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Construction spending during August 2020 was estimated at a seasonally adjusted annual rate (SAAR) of $1,412.8 billion, 1.4% (±1.0%) above the revised July estimate of $1,392.7 billion (originally $1,364.6 billion); consensus expectations were for +0.7%. The August figure is 2.5% (±1.5%) above the August 2019 SAAR of $1,379.0 billion; the not-seasonally adjusted YoY change (shown in the table below) was +1.6%.

During the first eight months of this year, construction spending amounted to $927.7 billion, 4.2% (±1.2%) above the $889.9 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 $1,061.4 billion, 1.9% (±0.7%) above the revised July estimate of $1,041.7 billion (originally $1,013.5 billion):

* Residential: $589.4 billion, +3.7% (±1.3%), of which

* Home improvement: $216.1 billion, +3.0% (+9.8% YoY);

* Nonresidential: $472.0 billion, -0.3% (±0.7%)*.

Public Construction

Public construction spending was $351.4 billion, 0.1% (±1.8%)* above the revised July estimate of $350.9 billion (originally $353.1 billion):

* Educational: $82.6 billion, +0.6% (±1.8%)*;

* Highway: $100.6 billion, +1.9% (±4.6%)*.

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Click here for a discussion of August’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.

2Q2020 Gross Domestic Product: Third Estimate

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In its third estimate of 2Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -31.39% (-31.7% expected), up 0.31 percentage point (PP) from the second estimate (“2Qv2”) but -26.43PP from 1Q2020.

As noted in prior 2Q reports, two of the four groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- contributed to 2Q growth; personal consumption expenditures (PCE) and private domestic investment (PDI) detracted.

The headline number’s uptick reflected mostly insignificant changes to line items, which can be summarized as upward revisions to consumer spending on services and residential investment that were partly offset by downward revisions to exports and to business investment in intellectual property products. The most noteworthy changes included:

* PCE, services. From -22.77% to -21.95%.

* PDI, intellectual property products. From -0.35% to -0.53%.

* PDI, residential. From -1.72% to -1.60%.

* NetX, services exports. From -2.76% to -2.95%.

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“There is nothing new in this report, which is merely the statistical fine tuning and rehashing of a quarter that ended nearly three months ago,” wrote Consumer Metrics Institute’s Rick Davis. “Unfortunately, the BEA’s monthly release cycle gives us three progressively refined views of the same past quarter, when what we really need to know is how the economy has been performing since then.

“This also sets up a critical first report for 3Q2020, to be released on October 29th -- six days before the 2020 U.S. presidential election. Although the actual numbers are likely to be something of a wild card (the current NY Fed and Atlanta Fed ‘real-time’ headline guesstimates differ by over 15%!), the ‘annualization-of-quarterly-changes’ methodology employed by the BEA is guaranteed to generate an eye-popping positive headline number (probably somewhere from 15% to over 30% of spectacular ‘growth’). Clearly a number of politicians are going to claim that the BEA has just verified a ‘V’ shaped recovery, for which they will take credit -- although by then most votes will already have been cast.”

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.

August 2020 Residential Sales, Inventory and Prices

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Sales of new single-family houses in August 2020 were at a seasonally adjusted annual rate (SAAR) of 1,011,000 units (774,000 expected). This is 4.8 percent (±10.5 percent)* above the revised July rate of 965,000 (originally 901,000 units) and 43.2 percent (±19.5 percent) above the August 2019 SAAR of 706,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +45.6%. For longer-term perspectives, NSA sales were 27.2% below the “housing bubble” peak but 58.8% above the long-term, pre-2000 average.

The median sales price of new houses sold in August fell ($15,000 or -4.6% MoM) to $312,800; meanwhile, the average sales price decreased to $369,000 ($2,900 or -0.8%). Starter homes (defined here as those priced below $200,000) comprised 7.8% of the total sold, down 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 0.6% of those sold in August, down 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 August, single-unit completions decreased by 42,000 units (-4.4%). Since completions fell while sales rose (46,000 units; +4.8%), inventory for sale contracted in both absolute (-9,000 units) and months-of-inventory (-0.3 month) terms.

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Existing home sales extended gains in August (140,000 units or +2.4%), to a SAAR of 6.00 million units (5.965 million expected). Inventory of existing homes for sale contracted in both absolute (-10,000 units) and months-of-inventory terms (-0.1 month). Although resales rose by a wider margin than new-home sales, the share of total sales comprised of new homes ticked up to 14.4%. The median price of previously owned homes sold in August rose to a new record $310,600 ($5,100 or +1.7 MoM).

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Housing affordability deteriorated (-0.9 percentage point) as the median price of existing homes for sale in July rose by $9,900 (+3.3% MoM; +8.5 YoY), to $307,800. 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 +0.8% (+4.8% YoY).

