February 2021 Construction Spending

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Construction spending during February 2021 was estimated at a seasonally adjusted annual rate (SAAR) of $1,516.9 billion, 0.8% (±0.7%) below the revised January estimate of $1,529.0 billion (originally $1,521.5 billion); consensus expectations were for -0.8%. The February figure is 5.3% (±1.0%) above the February 2020 SAAR of $1,441.1 billion; the not-seasonally adjusted YoY change (shown in the table below) was +3.4%.

During the first two months of this year, construction spending amounted to $213.2 billion, 4.9% (±1.0%) above the $203.2 billion for the same period in 2020.

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Private Construction

Spending on private construction was at a SAAR of $1,165.7 billion, 0.5% (±0.7%)* below the revised January estimate of $1,171.6 billion (originally $1,160.0 billion):
* Residential. $717.9 billion, -0.2% (±1.3%),* of which
* Home improvement. $248.0 billion, -0.2% (+18.2% YoY);
* Nonresidential. $447.8 billion, -1.0% (±0.7%).

Public Construction

Public construction spending was $351.2 billion, 1.7% (±1.2%) below the revised January estimate of $357.4 billion (originally $361.5 billion):
* Educational. $86.9 billion, -3.2% (±1.3%);
* Highway. $102.3 billion, -0.6% (±3.1%).*

* 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 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 2021 Residential Sales, Inventory and Prices

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Sales of new single-family houses in February 2021 were at a seasonally adjusted annual rate (SAAR) of 775,000 units (875,000 expected). This is 18.2% (±13.9%) below the revised January rate of 948,000 (originally 923,000 units), but 8.2% (±21.7%)* above the February 2020 SAAR of 716,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +1.6%. For longer-term perspectives, NSA sales were 44.2% below the “housing bubble” peak but 22.4% above the long-term, pre-2000 average.

The median sales price of new houses sold in February fell ($3,800 or -1.1% MoM) to $349,400; meanwhile, the average sales price rose to $416,000 ($5,600 or +1.4% MoM). Starter homes (defined here as those priced below $200,000) comprised 3.8% of the total sold, down from the year-earlier 11.1%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 were less than 1% of sales, down from 1.1% 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 28,000 units (+2.8%). Because sales (-173,000 units; -18.2%) fell while completions rose, inventory for sale expanded in both absolute (+8,000 units) and months-of-inventory (+1.0 month) terms. 

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Existing home sales slumped in February (440,000 units or -6.6%), to a SAAR of 6.22 million units (6.500 million expected). Inventory of existing homes for sale was unchanged in absolute terms but nudged higher (0.1 month) in months-of-inventory terms. Because resales fell proportionally more slowly than new-home sales, the share of total sales comprised of new homes retreated to 11.1%. The median price of previously owned homes sold in February advanced to $313,000 ($9,400 or +3.1% MoM).

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Housing affordability jumped by +15.4 percentage points as the median price of existing homes for sale in January fell by $5,400 (-1.7% MoM; +14.8 YoY), to $308,300. 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 +0.8% (+11.2% YoY).

“The strong price gains that we observed in the last half of 2020 continued into the first month of the new year. In January 2021, the National Composite Index rose by 11.2% compared to its year-ago levels,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The trend of accelerating prices that began in June 2020 has now reached its eighth month and is also reflected in the 10- and 20-City Composites (up 10.9% and 11.1%, respectively). The market’s strength is broadly-based: all 20 cities rose, and all 20 cities gained more in the 12 months ended in January 2021 than they had gained in the 12 months ended in December 2020.

“January’s performance is particularly impressive in historical context. The National Composite’s 11.2% gain is the highest recorded since February 2006, just one month shy of 15 years ago. In more than 30 years of S&P CoreLogic Case-Shiller data, January’s year-over-year change is comfortably in the top decile. That strength is reflected across all 20 cities. January’s price gains in every city are above that city’s median level, and rank in the top quartile of all reports in 18 cities.

