Thursday
Aug062015

Weekly Market Update - August 6, 2015

Construction Put-in-Place: Total CPIP expenditures surged 16.0%, 3 months y/y and 7.8% over the last 12 months ending June. In an encouraging, momentum at +8.2% is strong. The private sector recorded three month y/y growth of 17.2% and 8.3% y/y, while the State & Local sector jumped 12.6%, 3 months y/y and 6.6%, 12 months y/y. Strong employment growth has helped put Federal and State & Local tax coffers into much better shape leading to increased infrastructure spending, (Table 1).

Single family residential construction expenditures rose 16.9% on a 3 month basis and 14.2% y/y as this sector continues to show promising growth. Non-residential growth was exceptional strong, up 27.8%, 3 months y/y and 18.8% y/y. Every project category except Power (State & Local) posted double digit growth three months y/y as well as positive growth compared to the period one year ago.

Table 1

Non-residential Construction Put-in-Place: Private non-residential construction (NRC) put-in-place surged by 34.2%, 3 months y/y to $81.3 Bn, (NSA, constant 2010 $), the highest dollar amount since January 2009. On a twelve month measure, private NRC put-in-place rose 24.1% to $283.3 Bn, the highest dollar amount since December 2009, (Table 2, Fig 1). Every project category except Public Safety saw double digit increases three month growth y/y, led by a 75.2% surge for manufacturing buildings. Manufacturing building expenditures (NSA, constant 2010 $), reached an all-time high, (data available back to 1993), (Fig 2). Total commercial building expenditures on the other hand while posting strong y/y percentage gains still have a long way to go to approach the hey days of the 2000’s, (Fig 3).

Table 2

Global Steel Production and Capacity Utilization, June 2015, (Source: WSA): Global steel production in 12 months through June totaled 1.622 billion tonnes with a capacity of 2.3 billion tonnes. Capacity utilization on a three month moving average, (3MMA) basis was 71.6%, down from 72% in three months through May. China accounted for 50.8% of global production in June. Asia as a whole, including India, accounted for 68.2%. Production in June on a tons / day basis was 4.374 million tonnes, down from 4.490 in May. Tons / day declined in both May and June. The seasonal pattern evident since the recession is different in 2015. Total June production was 135.594 million tonnes. If we look at the three month moving average and plot it over time we see that there has been a significant decline in the second half of the year since and including 2010 which usually extends into February, after which production kicks up rapidly, (Fig 4). In 2015 the uptick was delayed until May and it is evident that the high point of 2014 won’t be reached this year. As production has increased each year since the recession, capacity utilization has decreased, the gap is widening and has been estimated that surplus capacity is currently as much as 500 million tons per year, well over half of which is in China.

Table 3 shows global production broken down into regions and also the production of the top ten nations in the single month of June and their share of the global total. It also shows the latest three months and twelve months production through June with year over year growth rates for each. Regions are shown in white font and individual nations in beige. If the three month growth rate exceeds the twelve month we interpret this to be a sign of positive momentum and accelerating growth. The world as a whole currently has negative momentum with a negative growth of 2.4% in 3 months and negative 0.2% in 12 months. Clearly the global steel market is slowing. In April on a rolling 12 months basis, global growth was positive 0.6%, May was positive 0.3% and June was negative 0.2%. Comparing the three months through June in 2014 and 2015, the only region to have positive growth was the European Union. The only nation in the top 10 to have positive growth was India with 0.6%. In the June data China was down by 1.1% in three months through June year over year, North America was down by 6.7% in total with the US down by 9.1%, Canada up by 2.7% and Mexico down 2.3%. The European Union was up by 1.0% and other Europe was unchanged with Turkey down by 1.6%. The effect of the war in Ukraine is clear in the contraction of that country’s steel production.

Fig 5 shows the 3MMA of the monthly year over year growth of global steel production which was negative in March for the first time since September 2009. April, May and June were down by 2.0%, 2.0% and 1.8% respectively year over year.

Fig 4

 

 



Table 3

 

Housing Sales, Inventories, Permits, Starts, Pricing and Foreclosures: Sales of new single-family houses in June 2015 were at a seasonally adjusted annual rate of 482,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.1 percent above the June 2014 estimate of 408,000. The seasonally adjusted estimate of new houses for sale at the end of June was 215,000. This represents a supply of 5.4 months at the current sales rate.

