September 2023 Construction Spending

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Construction spending during September 2023 was estimated at a seasonally adjusted annual rate (SAAR) of $1,996.5 billion, 0.4% (±1.2%)* above the revised August estimate of $1,988.3 billion (originally $1,983.5 billion); expectations were for +0.4%. The September figure is 8.7% (±1.8%) above the September 2022 SAAR of $1,836.9 billion; the not-seasonally adjusted YoY comparison (shown in the table below) is +8.4%.

During the first nine months of this year, construction spending amounted to $1,463.5 billion, 4.6% (±1.2%) above the $1,398.9 billion for the same period in 2022.

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Private Construction

Spending on private construction was at a SAAR of $1,555.9 billion, 0.4% (±0.7%)* above the revised August estimate of $1,549.6 billion (originally $1,544.6 billion):
- Residential. $872.0 billion, +0.6% (±1.3%)* of which
- Home improvement. $334.1 billion, +0.2% (-6.0% YoY);
- Nonresidential. $683.9 billion, +0.1% (±0.7%)*.

Public Construction

Public construction spending was $440.6 billion, 0.4% (±2.1%)* above the revised August estimate of $438.7 billion (originally $431.6 billion):
- Educational. $94.4 billion, +1.9% (±2.5%)*;
- Highway. $131.1 billion, -0.2% (±5.3%)*.

* 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 September’s new residential permits, starts and completions, and 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.

September 2023 Residential Sales, Inventory and Prices

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Sales of new single-family houses in September 2023 were at a seasonally adjusted annual rate (SAAR) of 759,000 units (685,000 expected). This is 12.3% (±16.6%)* above the revised August rate of 676,000 (originally 675,000 units) and 33.9% (±22.9%) above the September 2022 SAAR of 567,000 units; the not-seasonally adjusted (NSA) year-over-year comparison (shown in the table above) was +36.4%. For longer-term perspectives, NSA sales were 45.4% below the “housing bubble” peak but 14.8% above the long-term, pre-2000 average.

The median sales price of new houses sold in September 2023 was $418,800 (-3.3% MoM, or $14,300). The average sales price was $503,900 (-3.6%, or $18,800). Homes priced at/above $750,000 comprised 11.7% of sales, down from the year-earlier 13.6%.

* 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 September, single-unit completions advanced by 50,000 units (+5.3%). Sales also rose (83,000 units, or +12.3%), resulting in inventory for sale expanding in absolute terms (+3,000 units) but months of inventory contracting (-0.8 month). 

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Existing home sales dipped (-2.0% or 80,000 units) in September to a SAAR of 3.96 million units (3.90 million expected). The inventory of existing homes for sale expanded in both absolute (+30,000 units) and months-of-inventory (+0.1 month) terms. Because resales retreated while new-home sales advanced, the share of total sales comprised of new homes increased to 16.1%. The median price of previously owned homes sold in September fell to $394,300 (-2.4% or $9,800).

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Housing affordability fell -2.2 percentage points as the median price of existing homes for sale in August rose by $2,300 (+0.6% MoM; +3.7% YoY) to $413,500. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices decelerated to a not-seasonally adjusted monthly change of +0.4% (+2.6% YoY).

“U.S. home prices continued to rise in August 2023,” said Craig Lazzara, Managing Director at S&P DJI. “Our National Composite rose by 0.4% in August, which marks the seventh consecutive monthly gain since prices bottomed in January 2023. The Composite now stands 2.6% above its year-ago level and 6.4% above its January level. Our 10- and 20-City Composites each also rose in August, and likewise currently exceed their year-ago and January levels.

“One measure of the strength of the housing market is the relationship of current prices to their historical levels. On that dimension, it’s worth noting that the National Composite, the 10-City Composite, and seven individual cities (Atlanta, Boston, Charlotte, Chicago, Detroit, Miami, and New York) stand at their all-time highs. Observing the breadth of price changes provides insight into another dimension of market health. On a seasonally adjusted basis, prices increased in 19 of 20 cities in August (and Cleveland only missed by a whisker); before seasonal adjustments, prices rose in 13 cities.

“Regional differences are substantial. On a year-over-year basis, the three best-performing metropolitan areas in August were Chicago (+5.00%), New York (+4.98%), and Detroit (+4.8%).  Chicago has topped the leader board for four consecutive months, and New York moved up this month to the silver medal position. The bottom of the rankings still has a western focus, with the worst performances coming from Las Vegas (-4.9%) and Phoenix (-3.9%).  The Midwest (+3.9%) continues as the nation’s strongest region, followed by the Northeast (+3.8%).  The West (-0.9%) and Southwest (-0.8%) remain the weakest regions.