“January’s data remain consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes. This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a shift in the demand curve for housing. Future data will be required to analyze this question.

“Phoenix’s 15.8% increase led all cities for the 20th consecutive month, with Seattle (+14.3%) and San Diego (+14.2%) close behind. Although prices were strongest in the West (+11.7%), gains were impressive in every region.”

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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.

4Q2020 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2020 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 +4.32% (+4.1% expected), up 0.22 percentage point (PP) from the second estimate (“4Qv2”) but -29.12PP from 3Q2020.

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

The headline number’s uptick was dominated by an expansion of private inventories. Changes among most other line items were insignificant. As for details (all relative to 4Qv2):

* PCE. Consumer spending on goods was revised lower (-$6.5 billion, nominal dollars). Spending on services was left nearly unchanged (+$1.1B), as revisions to health care (+$10.5B) and financial services and insurance (+$9.7B) were essentially offset by the imputed value of services provided by nonprofit institutions (-$22.4B).

* PDI. Revisions to private inventories (+$14.0B) and intellectual property products (+$5.0B) were partially offset by a decline in nonresidential structures (-$10.3B).

* NetX. The change to exports (+$2.1B) more than outweighed the change to imports (+$1.7B). Recall that an increase in imports reduces the headline number.

* GCE. A revision of +$2.6B in gross investment among state and local governments accounted for essentially all of the improvement in this category.

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According to Consumer Metrics Institute’s Rick Davis, the key points of this report can be summarized as follows:

-- Consumer spending on goods continues to contract, while spending on services continues a slow recovery from the horrendous 2Q2020 numbers. Household savings rates indicate that consumers remained wary during 4Q.

-- The positive headline is provided by growth in commercial fixed investments and inventories.

“Under normal economic circumstances a report like this would be cause for -- if not celebration -- at least some smug sense of contentment,” Davis concluded. “However, these are times of significant economic displacements, and normalcy is at least a few quarters away.”

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 2021 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 1,421,000 units (1.579 million expected). This is 10.3% (±10.5%)* below the revised January estimate of 1,584,000 (originally 1.580 million units) and 9.3% (±9.4%)* below the February 2020 SAAR of 1,567,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -9.8%.

Single-family housing starts in February were at a SAAR of 1,040,000; this is 8.5% (±9.3%)* below the revised January figure of 1,136,000 units (-1.1% YoY). Multi-family: 381,000 units (-15.0% MoM; -26.2% 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 1,362,000. This is 2.9% (±10.0%)* above the revised January estimate of 1,324,000 (originally 1.336 million units) and 5.0% (±11.9%)* above the February 2020 SAAR of 1,297,000 units; the NSA comparison: +5.3% YoY.

Single-family completions were at a SAAR of 1,042,000; this is 2.8% (±10.5%)* above the revised January rate of 1,014,000 units (+4.7% YoY). Multi-family: 320,000 units (+3.2% MoM; +7.5% YoY).

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Total permits amounted to a SAAR of 1,682,000 units (1.725 million expected). This is 10.8% (±1.0%) below the revised January rate of 1,886,000 (originally 1.881 million units), but 17.0% (±1.4%) above the February 2020 SAAR of 1,438,000 units; the NSA comparison: +17.0% YoY.

Single-family permits were at a rate of 1,143,000; this is 10.0% (±0.8%) below the revised January figure of 1,270,000 units (+14.3% YoY). Multi-family: 539,000 units (-12.5% MoM; +23.5% YoY).

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Despite high buyer traffic and strong demand, builder sentiment fell in March as rising lumber and other material prices pushed builder confidence lower. The latest NAHB/Wells Fargo Housing Market Index (HMI) showed that builder confidence in the market for newly built single-family homes fell two points to 82 in March.

“Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month,” said NAHB Chairman Chuck Fowke. “Supply shortages and high demand have caused lumber prices to jump more than 200% since last April. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”

“Builder confidence peaked at a level of 90 last November and has trended lower as supply-side and demand-side factors have trimmed housing affordability,” said NAHB Chief Economist Robert Dietz. “While single-family home building should grow this year, the elevated price of lumber is adding approximately $24,000 to the price of a new home. And mortgage interest rates, while historically low, have increased about 30 basis points over the last month. Nonetheless, the lack of resale inventory means new construction is the only option for some prospective home buyers.”

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 2021 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 2.2% in February (+0.5% expected). Manufacturing output and mining production fell 3.1% and 5.4%, respectively; the output of utilities increased 7.4%.

The severe winter weather in the south central region of the country in mid-February accounted for the bulk of the declines in output for the month. Most notably, some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month. Excluding the effects of the winter weather would have resulted in an index for manufacturing that fell about 1/2% and in an index for mining that rose about 1/2%. Both indexes would have remained below their pre-pandemic (February 2020) levels.

At 104.7% of its 2012 average, total IP in February was 4.2% lower than its year-earlier level. 

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Industry Groups

Manufacturing output decreased 3.1% in February (NAICS manufacturing: -3.1% MoM; -3.8% YoY). The indexes for durable, nondurable, and other (publishing and logging) manufacturing fell 2.6%, 3.7%, and 0.5%, respectively. Among durables, many industries experienced decreases of between 1 and 3% (wood products: -1.1%). The largest drop, 8.3%, was posted by motor vehicles and parts, while the only increases were recorded by primary metals and by aerospace and miscellaneous transportation equipment. The cutback in the output of motor vehicles and parts, which reflected both a global shortage of semiconductors and the severe weather, reduced overall manufacturing output about 1/2%. Among nondurables, most industries recorded losses (paper: -0.1%). The largest reductions occurred in those industries most affected by the weather: The indexes for chemicals and for petroleum and coal products decreased 7.1% and 4.4%, respectively.

The output of utilities increased 7.4% in February, as the extremely cold winter weather boosted demand for heating. Mining production decreased 5.4%; a drop of more than 6% for oil and natural gas extraction accounted for most of the loss. The index for oil and gas well drilling continued its climb with an advance of 6.4%, though it remained about 50% below its year-earlier level.

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Capacity utilization (CU) for the industrial sector decreased 1.7 percentage points (PP) in February to 73.8%, a rate that is 5.8PP below its long-run (1972–2020) average.

Manufacturing CU decreased 2.3PP in February to 72.3% (NAICS manufacturing: -3.1% MoM, to 72.9%; wood products: -1.1%; paper products: -0.1%). The operating rate for mining decreased 4.3PP to 77.5%, while the operating rate for utilities increased 5.2PP to 78.5%; both rates remained below their long-run averages.

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Capacity at the all-industries level was essentially unchanged MoM (-0.1 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (-0.2% YoY) at 140.0%. Wood products: less than +0.1% (+0.4% YoY) to 170.0%; paper products: 0.0% (-0.6% YoY) at 108.9%.

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.

February 2021 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 February (+0.4% expected) after rising 0.3% in January. The gasoline index continued to increase, rising 6.4% in February and accounting for over half of the seasonally adjusted increase in the all-items index. The electricity and natural gas indexes also increased, and the energy index rose 3.9% over the month. The food index rose 0.2% in February, with the index for food at home and the index for food away from home both rising.

The index for all items less food and energy rose 0.1% in February. The indexes for shelter, recreation, medical care, and motor vehicle insurance all increased over the month. The indexes for airline fares, used cars and trucks, and apparel all declined in February.

The all-items index rose 1.7% for the 12 months ending February, a larger increase than the 1.4% reported for the period ending in January. The index for all items less food and energy rose 1.3% over the last 12 months, a smaller increase than the 1.4% rise for the 12 months ending January. The food index rose 3.6% over the last 12 months, while the energy index increased 2.4% over that period.

