March 2021 Construction Spending

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Construction spending during March 2021 was estimated at a seasonally adjusted annual rate (SAAR) of $1,513.1 billion, 0.2% (±0.8%)* above the revised February estimate of $1,509.9 billion (originally $1,516.9 billion); consensus expectations were for +2.0%. The March figure is 5.3% (±1.0%) above the March 2020 SAAR of $1,436.7 billion; the not-seasonally adjusted YoY change (shown in the table below) was +5.9%.

During the first three months of this year, construction spending amounted to $328.3 billion, 4.5% (±1.0%) above the $314.1 billion for the same period in 2020.

* 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 $1,169.2 billion, 0.7% (±0.7%)* above the revised February estimate of $1,160.9 billion (originally $1,165.7 billion):
* Residential. $725.2 billion, +1.7% (±1.3%);
* Home improvement. $241.9 billion, +2.0% (+18.5% YoY);
* Nonresidential. $444.0 billion, -0.9% (±0.7%).

Public Construction

Public construction spending was $343.9 billion, 1.5% (±1.3%) below the revised February estimate of $349.0 billion (originally $351.2 billion):
* Educational. $85.3 billion, -2.0% (±2.5%)*;
* Highway. $98.8 billion, -2.2% (±4.4%)*.

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Click here for a discussion of March’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.

1Q2021 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2021 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +6.39% (+6.5% expected), up 2.08 percentage points (PP) from 4Q2020’s +4.32%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2021 was 0.4% higher than in 1Q2020; that growth rate was significantly better (+2.79PP) than 4Q2020’s -2.39% relative to 4Q2019. Total GDP was $166 billion (chained 2012 dollars) below its 4Q2019 peak.

Two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) were the drivers behind the 1Q expansion, whereas private domestic investment (PDI) and net exports (NetX) made minor negative offsets.

As for details --

PCE (Contributed +7.02PP to the headline, up 5.44PP from 4Q):

* Goods. Consumer spending for goods expanded at a rate of 4.94PP, a 5.26PP increase from 4Q, led by a $58.3 billion (nominal) increase in purchases of motor vehicles and parts, and a $56.1 billion rise in gasoline purchases.

* Services. Spending on services accelerated to +2.07PP (+0.17PP from 4Q), led by health care (+$49.3B) and food services and accommodations (+$49.5B).

PDI (Detracted 0.87PP, down 5.28PP from 4Q):

* Fixed investment (+1.77PP, down 1.27PP from 4Q). Gains were about evenly split between equipment (+$53.6B) and residential investment (+$53.4B).

* Inventories (-2.64PP, down 4.01PP from 4Q). Inventories contracted by $150.2B.

NetX (Detracted 0.87PP, up 0.66PP from 4Q):

* Exports (down 2.14PP from 4Q). Exports rose by $95.2B.

* Imports (up 2.80PP from 4Q). Imports (recall that imports are inversely correlated with GDP) increased by $138.5B.

GCE (Contributed 1.12PP, up 1.26PP from 4Q), led by $62.4B in federal nondefense expenditures, and $55.4B in state and local expenditures.

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories) was +9.04% (up 6.09PP from 4Q).

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Consumer Metric Institute’s Rick Davis was quite upbeat about the report, saying the 1Q data “clearly shows that the economy has not only stabilized relative to the free-fall experienced during 2Q2020, it has moved onward to modest year-over-year growth. Consumer spending on goods and commercial fixed investments have bounced back nicely, although consumer spending on services and exports remain in contraction.

“This is clearly a good report for the economy, and when coupled with vaccines-for-all and wide spread state and local economic re-openings, it should give households cause to further ramp up spending over the next couple of quarters. The current extreme savings rate certainly provides households the resources to do exactly that,” Davis concluded.

We agree that, on its face, the GDP report is positive news. However, when one realized that 34% of household income came from the government in 1Q, it prompts the question: “For how long can the good times roll?”

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.