Total starts in June were at an annual rate of 1,174,000 with a three month moving average, (3MMA) of 1,144,000. The 3MMA increased from 1,071,000 in May. On that basis, single family at 704,000 was up by 3.0% month over month and up by 12.7% year over year but is still 62.4% below the peak of late 2005. This was the best y/y growth rate of single family since August 2013. Multifamily, (apartments / condominiums) was up by 14.8% m/m and by 23.5% y/y, (Fig 6). The Census department results are seasonally adjusted and the monthly numbers are annualized.

Permit data is useful as a forward look at starts. If permits exceed starts then we anticipate an acceleration in construction starts and vice versa. Total permits have increased each month since March and reached 1,343,000 in June with a 3MMA of 1,244,000 annualized. Permits were up by 8.9% from May and by 19.5% y/y.

Table 4 shows total permits and starts nationally and regionally. At the national level the differential between permits and starts for single and multi-family units is suggesting that the shift in consumer’s preference towards apartments is far from over. In June on a 3MMA basis, permits of multi-family exceeded starts by 126,000 in contrast to the negative 26,000 for single family. In total permits were 100,000 more than starts which was an almost exact repeat of the April and May results. The differential between permits and starts for multi and single family units was the same across all regions with permits for multifamily exceeding starts and permits for single family were being less than starts. The implication is that apartment construction is poised to surge strongly and that single family construction will slow slightly.

Fig 7 shows the regional situation for the 3MMA of total residential starts since February 2000. In 2015 the North East has the highest growth rate.

In April, (latest data available) the S&P / Case Schiller 20 city home price index was up by 5.0% y/y with slight positive momentum. After steadily declining for four years, foreclosures increased in March through May this year to a level not seen since Q4 2013.

Fig 6

 

 


Table 4

 

US Preliminary Long Product Imports (SIMA) totaled 432,000 tons in June, down 12% from May. Preliminary import count fell for Rebar, beams and hot-rolled bars, while imports of angles, channels and wire rod increased, (Table 5). Turkey and Japan both shipped a portion of the product they requested licenses for. Turkey exported less than half of the rebar they applied for, as the remaining tonnage could be imported to the US in the next 60-75 days. Japan followed suit, shipping only two thirds of the material that was expected to arrive on US shores during the month of June. Likewise, Japan left one-fourth of their wire rod licenses unused, as Turkey left 30% of their wire rod requests unfulfilled. Imports of angles and channels were up more than 30% m/m, supported by increased light shapes from Canada, Turkey and Taiwan, as well as heavier sections from Luxembourg, Korea and Taiwan.

Steel beams, as a component of heavy structural shapes fell m/m, emphasizing the monthly increase was in tonnage for heavy angles and channels. By law, any country who desires to import into the US, has up to 10 days after then end of the month to apply for import permission. This loop hole was exploited by Korea and Taiwan. Korea shipped 6,800 tons of additional structural steel products that were not recorded in the standard monthly tally. While Taiwan waited until the first part of July to apply for licenses on the 6,100 tons of heavy angles and channels it sent in June.

Table 5

Commercial Property Price Index: The national CPPI 3MMA moved up almost 3 points to 197.75,  its highest reading since its inception at 100.0 in December 2000. This is a 16.2% percentage change, 3 months y/y and a 14.4% change over 12 months, (Fig 8). All property types recorded double digit y/y gains ranging from a low of 10.8% for Retail to a high of 21.0% for central business district Office buildings. Apartment buildings continue to perform well, up 12.4% y/y, however the rate of growth has fallen in each of the past three months. Fig 9 illustrates each property type historic growth from 2001 to present starting from a 100 base index reference point in December 2000. Referencing REAL Capital Analytics 2015 mid-year review: US commercial real estate investment volume grew 23% y/y in Q2 and by 36% YTD y/y ending June. The dollar figure changing hands for the first half of the year was $255 Bn. The industrial market posted the strongest numbers, up 40% y/y in Q2, followed by the suburban office market at 37% y/y growth. The top 40 market continues to be led by Manhattan, Los Angeles and Chicago, followed by Dallas, Atlanta and San Francisco. Orlando in 20th position recorded the strongest gain, up 232% y/y.