“On a year-to-date basis, the National Composite has risen 5.8%, which is well above the median full calendar year increase in more than 35 years of data. The year’s increase in mortgage rates has surely suppressed housing demand, but after years of very low rates, it seems to have suppressed supply even more. Unless higher rates or other events lead to general economic weakness, the breadth and strength of this month’s report are consistent with an optimistic view of future results.”

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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.

3Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +4.87% (+4.2% expected), up 2.81 percentage points (PP) from 2Q2023’s +2.06%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2023 was 2.93% higher than in 3Q2022; that growth rate was faster (+0.55PP) than 2Q2023’s +2.38% relative to 2Q2022.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 3Q percent-change headline. Net exports (NetX) detracted from it.

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As for details (billions of chained 2017 dollars; all comparisons to 2Q2023) --

PCE (+$150.6B):

* Goods (+$63.1B). Spending on durable goods rose (+$37.5B), led by recreational goods and vehicles (+$28.5B). Growth in spending on nondurable goods showed respectable momentum (+$26.9B), led by other nondurable goods (+$22.7B); gasoline and other energy goods fell (-$6.2B).

* Services (+$88.6B). Gains were led by housing and utilities (+$22.4B), followed closely by health care (+$19.6B).

PDI (+$82.0B):

* Fixed investment (+7.8B). This increase was concentrated in intellectual property products (+$9.0B) and residential investment (+$6.9B); equipment (-$12.2B) partially offset the rest of fixed investment.

* Inventories (+$65.7B). Nonfarm inventories expanded (+$66.3B); farm: -$0.2B.

NetX (-$9.5B):

* Exports (+$37.6B). Goods exports rose by $30.4B; services: +$7.4B.

* Imports (+$47.0B). Goods imports increased by $40.3B; services: +$6.9B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+42.8B): State and local consumption expenditures (+$12.4B) led this category; federal defense consumption expenditures: +$12.0B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +3.55% (up 1.49PP from 2Q).

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Looking ahead, one should not expect this stellar performance to repeat. “While this number is unsurprising, our expectations are for slower GDP going forward as positive contributions from volatile net exports and inventories are unlikely to be repeated,” wrote Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management. “While this one number makes the Fed weary of cutting rates, it does not move the needle for the November FOMC meeting which is certainly a skip. Higher and hold, yes. Higher and hiking, no.”

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.

September 2023 Residential Permits, Starts and Completions

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Builders started construction of privately-owned housing units in September at a seasonally adjusted annual rate (SAAR) of 1,358,000 units (1.394 million expected). This is 7.0% (±15.8%)* above the revised August estimate of 1,269,000 (originally 1.283 million units), but 7.2% (±12.1%)* below the September 2022 SAAR of 1,463,000 units; the not-seasonally adjusted YoY change (shown in the table above) was -7.7%.

Single-family housing starts in September were at a rate of 963,000; this is 3.2% (±10.8%)* above the revised August figure of 933,000 units (+9.2% YoY). Multi-family: 395,000 units (+17.6% MoM; -32.7% 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 1,453,000 units. This is 6.6% (±10.2%)* above the revised August estimate of 1,363,000 (originally 1.406 million units) and 1.0% (±13.7%)* above the September 2022 SAAR of 1,438,000 units; the NSA comparison: +1.7% YoY.

Single-family completions were at a SAAR of 998,000; this is 5.3% (±11.2%)* above the revised August rate of 948,000 units (-4.7% YoY). Multi-family: 455,000 units (+9.6% MoM; +19.4% YoY).

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Total permits were at a SAAR of 1,473,000 units (1.450 million expected). This is 4.4% below the revised August rate of 1,541,000 (originally 1.543 million units) and 7.2% below the September 2022 SAAR of 1,588,000 units; the NSA comparison: -12.2% YoY.

Single-family permits were at a SAAR of 965,000; this is 1.8% above the revised August figure of 948,000 units (+6.7% YoY). Multi-family: 508,000 units (-14.3% MoM; -34.4% YoY).

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Press release from NAHB’s Robert Dietz:

“Stubbornly high mortgage rates that have climbed to a 23-year high and have remained above 7% for the past two months continue to take a heavy toll on builder confidence, as sentiment levels have dropped to the lowest point since January 2023.

“Builder confidence in the market for newly built single-family homes in October fell four points to 40 from a downwardly revised September reading, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third consecutive monthly drop in builder confidence.