March 2021 Residential Sales, Inventory and Prices

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Sales of new single-family houses in March 2021 were at a seasonally adjusted annual rate (SAAR) of 1,021,000 units (887,000 expected). This is 20.7% (±23.7%)* above the revised February rate of 846,000 and is 66.8% (±36.7%) above the March 2020 estimate of 612,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +64.4%. For longer-term perspectives, NSA sales were 26.5% below the “housing bubble” peak but 85.5% above the long-term, pre-2000 average.

The median sales price of new houses sold in March fell ($15,100 or -4.4% MoM) to $330,800; meanwhile, the average sales price rose to $397,800 ($3,500 or +0.9% MoM). Starter homes (defined here as those priced below $200,000) comprised 3.5% of the total sold, down from the year-earlier 10.2%; 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 0.5% of sales, down from 1.7% 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 March, single-unit completions increased by 55,000 units (+5.3%). Although sales jumped (175,000 units; +20.7%) faster than completions, inventory for sale was stable in absolute terms but fell in months-of-inventory (-0.8 month) terms. 

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Existing home sales retreated further in March (230,000 units or -3.7%), to a SAAR of 6.01 million units (6.205 million expected). Inventory of existing homes for sale expanded in absolute (40,000 units) and months-of-inventory (0.1 month) terms. Because resales fell while new-home sales rose, the share of total sales comprised of new homes jumped to 14.5%. The median price of previously owned homes sold in March advanced to $329,000 ($18,400 or +5.9% MoM).

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Housing affordability dropped by 14.3 percentage points as the median price of existing homes for sale in February rose by $9,100 (+3.0% MoM; +16.2 YoY), to $317,100. 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 +1.1% (+12.0% YoY).

“Strong home price gains continued in February 2021,” said Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The National Composite Index marked its ninth month of accelerating prices with a 12.0% gain from year-ago levels, up from 11.2% in January. This acceleration is also reflected in the 10- and 20-City Composites (up 11.7% and 11.9%, respectively). The market’s strength continues to be broadly-based: all 20 cities rose, and 19 cities gained more in the 12 months ended in February than they had gained in the 12 months ended in January.

“More than 30 years of S&P CoreLogic Case-Shiller data help us to put February’s results into historical context. The National Composite’s 12.0% gain is the highest recorded since February 2006, exactly 15 years ago, and lies comfortably in the top decile of historical performance. Housing’s strength is reflected across all 20 cities; February’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.

“These data remain consistent with the hypothesis 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 permanent shift in the demand curve for housing. Future data will be required to analyze this question.

“Phoenix’s 17.4% increase led all cities for the 21st consecutive month, with San Diego (+17.0%) and Seattle (+15.4%) close behind. Although prices were strongest in the West (+13.0%) and Southwest (+12.9%), every region logged double-digit gains.”

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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.

February 2021 International Trade (Softwood Lumber)

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Softwood lumber exports edged down (3 MMBF or -3.4%) in February, and imports fell (158 MMBF or -12.2%). Exports were 17 MMBF (-16.1%) below year-earlier levels; imports were 67 MMBF (+6.3%) higher. As a result, the year-over-year (YoY) net export deficit was 85 MMBF (+8.8%) larger. Also, the average net export deficit for the 12 months ending January 2021 was 8.7% 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 (50.7%; of which Canada: 30.6%; Mexico: 20.1%), Asia (15.3%; especially China: 4.3%; and Japan: 3.4%), and the Caribbean: 27.0% (especially the Dominican Republic: 10.3%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were -40.4% relative to the same months in 2020. Meanwhile, Canada was the source of most (89.1%) of softwood lumber imports into the United States. Imports from Canada were 16.2% higher YTD than the same months in 2020. Overall, YTD exports were down 14.3% compared to 2020; imports: +16.1%.

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U.S. softwood lumber export activity through the West Coast customs region represented 34.9% of the U.S. total; Gulf: 26.9%, and Eastern: 27.4%. Seattle (19.8% of the U.S. total) was the single most-active district, followed by Mobile (19.5%) and San Diego (12.7%). At the same time, Great Lakes customs region handled 57.9% of softwood lumber imports -- most notably the Duluth, MN district (21.6%) -- coming into the United States. 