Producer Price Index

The producer price index for final demand (PPI-FD) increased 0.5% in February (in line with expectations). This rise followed advances of 1.3% in January and 0.3% in December. Most of the February advance can be traced to a 1.4% rise in the index for final demand goods. Prices for final demand services increased 0.1%.

On an unadjusted basis, the final demand index moved up 2.8% for the 12 months ended in February, the largest increase since rising 3.1% for the 12 months ended October 2018. Prices for final demand less foods, energy, and trade services moved up 0.2% in February, the tenth consecutive advance. For the 12 months ended in February, the index for final demand less foods, energy, and trade services rose 2.2%, the largest increase since a 2.4% advance for the 12 months ended May 2019.

Final Demand

Final demand goods: The index for final demand goods rose 1.4% in February, the same as in January. Over two-thirds of the broad-based February increase can be traced to prices for final demand energy, which climbed 6.0%. The indexes for final demand goods less foods and energy and for final demand foods advanced 0.3% and 1.3%, respectively.

Product detail: Forty percent of the February increase in the index for final demand goods is attributable to gasoline prices, which jumped 13.1%. The indexes for diesel fuel, beef and veal, basic organic chemicals, residential electric power, and chicken eggs also moved higher. Conversely, prices for fresh and dry vegetables fell 16.7%. The indexes for iron and steel scrap and for distilled and bottled liquor (except brandy) also declined.

Final demand services: The index for final demand services inched up 0.1% in February after increasing 1.3% in January. Two-thirds of the February advance in prices for final demand services can be traced to a 1.1% rise in the index for final demand transportation and warehousing services. Margins for final demand trade services edged up 0.1%. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand services less trade, transportation, and warehousing was unchanged.

Product detail: A 3.6% increase in the index for transportation of passengers (partial) was a major factor in the February advance in prices for final demand services. The indexes for securities brokerage, dealing, and investment advice; machinery and equipment parts and supplies wholesaling; health, beauty, and optical goods retailing; and hardware, building materials, and supplies retailing also moved higher. In contrast, margins for apparel, jewelry, footwear, and accessories retailing decreased 6.5%. The indexes for traveler accommodation services, machinery and vehicle wholesaling, and portfolio management also declined.

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The not-seasonally adjusted price indexes we track all rose 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.

January 2021 International Trade (Softwood Lumber)

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Softwood lumber exports rose (<1 MMBF or +0.1%) in January, but imports fell (113 MMBF or -8.0%). Exports were 13 MMBF (-12.5%) below year-earlier levels; imports were 271 MMBF (+26.3%) higher. As a result, the year-over-year (YoY) net export deficit was 284 MMBF (+30.8%) larger. Also, the average net export deficit for the 12 months ending January 2021 was 8.6% 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 (49.9%; of which Canada: 29.1%; Mexico: 20.8%), Asia (21.3%; especially China: 6.1%; and Japan: 5.6%), and the Caribbean: 21.8% (especially the Dominican Republic: 9.4%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -30.4% relative to the same months in 2020. Meanwhile, Canada was the source of most (86.0%) of softwood lumber imports into the United States. Imports from Canada were 26.3% higher YTD than the same months in 2019. Overall, YTD exports were down 12.5% compared to 2019; imports: +26.3%.

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U.S. softwood lumber export activity through the West Coast customs region represented 35.8% of the U.S. total; Gulf: 25.4%, and Eastern: 28.1%. Seattle (21.2% of the U.S. total) was the single most-active district, followed by Mobile (17.0%) and San Diego (12.5%). At the same time, Great Lakes customs region handled 57.5% of softwood lumber imports -- most notably the Duluth, MN district (22.9%) -- coming into the United States. 

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Southern yellow pine comprised 23.9% of all softwood lumber exports; Douglas-fir (16.4%) and treated lumber (14.2%) were also significant. Southern pine exports were down 22.4% YTD relative to 2020, while Doug-fir: -12.4%; and treated: -23.4%.

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.