“Buyers continue to be priced out of the market at these levels of interest rates, particularly younger households. Additionally, elevated rates are also increasing the cost and decreasing the availability of builder development and construction loans, which harms supply and contributes to lower housing affordability.

“Since late September, mortgage rates are up nearly 40 basis points to 7.57%, according to Freddie Mac. Interest rates have increased on the Federal Reserve’s apparent higher-for-longer monetary policy stance, better than expected macro growth during the third quarter and longer-term concerns over government budget deficits.

“The housing affordability crisis can only be solved by adding additional attainable, affordable supply. Boosting housing production would help reduce the shelter inflation component that was responsible for more than half of the overall Consumer Price Index increase in September and aid the Fed’s mission to bring inflation back down to 2%.  However, uncertainty regarding monetary policy is contributing to affordability challenges in the market.

“As a result of the extended high interest environment, many builders continue to reduce home prices to boost sales. In October, 32% of builders reported cutting home prices, unchanged from the previous month but still the highest rate since December 2022 (35%). The average price discount remains at 6%. Meanwhile, 62% of builders provided sales incentives of all forms in October, up from 59% in September and tied with the previous high for this cycle set in December 2022.”

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.

September 2023 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.3% in September (0.0% expected) and advanced at an annual rate of 2.5% in 3Q. Manufacturing output rose 0.4% in September, the index for mining moved up 0.4%, and the index for utilities decreased 0.3%. At 103.6% of its 2017 average, total industrial production in September was 0.1% above its year-earlier level. 

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Market Groups

Most major market groups recorded gains in September. The index for consumer durables rose 1.2% amid widespread increases in its components. On the other hand, the index for consumer nondurable goods was unchanged, as a gain in chemical products was offset by a decline in energy nondurable goods. The production of business equipment fell 0.7%, while the index for defense and space equipment recorded its fifth consecutive monthly gain of at least 1%. Within materials, the index for non-energy durables rose 0.8%, and the index for non-energy nondurables increased 0.5%.

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Industry Groups

Manufacturing output rose 0.4% in September but was 0.8% below its year-earlier level. In 3Q, factory output moved sideways, as a gain of 2.3% (annual rate) in the index for durable manufacturing was offset by a decline of 2.4% (annual rate) in the index for nondurable manufacturing.

In September, the index for motor vehicles and parts moved up only 0.3%, as motor vehicle assemblies were held down by the ongoing strike against three automakers. Elsewhere in manufacturing, gains of 1% or more were recorded by wood products (+2.4%), primary metals, and plastics and rubber products (paper products: +0.5%), and declines of 1% or more were recorded by apparel and leather as well as printing and support. Other manufacturing (publishing and logging) edged down 0.2% but posted a gain of 4.8% for 3Q as a whole.

Mining output moved up 0.4% in September for a fourth consecutive monthly gain. For 3Q, the output of mines advanced at an annual rate of 6.9%. The index for utilities dropped 0.3% in September but saw a 3Q gain of 15.2% (annual rate).

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Capacity utilization (CU) moved up 0.2 percentage point (PP) to 79.7% in September, a rate that is equal to its long-run (1972–2022) average.

Manufacturing CU edged up 0.1PP to 77.8% in September, a rate that is 0.4PP below its long-run (1972–2022) average (wood products: +2.4%; paper: +0.6%). The operating rate for mining increased 0.5PP to 95.1%, a rate that is 8.7PP above its long-run average. The operating rate for utilities decreased 0.4PP to 72.7%, well below its long-run average.

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Capacity at the all-industries level increased by 0.1% MoM (+1.5% YoY) to 130.0% of 2017 output. Manufacturing also edged up by 0.1% (+1.4% YoY) to 128.9%. Wood products: less than +0.1% (+0.8% YoY) to 120.1%; paper products: -0.1% (-1.0% YoY) to 105.7%.

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.

August 2023 International Trade (Softwood Lumber)

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With August exports of goods and services at $256.0 billion (+1.6% MoM; -2.1% YoY) and imports at $314.3 billion (-0.7% MoM; -4.4% YoY), the net trade deficit was $58.3 billion (-9.9% MoM; -13.4% YoY). 

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Softwood lumber exports rose (5 MMBF or +5.0%) in August, while imports edged lower (2 MMBF or -0.2%). Exports were 20 MMBF (-15.5%) below year-earlier levels; imports: 251 MMBF (-17.7%) lower. As a result, the year-over-year (YoY) net export deficit was 231 MMBF (-18.0%) smaller. Also, the average net export deficit for the 12 months ending August 2023 was 5.9% below the average of the same months a year earlier (the “YoY MA(12) % Chng” series shown in the lumber-trade graph above).