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Southern yellow pine comprised 23.9% of all softwood lumber exports; Douglas-fir (15.1%) and treated lumber (13.6%) were also significant. Southern pine exports were down 29.3% YTD relative to 2020, while Doug-fir: +3.9%; and treated: -20.9%.

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.

March 2021 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in March were at a seasonally adjusted annual rate (SAAR) of 1,739,000 units (1.620 million expected). This is 19.4% (±13.7%) above the revised February estimate of 1,457,000 (originally 1.421 million units) and 37.0% (±15.2%) above the March 2020 SAAR of 1,269,000 units; the not-seasonally adjusted YoY change (shown in the table above) was 38.2%.

Single-family housing starts in March were at a rate of 1,238,000; this is 15.3% (±17.4%)* above the revised February figure of 1,074,000 units (+40.1% YoY). Multi-family: 501,000 units (+30.8% MoM; +33.4% 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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Total completions were at a SAAR of 1,580,000. This is 16.6% (±14.0%) above the revised February estimate of 1,355,000 (originally 1.362 million units) and 23.4% (±13.7%) above the March 2020 SAAR of 1,280,000 units; the NSA comparison: +24.3% YoY.

Single-family housing completions in March were at a rate of 1,099,000; this is 5.3% (±11.7%)* above the revised February rate of 1,044,000 units (+22.3% YoY). Multi-family: 481,000 units (+54.7% MoM; +29.3% YoY).

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Total permits amounted to a SAAR of 1,766,000 units (1.750 million expected). This is 2.7% (±1.7%) above the revised February rate of 1,720,000 (originally 1.682 million units) and 30.2% (±1.8%) above the March 2020 SAAR of 1,356,000 units; the NSA comparison: +36.6% YoY.

Single-family permits were at a SAAR of 1,199,000; this is 4.6% (±1.9%) above the revised February figure of 1,146,000 units (+41.5% YoY). Multi-family: 567,000 units (-1.2% MoM; +26.3% YoY).

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Strong buyer demand pushed builder confidence up in April even as builders continued to grapple with rising lumber prices and supply chain issues and consumers faced higher home prices due to a lack inventory. The latest NAHB/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly built single-family homes rose one point to 83 in April.

“Despite strong buyer traffic, builders continue to face challenges to add much needed housing supply to the market,” said NAHB Chairman Chuck Fowke. “The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials. Though builders are seeking to keep home prices affordable in a market in need of more inventory, policymakers must find ways to increase the supply of building materials as the economy runs hot in 2021.”

“While mortgage interest rates have trended higher since February and home prices continue to outstrip inflation, housing demand appears to be unwavering for now as buyer traffic reached its highest level since November,” said NAHB Chief Economist Robert Dietz. “NAHB’s forecast is for ongoing growth in single-family construction in 2021, albeit at a lower growth rate than realized in 2020.”

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.

March 2021 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 1.4% in March (+2.8% expected). The gain in March followed a drop of 2.6% in February, which largely resulted from widespread outages related to severe winter weather in the south central region of the country. For 1Q2021 as a whole, total IP rose 2.5% at an annual rate. In March, manufacturing production and mining output increased 2.7% and 5.7%, respectively. The output of utilities dropped 11.4%, as the demand for heating fell because of a swing in temperatures from an unseasonably cold February to an unseasonably warm March.

At 105.6% of its 2012 average, total IP in March was 1.0% higher YoY, but 3.4% below its pre-pandemic (February 2020) level. 

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Industry Groups

Manufacturing output increased 2.7% in March, following a decline of 3.7% in February (NAICS manufacturing: +2.8% MoM; +3.4% YoY). For 1Q, factory output advanced 1.9% at an annual rate. In March, the indexes for durable and nondurable manufacturing increased 3.0% and 2.6%, respectively, while the index for other manufacturing (publishing and logging) was unchanged. All major categories of durables registered increases, most of which were between 2% and 3% (wood products: +2.4%). The output of motor vehicles and parts rose 2.8% in March after falling 10% in February. Shortages of semiconductors held down vehicle production in both months, while cold weather also curbed production in February.