“Housing prices rose in July,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “The National Composite Index gained 4.8% relative to its level a year ago, slightly ahead of June’s 4.3% increase. The 10- and 20-City Composites (up 3.3% and 3.9%, respectively) also rose at an accelerating pace in July compared to June. The strength of the housing market was consistent nationally -- all 19 cities for which we have July data rose, with 16 of them outpacing their June gains.

“In previous months, we’ve noted that a trend of accelerating increases in the National Composite Index began in August 2019. That trend was interrupted in May and June, as price gains decelerated modestly, but now may have resumed. Obviously more data will be required before we can say with confidence that any COVID-related deceleration is behind us.

“Phoenix’s 9.2% increase topped the league table for July; this is the 14th consecutive month in which Phoenix home prices rose more than those of any other city. Seattle (7.0%), Charlotte (6.0%) and Tampa (5.9%) continue to occupy the next three places, but there was some growth even in the worst performing cities, Chicago (0.8%) and New York (1.3%). Prices were particularly strong in the Southeast and West regions, and comparatively weak in the Midwest and Northeast.”

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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.

August 2020 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in August at a seasonally adjusted annual rate (SAAR) of 1,416,000 units (1.486 million expected). This is 5.1% (±9.6%)* below the revised July estimate of 1,492,000 (originally 1,496,000 units), but 2.8% (±10.3%)* above the August 2019 SAAR of 1,377,000 units; the not-seasonally adjusted YoY change (shown in the table above) was +5.2%.

Single-family housing starts in August were at a SAAR of 1,021,000; this is 4.1% (±8.7%)* above the revised July figure of 981,000 units (+15.2% YoY). Multi-family starts: 395,000 units (-22.7% MoM; -15.0% 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 1,233,000 units. This is 7.5% (±14.2%)* below the revised July estimate of 1,333,000 (originally 1.280 million units) and 2.4% (±11.9%)* below the August 2019 SAAR of 1,263,000 units; the NSA comparison: -3.4% YoY.

Single-family completions were at a SAAR of 912,000; this is 4.4% (±19.1%)* below the revised July SAAR of 954,000 units (-3.6% YoY). Multi-family completions: 321,000 units (-15.3% MoM; -3.0% YoY).

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Total permits amounted to a SAAR of 1,470,000 units (1.530 million expected). This is 0.9% (±1.4%)* below the revised July rate of 1,483,000 (originally 1.495 million units) and 0.1% (±1.5%)* below the August 2019 SAAR of 1,471,000 units; the NSA comparison: -4.6% YoY.  

Single-family permits were at a SAAR of 1,036,000; this is 6.0% (±1.3%) above the revised July figure of 977,000 units (+11.4% YoY). Multi-family: 434,000 (-14.2% MoM; -29.7% YoY).

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In a strong signal that housing is leading the economic recovery, builder confidence in the market for newly-built single-family homes increased five points to hit an all-time high of 83 in September, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). The previous highest reading of 78 in the 35-year history of the series was set in August and also matched in December 1998.

“Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber,” said NAHB Chairman Chuck Fowke. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”

“Lumber prices are now up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home,” said NAHB Chief Economist Robert Dietz. “That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

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.

August 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in August (+1.2% expected) for its fourth consecutive monthly increase. However, even after the recent gains, the index in August was 7.3% below its pre-pandemic February level. Manufacturing output continued to improve in August, rising 1.0%, but the gains for most manufacturing industries have gradually slowed since June. Mining production fell 2.5% in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4%. At 101.4% of its 2012 average, the level of total industrial production was 7.7% lower in August than it was a year earlier.

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Industry Groups

Manufacturing output increased 1.0% in August. After falling 20.3% between February and April, factory production has rebounded; even so, in August it was still 6.7% below its February level (NAICS manufacturing: +1.0% MoM; -6.6% YoY). The index for durable manufacturing rose 0.7%, as a decline in the output of motor vehicles and parts was more than offset by broad-based increases for other durable goods industries (wood products: +1.4%). The index for nondurables rose 1.2%, with gains of more than 3% for apparel and leather and for plastics and rubber products (paper products: +0.4%). The output of other manufacturing (publishing and logging) increased 1.9%.

The index for utilities moved down 0.4% in August, with small decreases for both electric and gas utilities. Mining output fell 2.5% as a result of the drops in oil and gas drilling and extraction; coal and other types of mining posted gains.

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) in August to 71.4%, a rate that is 8.4PP below its long-run (1972–2019) average but 7.3PP above its low in April.

Manufacturing CU was 70.2% in August, 10.3PP higher than its trough in April but still 8.0PP below its long-run average (NAICS manufacturing: +1.0%, to 70.9%). The operating rates for durable and nondurable manufacturing increased to 69.4% and 72.4%, respectively. The rate for durables was 15.5PP above its April low but still 5.5PP below its pre-pandemic February level (wood products: +1.4%); the rate for nondurables has risen 5.1PP since April but was still 4.0PP below its February level (paper products: +0.5%). The operating rate for mining moved down to 74.5% in August, the second-lowest level in the history of the series after the 72.6% rate recorded in May of this year.

