Thursday
Jan082015

Weekly Market Update - January 8th, 2015

Construction Put-in-Place (U.S. Census Bureau): Total CPIP was up 5.6% y/y through November, and up 3.2% on a three month y/y basis. Private construction rose 7.4% over the year and 3.3%, 3 months y/y. State & Local construction was up 0.8% y/y and 3.2%, 3 months y/y. Spending at the State & Local level has now been positive on a y/y basis for three consecutive months after running 51 months in a row of negative y/y expenditures. All project categories were “green” (growth) except for water supply on a twelve month y/y basis and Power (State & Local) on a 3 month y/y metric, (Table 1).

Non-residential CPIP (NRC), moved ahead 8.6% over the year ending November and was up 11.9% on a 3 month y/y comparison giving rise to positive momentum. Private NRC increased 12.8% over the year and 15.7%, 3 months y/y. State & Local construction was flat (-0.1%) y/y but accelerated to +3.6%, on a 3 months y/y assessment. Overall momentum (3 month minus 12 month), was up 3.3% and was “green” for most project categories. Apartments continue to post the strongest growth, up 34.0% y/y and up 31.4% on a 3 month y/y basis. Office construction has recorded some stronger numbers recently, up 19.7% y/y and 19.4%, 3 months y/y, office construction has posted double digit y/y growth for seven sequential months, (Table 2).

In an encouraging sign, private building expenditures excluding single family construction (constant 2010 $ NSA) accelerated in 2014, after growing at historic rates from the end of the recession through 2013, (Fig. 1). Positive momentum in November’s report would suggest that this growth rate will continue into the New Year.

Single family residential has been recording double digit y/y growth 27 consecutive months. The trouble is it posted much larger double digit declining rates for 42 months in row between January 2007 and April 2010. In expenditure terms (constant 2010 $ NSA), home construction numbers are abysmal, still well short of the level realized in the 1994 through 1998 timeframe, (Fig. 2). Housing starts decreased to 1,028,000 in November from 1,045,000 starts in October as permits also declined. New home construction continues to be the most significant drag on the U.S. economy and does not look like there will be substantial improvement in 2015.

Table 1 


Table 2
 

Fig 1

 

Consumer Confidence: The consumer confidence index as reported by the Conference Board rose in December and the November results were revised upwards. The composite rose from 91.0 to 92.6, the view of the present situation rose from 93.7 to 98.6 as expectations fell from 89.3 to 88.5. The three month moving averages, (3MMA) of the composite and present view and expectations all improved. The 3MMA of the composite at 92.6 is now higher than the 35 year average since 1980 which stands at 90.6, the 3MMA of the composite, the view of the present situation and expectations are shown in Fig. 3. As with other indicators such as job creation, the recovery from the last recession has been slower than for previous recoveries. The present situation component has been much more volatile over each multiyear time span than expectations since our data began 34 years ago with higher highs and lower lows. The view of the present situation moved ahead of that for expectations in October for the first time since the recovery began in 2009. If history continues to repeat itself, the view of the present situation will now move ahead and widen the differential between it and expectations. On a year over year basis using a 3MMA the composite is up by 18.6 led by consumer’s view of the present situation which is up by 22.0, (Table 3). The employment sub-indexes, job availability and wage expectations, continue to improve. The pattern (color code) of auto, housing and appliance purchase intentions were unchanged for six months May through October but changed in November when automobiles became negative and appliances became positive. May was the first time in over a year that housing had been negative, and it has remained so ever since.

 

Table 3

ISM Manufacturing Index: The Institute of Supply Management released their December report on January 2nd and after the October surprise on the upside, the index slid back once again from 59.0 in October to 58.7 in November and to 55.5 in December, however this is still equal to the average for the year. The index has exceeded or equaled 60 only 14 times in the 166 months since January 1997 which is as far back as our data goes so the December reading is still strong. Any number > 50 indicates expansion and this was the nineteenth straight month for which this was the case. The three month moving average, (3MMA) declined from 58.1 in November to 57.7 in December, this was the twenty seventh consecutive month of a value > 50 in the 3MMA. The December value is still healthy by historical standards, (Fig. 4).

Table 4 shows the break down for December by sub component with the monthly result, the 3MMA, the growth of the 3MMA m / m and y / y for each. The growth of the 3MMA y / y slowed from 1.57 in November to 1.10 in December. The employment sub component changed from negative in November to positive in December but the prices subcomponent contracted once again in December.

Fig 4

Dodge Non-residential Starts: For the twelve months ending November, Dodge NRC starts were up 7.5% to 1179 million square feet. Starts over the most recent three months were up a stronger 9.5%, 3 months y/y resulting in 2% positive momentum. On a twelve month basis, hotel and manufacturing plants had the hot hand, up 47.0% and 47.7% respectively. Apartments, (>4 story apartments are included in NRC) rose 9.4%. Meanwhile religious (-17.4%), food & beverage (-16.3%), medical (-9.7%), civic (-11.2%) and retail (-6.5%) all recorded y/y declines. The same project categories plus parking garages also posted declines on a 3 months y/y comparison, (Table 5). Over the past 12 months, the two largest volume project categories were apartments (> 4 stories) at 246 million square feet, followed by warehouses at 168 million square feet. These two categories account for 35% of total NRC starts over the last year (Fig. 5). The lower line on the chart shows NRC excluding apartments >4 stories and warehouses, top line includes both of these categories. Note the significant change in the rate of slope between the two lines. The growth rate for the 11 months ending 2010 compared with the 11 months ending 2014 for all NRC was 39.3%. The same measurement without apartments >4 stories and warehouses growth rate was a much stronger 50.4%.