Fig 8

Unemployment Claims: New unemployment claims rose to 270,000 for the week ending August 1st, 3,000 claims higher than the previous week. This figure has been below the 300k benchmark since the first week of March, (Fig 10). The four week moving average is 268,250, 9% lower on a y/y basis. This figure irons out weekly volatility in reporting. The 4WMA since the beginning of May have been among the lowest values since Q2 2000. This is another sign that the labor market has been getting stronger.

Seasonally adjusted continuing claims fell to 2,255,000, a decrease of 14,000 from the previous week. The figure for July 25th were 10% lower than a year ago. The four week moving average came in at 2,239,000; under the 3 million mark for more than two years, another signal of a tightening labor market. Continuing claims have recovered 67% since the end of the recession more than six years ago. The number of persons claiming any type of unemployment benefit rose this week to 2.3 million. Despite the increase, this figure has fallen more than 250k persons on a y/y basis, (Fig 11).

Fig 10

ISM Manufacturing Index: The Manufacturing Index slipped in July to 52.7 from 53.5 in June. The index is down 3.7 points on a y/y basis, (Fig 12). The 3MMA increased slightly to 53.0, the highest since February. Despite the decline there were increases in Production, New Orders, and Supplier Deliveries. More notably, the Index declined because of the immense drop in Inventories, 49.0 from 53.0, and Employment, 52.7 from 55.5. Eleven of the 18 manufacturing industries yielded an increase in July. According to the Manufacturing ISM Report on Business, the manufacturing sector grew for the 31st straight month; the overall economy expanded for the 74rd consecutive month. (ISM Manufacturing).

Fig 12

ISM Non-Manufacturing Index: The ISM Nonmanufacturing Index rose tremendously in July to 60.3 from 56.0, the highest reading in ten years and one of the largest monthly percentage gains since 2008, (Fig 13). All four subcomponents of the Index had strong readings in July. Employment increased mightily to 59.6 from 52.7. New Orders rose to 63.8 from 58.3, Business Activity jumped to 60.3 from 56.0, and Supplier Deliveries to 53.0 from 51.5. All categories remained above 50, the expansionary benchmark, leading a strong beginning to Q3 right out the gate. According to Moodys, nonmanufacturing counts for 88% of GDP (ISM Non-Manufacturing).

Fig 13

Steel Demand Indicators: Table 6 is a snapshot of the market situation on 8/06/2015. Indicators updated since we last published two weeks ago are shaded beige. The latest month or quarter for which data is available is identified in the 2nd column. Of the 26 indicators under consideration, the present situation, 6 are positive by historical standards, 8 are negative and 12 are neutral. This was a decrease of one positive and an increase of one neutral since we last published on July 23rd. The change we made was to GDP which on a trailing 12 months basis expanded by 2.31% through Q2 2015. For classification as positive we require GDP to expand at > 2.5%. There were no other changes to our evaluation of the present situation. Looking at the 12 leading indicators separately, 3 were negative 7 were neutral and 2 were positive which is proportionately about the same as the total 26.

In our trends analysis, most of the values reported are three month moving averages to avoid the knee jerk reactions that are characteristic of most economic reports in the press. Please note that there is nothing subjective about this trends analysis. The numbers presented here are the latest facts available. The number of indicators trending positive in this latest analysis was 18 which was an increase of 2 since our last update. Directional changes in the individual indicators were as follows; Consumer confidence which had been unchanged in June declined in July. Loan demand for commercial and industrial loans which had declined in Q2 2015, improved in the Federal Reserve senior loan officer survey released this week. There were no directional changes in the long products steel section. In the construction section, nonresidential starts as reported by Dodge Data & Analytics reversed direction from contraction to expansion with the result that all construction indicators are now improving. There were no changes in the direction of the manufacturing indicators, of which all except new orders for durable goods are experiencing expansion.

Of the 12 indicators that we consider to be leading, seven were trending positive in this latest analysis which was an increase of 2 since July 23rd.
(Explanation of Indicators)

Table 6

Contributors this week include; Laura Remington, Bryan Drozdowski, Peter Wright and Steve Murphy