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Capacity at the all-industries level was essentially unchanged MoM (+0.6 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.4% YoY) at 140.1%. Wood products: 0.0% (+1.7% YoY) at 169.7%; paper products: -0.1% (-0.6 % YoY) to 109.1%.

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.

August 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) increased 0.4% in August (0.3% expected). The monthly increase in the seasonally adjusted all-items index was broad-based; a sharp rise in the used cars and trucks index was the largest factor, but the indexes for gasoline, shelter, recreation, and household furnishings and operations also contributed. The energy index rose 0.9% in August as the gasoline index rose 2.0%. The food index rose 0.1% in August after falling in July; an increase in the food away from home index more than offset a slight decline in the food at home index. 

The index for all items less food and energy rose 0.4% in August after increasing 0.6% in July. The sharp rise in the index for used cars and trucks accounted for over 40% of the increase; the indexes for shelter, recreation, household furnishings and operations, apparel, motor vehicle insurance, and airline fares also rose. The indexes for education and personal care were among the few to decline.

The all-items index increased 1.3% for the 12 months ending August; this figure has been rising since the period ending May 2020, when the 12-month increase was 0.1%. The index for all items less food and energy increased 1.7% over the last 12 months. The food index increased 4.1% over the last 12 months, with the index for food at home rising 4.6%. Despite recent monthly increases, the energy index fell 9.0% over the last 12 months.

 

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.3% in August (+0.3% expected). Final demand prices rose 0.6% in July and fell 0.2% in June. The August rise was led by a 0.5% increase in the index for final demand services. Prices for final demand goods also advanced, inching up 0.1%. The index for final demand less foods, energy, and trade services moved up 0.3% in August, the same as in both July and June.

On a year-over-year comparison, the final demand index declined 0.2% for the 12 months ended in August. Final demand less foods, energy, and trade services increased 0.3%.

Final Demand

Final demand services: The index for final demand services rose 0.5% in August, the same as in July. In August, two-thirds of the advance can be traced to a 1.2% increase in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) The indexes for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services also moved up, 0.3% and 0.2%, respectively.

Product detail: Nearly 20% of the August advance in prices for final demand services is attributable to a 1.1% increase in margins for machinery, equipment, parts, and supplies wholesaling. The indexes for automobiles and automobile parts retailing; truck transportation of freight; food retailing; portfolio management; and securities brokerage, dealing, investment advice, and related services also rose. In contrast, margins for chemicals and allied products wholesaling declined 4.5%. The indexes for airline passenger services and investment banking also fell.

Final demand goods: Prices for final demand goods edged up 0.1% in August, the fourth consecutive increase. The August rise can be attributed to a 0.3% advance in the index for final demand goods less foods and energy. Conversely, prices for final demand foods fell 0.4%, and the index for final demand energy declined 0.1%.

Product detail: Among prices for final demand goods in August, the index for plastic resins and materials rose 4.0%. Prices for diesel fuel, gas fuels, packaged fluid milk and related products, and nonferrous scrap also moved higher. In contrast, the index for chicken eggs dropped 12.2%. Prices for home heating oil, gasoline, and ethanol also decreased.

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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.

July 2020 International Trade (Softwood Lumber)

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Softwood lumber exports edged down (1 MMBF or -1.3%) in July whereas imports rose (35 MMBF or +3.0%). Exports were 28 MMBF (-24.0%) below year-earlier levels; imports were 85 MMBF (+7.6%) higher. As a result, the year-over-year (YoY) net export deficit was 113 MMBF (+11.2%) larger. Also, the average net export deficit for the 12 months ending July 2020 was 2.7% 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 (51.6%; of which Canada: 26.8%; Mexico: 24.8%), Asia (24.1%; especially China: 9.4%; and Japan: 6.3%), and the Caribbean: 17.9% (especially the Dominican Republic: 4.1%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -8.9% relative to the same months in 2019. Meanwhile, Canada was the source of most (86.6%) of softwood lumber imports into the United States. Imports from Canada were 8.6% lower YTD than the same months in 2019. Overall, YTD exports were down 17.7% compared to 2019; imports: -4.7%.

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U.S. softwood lumber export activity through the West Coast customs region represented the largest proportion (39.7% of the U.S. total), followed by the Eastern (26.5%) and Gulf (24.0%) regions. Seattle (22.8% of the U.S. total) was the single most-active district, followed by San Diego (15.9%) and Mobile (14.7%). At the same time, Great Lakes customs region handled 57.0% of softwood lumber imports -- most notably the Duluth, MN district (20.8%) -- coming into the United States.

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Southern yellow pine comprised 22.0% of all softwood lumber exports, Douglas-fir (17.7%) and treated lumber (13.7%) were also significant. Southern pine exports were down 13.0% YTD relative to 2019, while treated: -12.5%; Doug-fir: -11.9%.

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.