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North America (61.2% of total softwood lumber exports; of which Mexico: 39.0%; Canada: 22.2%), Asia (11.8%; especially China: 3.1%), and the Caribbean (20.6%; especially the Dominican Republic: 5.6%) were the primary destinations for U.S. softwood lumber exports. Year-to-date (YTD) exports to China were 66.1% higher than the same month of the prior year. Meanwhile, Canada was the source of most (83.5%) softwood lumber imports into the United States. Imports from Canada were 9.5% lower YTD/YTD. Overall, YTD exports were down 4.7% compared to the prior year; imports: -8.5%.

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U.S. softwood lumber export activity through the Gulf customs region represented 42.2% of the U.S. total; West Coast: 30.1%, and Eastern: 18.2%. Mobile (18.3% of the U.S. total), San Diego (15.6%) Laredo (15.4%), and Seattle (12.0%) were the most active districts. At the same time, the Great Lakes customs region handled 56.0% of softwood lumber imports -- most notably the Duluth, MN district (19.3%) -- coming into the United States. 

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Southern yellow pine comprised 20.5% of all softwood lumber exports; Douglas-fir (11.6%), treated lumber (16.5%), other pine (12.0%) and finger-jointed (12.0%) were also significant.

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.

September 2023 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 0.4% in September (+0.3% expected). Over the last 12 months, the all-items index increased 3.7% before seasonal adjustment.

The index for shelter was the largest contributor to the monthly all-items increase (the 41st consecutive monthly increase to the shelter index), accounting for over half of the increase. An increase in the gasoline index was also a major contributor to the all-items monthly rise. While the major energy component indexes were mixed in September, the energy index rose 1.5% over the month. The food index increased 0.2% in September, as it did in the previous two months. The index for food at home increased 0.1% over the month while the index for food away from home rose 0.4%.

The index for all items less food and energy rose 0.3% in September, the same increase as in August. Indexes which increased in September include rent, owners' equivalent rent, lodging away from home, motor vehicle insurance, recreation, personal care, and new vehicles. The indexes for used cars and trucks and for apparel were among those that decreased over the month.

The all-items index increased 3.7% for the 12 months ending September, the same increase as the 12 months ending in August. The index for all items less food and energy rose 4.1% over the last 12 months. The energy index decreased 0.5% for the 12 months ending September, and the food index increased 3.7% over the last year.

Producer Price Index

The Producer Price Index for final demand (PPI-FD) increased 0.5% in September (+0.3% expected). Final demand prices rose 0.7% in August and 0.6% in July. On an unadjusted basis, the index for final demand advanced 2.2% for the 12 months ended in September, the largest increase since moving up 2.3% for the 12 months ended in April.

Leading the increase in the final demand index in September, prices for final demand goods rose 0.9%. The index for final demand services advanced 0.3%.

Prices for final demand less foods, energy, and trade services increased 0.2% in September, the fourth consecutive advance. For the 12 months ended in September, the index for final demand less foods, energy, and trade services moved up 2.8%.

Final Demand

Final demand goods: The index for final demand goods moved up 0.9% in September, the third consecutive increase. Nearly three-quarters of the broad-based September advance is attributable to a 3.3% rise in prices for final demand energy. The indexes for final demand foods and for final demand goods less foods and energy moved up 0.9% and 0.1%, respectively.

Product detail: Over 40% of the September increase in prices for final demand goods can be traced to a 5.4% rise in the index for gasoline. Prices for jet fuel, processed young chickens, meats, electric power, and diesel fuel also advanced. In contrast, the index for fresh and dry vegetables declined 13.9%. Prices for wood pulp and for utility natural gas also fell.

Final demand services: The index for final demand services advanced 0.3% in September following a 0.2% rise in August. Over 60% of the September increase is attributable to prices for final demand services less trade, transportation, and warehousing, which climbed 0.3%. The index for final demand trade services moved up 0.5%. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, prices for final demand transportation and warehousing services declined 0.4%.

Product detail: A 13.9% jump in the index for deposit services (partial) was a major factor in the September rise in prices for final demand services. The indexes for machinery, equipment, parts, and supplies wholesaling; health, beauty, and optical goods retailing; traveler accommodation services; outpatient care (partial); and application software publishing also moved higher. In contrast, prices for airline passenger services fell 2.1%. The indexes for automobile retailing (partial) and for bundled wired telecommunications access services also decreased.

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The not-seasonally adjusted price indexes we track were mixed on a MoM basis but all lower YoY.

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purposes of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.