Among nondurables, all major industry categories recorded gains except plastics and rubber products. The petroleum and coal products industry and the chemicals industry registered gains of 5.7% and 4.1%, respectively, after posting declines in February because of severe weather. The recovery in chemicals was incomplete in March, however, as some factories remained offline because of weather-related damage sustained during February. The indexes for all other nondurable goods industries increased between 0.9% and 3.0% in March (paper: +0.9%).

The drop of 11.4% for utilities in March was the largest in the history of this index (since 1972). Mining production increased 5.7%; oil and gas extraction accounted for most of the gain.

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Capacity utilization (CU) for the industrial sector increased 1.0 percentage point (PP) in March to 74.4%, a rate that is 5.2PP below its long-run (1972–2020) average.

Manufacturing CU increased 1.9PP in March to 73.8% (NAICS manufacturing: +2.8% MoM, to 74.4%; wood products: +2.3%; paper products: +0.8%). The operating rate for mining increased 4.5PP to 82.2%, while the operating rate for utilities decreased 9.0PP to 68.8%; 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 (-0.1% YoY) at 140.1%. Wood products: +0.1% (+0.3% YoY) to 170.1%; paper products: +0.1% (-0.5% YoY) at 109.0%.

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.

March 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 0.6% in March (+0.5% expected). The March one-month increase was the largest rise since a 0.6% increase in August 2012. The gasoline index continued to increase, rising 9.1% in March and accounting for nearly half of the seasonally adjusted increase in the all-items index. The natural gas index also rose, contributing to a 5.0% increase in the energy index over the month. The food index rose 0.1% in March, with the food at home index and the food away from home index both also rising 0.1%.

The index for all items less food and energy rose 0.3% in March. The shelter index increased in March as did the motor vehicle insurance index, the recreation index, and the household furnishings and operations index. Indexes which decreased over the month include apparel and education.

The all-items index rose 2.6% for the 12 months ending March, a much larger increase than the 1.7% reported for the period ending in February. The index for all items less food and energy rose 1.6% over the last 12 months, after increasing 1.3% over the 12 month period ending in February. The food index rose 3.5% over the last 12 months, while the energy index increased 13.2% over that period.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 1.0% in March (+0.5% expected). Final-demand prices rose 0.5% in February and 1.3% in January. In March, almost 60% of the increase in the index for final demand can be traced to a 1.7% advance in prices for final-demand goods. The index for final-demand services moved up 0.7%.

The final-demand index moved up 4.2% for the 12 months ended in March, the largest advance since rising 4.5% for the 12 months ended September 2011. Prices for final demand less foods, energy, and trade services rose 0.6% in March following an increase of 0.2% in February. For the 12 months ended in March, the index for final demand less foods, energy, and trade services moved up 3.1%, the largest advance since climbing 3.1% for the 12 months ended September 2018.

Final Demand

Final demand goods: Prices for final demand goods rose 1.7% in March, the largest increase since the index began in December 2009. Sixty percent of the broad-based advance in March is attributable to prices for final demand energy, which jumped 5.9%. The indexes for final demand goods less foods and energy and for final demand foods moved up 0.9% and 0.5%, respectively.

Product detail: Over one-fourth of the March increase in the index for final demand goods can be traced to an 8.8% jump in gasoline prices. The indexes for diesel fuel, residential electric power, industrial chemicals, steel mill products, and processed poultry also moved higher. In contrast, beef and veal prices fell 4.3%. The indexes for fresh and dry vegetables and for surgical and medical instruments also declined.

Final demand services: The index for final demand services rose 0.7% in March, the third consecutive advance. Nearly half of the broad-based increase in March is attributable to margins for final demand trade services, which moved up 1.0%. (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 advanced 0.4% and 1.5%, respectively.

Product detail: Over 40% of the March increase in prices for final demand services can be traced to margins for machinery and vehicle wholesaling, which jumped 6.7%. The indexes for apparel, jewelry, footwear, and accessories retailing; transportation of freight and mail; portfolio management; loan services (partial); and food retailing also moved higher. Conversely, margins for health, beauty, and optical goods retailing decreased 4.2%. The indexes for automobiles and automobile parts retailing and for traveler accommodation services 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.