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US Forest Industry Performance: February 2019

US Forest Industry Performance: February 2019

US forest industry performance in January and February was recently reported by both the US government and the Institute for Supply Management.

Total industrial production (IP) decreased 0.6 percent (+3.8 percent YoY) in January—the first decline in eight months—after December’s 0.1 percent uptick (originally +0.3 percent). Manufacturing production fell 0.9 percent in January, primarily as a result of a large drop in motor vehicle assemblies; factory output excluding motor vehicles and parts decreased 0.2 percent. The indexes for mining and utilities moved up 0.1 percent and 0.4 percent, respectively.

“Manufacturing is under real pressure from the slowdown in China [whose exports tumbled 20 percent in February] and the trade war, and we expect output to drift down over 1H2019, putting the sector into a mild recession,” said Pantheon Macroeconomics’ Ian Shepherdson. The slowdown in manufacturing “won’t kill the rest of the economy, but it won’t look good, either,” Shepherdson added, “and until the sector bottoms out in the late spring it will make the Federal Reserve’s recent ‘dovish’ turn look like the right move.”

 ISM_Mar_2019

 

The Institute for Supply Management’s (ISM) monthly sentiment survey showed that the expansion in US manufacturing decelerated in February. The PMI registered 54.2 percent, down 2.4PP from January (Figure 2). The drop-offs in new orders (-2.7PP), production (-5.7PP) and employment (-3.2PP) were particularly noteworthy (Table 4). In contrast, the pace of growth in the non-manufacturing sector accelerated (+3.0PP) to 59.7 percent. Jumps in new orders (+7.5PP), order backlogs (+3.0PP) and export orders (+4.5PP) helped lift the NMI. All of the industries we track expanded. Respondent comments included:

  • Paper Products: “Strong domestic market. Slow export markets.”
  • Construction: “Still strong in all areas, due mostly to commercial construction activity.”

IHS Markit’s February survey headline results generally paralleled those of ISM. “The... surveys tell a tale of two economies in February,” wrote Markit’s Chris Williamson. “While manufacturing struggled... the service sector remained encouragingly resilient, enjoying its strongest burst of activity for seven months.” Williamson expects 1Q2019 GDP to be on par with 4Q2018, but warned of possible downside risk: “The worry is that the manufacturing slowdown will spill over to the service sector,” he said. “Companies... appear to have become more circumspect, with business optimism cooling in February amid worries over the impact of tariffs, trade wars, higher prices and rising interest rates.”

The consumer price index (CPI) was unchanged in January (+1.6 percent YoY). The energy index retreated for the third consecutive month, offsetting increases in non-energy indexes. All the major energy component indexes declined, with the gasoline index falling 5.5 percent.

Meanwhile, the producer price index edged down 0.1 percent (+2.0 percent YoY), thanks to a 0.8 percent decrease in prices for final demand goods—especially a 7.3 percent decline in the gasoline index. In contrast, the index for final demand services (especially retailing costs) increased 0.3 percent.

In the forest products sector, index performance included:

  • Pulp, Paper & Allied Products fell 0.2 percent (+2.3 percent YoY)
  • Lumber & Wood Products: -0.5 percent (-0.4 percent YoY)
  • Softwood Lumber: -0.8 percent (-10.4 percent YoY)
  • Wood Fiber: -2.0 percent (-2.2 percent YoY)

 Performance_Mar_2019

 economic outlook