Table 5

Global Business Confidence has fallen over the past month from December 5th’s recorded high of 44.1 to this week’s reading of 34.3. The year ended at 39.3 while the 2014 average was 35.6. North American business confidence had seemingly stagnated from June through November, maintaining an average of 41.9; however, December yielded a steep incline ending the year at 48.5, the highest reading on record. Results were mixed across the board for business conditions, however, one theme was constant: confidence rose towards the end of the year. Inventory investment intentions rose in the first week of January. This is typical for manufacturing firms who deplete their inventory by the end of the year, who replenish in January. Financing availability experienced a precipitous drop of 8.6, from 52.3 to 43.7. Six month expectations also fell from 60.1 to 56.7, in part due to the global oil glut that has decimated oil prices. Typical consumers may see cheaper gas, however, economies that rely on strong oil prices will have to cut their budget, weakening their currencies, which negatively affect U.S. exports. Inflation is still well below the 2% stable prices mandate that the Federal Reserve dictates as a healthy economy (Federal Reserve CPI). Although GDP and job numbers are strong and unemployment is falling, inflation is still too low to raise interest rates, which have been near zero for six years, according to Janet Yellen, Fed Chairwoman. The Fed Presidents are playing a “wait and see” game until higher prices, and consumer demand, has picked up, (Fig. 6).

Fig 6

Unemployment Claims: New unemployment claims fell to 294,000 for the week ending January 3rd, 4,000 lower claims than the previous week. This figure has been lower than the 300k benchmark for 16 of the past 17 weeks dating back to September 13. The four week moving average is 290,500, 17% lower on a y/y basis. This figure smoothes out weekly volatility in reporting. The four week moving average is roughly 59,000 new claims fewer on a y/y basis. Seasonally adjusted continuing claims rose to 2.45 million, 14% fewer claims from the same time last year. This indicator has remained below the 3 million benchmark for all but two weeks during 2014, with the four week moving average staying under the benchmark since July 27, 2013. Continuing claims have recovered 64% since the end of the recession in June 2009, (Fig. 7).

Fig 7

Imports all Steel Products through December: Licensed data for December was updated on January 6th through the Steel Import Monitoring System of the U.S. Commerce Department. This Gerdau report is based on three month moving averages, (3MMA) using December licensed data, November preliminary and October final data. Total rolled product licensed imports in the month of December were 2,897,354 short tons which was almost a million tons higher than December last year and was down by 148,000 tons from November. Fig. 8 shows the 3MMA through December licenses for semi-finished, long and flat products. Longs have trended down slightly since May, the import surge took a breather for flat rolled in December and semi-finished has been trending down since mid-year. Fig. 9 shows the trend of long products since January 2011 as three month moving averages. There has been a strong surge in rebar imports since mid-year, hot rolled bars and wire rod are both down from their mid-year peaks and heavy structurals have taken a breather. Table 6 provides a detailed import analysis and compares the average monthly tonnage of the three months through December, with both the same period last year and with July through September 2014. The total tonnage of hot worked products averaged 2,897,354 tons per month in three months through December, up by 49.5% y/y and by 2.5% in concurrent three month periods. Year over year semi-finished imports were up by 12.7%, long products were up by 34%, considerably better than flat rolled which was up by 76.8%. Table 6 shows the tonnage and percent change for all the major product groups and for long products in detail. The average monthly tonnage of long products in three months through December increased by 147,202 tons year over year. Wire rod and heavy structurals were both up by > 90%. Hot rolled bars were down by 12.0%.

Fig 8

 

Fig 9

Steel Demand Indicators: Table 7 is a snapshot of the market situation on 1/8/2015. Of the twenty seven indicators under consideration, the present situation of twelve are now positive by historical standards, eight are negative and seven are neutral. This was an increase of one negative and a decrease of one neutral since we last reported on December 18th. The change was to the Broad Index value of the US $ which strengthened to 90.8 in December. We regard a strengthening dollar as a negative because of its effect on net imports. 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 as of today’s date. Overall there was an increase positive trend of one and a decrease of one in the negative category. The count now stands at 18 positive, 8 negative and 1, (Chicago shredded) unchanged. Changes in the last two weeks were as follows; The Chicago Fed National Activity Index and the Conference Board Consumer Confidence Index both reversed direction from trending negative to trending positive. The CFNAI compares economic activity to the historical norm with a very encouraging result in November. In the “Steel Long Products” section of Table 7, capacity utilization reversed direction and trended negative based on the November data from SMA. We publish a 3MMA in this report however the data for the individual month of November was so bad that we question the accuracy of the numbers. Hopefully December data will improve. There were no changes in the direction of the trends data for construction and manufacturing. The producer price index of commodities which we regard as a leading indicator of industrial construction continued to trend negative and the ISM manufacturing index had its second straight month of slight decline. All other construction and manufacturing indicators continue to trend positive.

The latest month or quarter for which data is included is identified in the 2nd column. Indicators updated since last published are shaded beige. (Explanation of Indicators).

Table 7

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