|Non-Farm Payrolls (Mar)||CAB (Mar)||Chemical Shipments (Feb)|
Running tab of macro indicators: 8 out of 20
In the week ending 28 March, initial claims for unemployment surged to 6.648 million, an increase of 3.341 million from the previous week’s revised level, and the highest level in history. States continue to cite the coronavirus as a cause and identify increases related to the services industries broadly, again led by accommodation and food services. State comments, however, indicated a wider impact across industries. Many states continued to cite the health care and social assistance, and manufacturing industries, while an increasing number of states identified the retail and wholesale trade and construction industries. Given data in some highly-affected states (e.g., New York) the national figure may be understated.
Reflecting the effects of the coronavirus pandemic and government efforts to contain it, non-farm payrolls fell by a larger-than-expected 701,000 in March. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction. In the prior 12 months, employment growth had averaged 196,000 per month. Average weekly earnings were up 2.2% Y/Y. The unemployment rate increased by 0.9 percentage point to 4.4%, the highest monthly increase in the rate since January 1975. Thus, the number of unemployed persons rose by 1.4 million to 7.1 million in March. Given the 8 March – 14 March date of the household survey and the last two weeks initial claims for unemployment, the unemployment rate is likely understated and the April figure will be much worse. The labor force participation rate, at 62.7%, decreased by 0.7 percentage points over the month and total employment, as measured by the household survey, fell by 3.0 million to 155.8 million. The employment-population ratio, at 60.0%, dropped by 1.1 percentage points over the month.
The Conference Board reported that it’s measure of consumer confidence fell 10.4 points from 130.4 in February to 120.0 in March, a decline that wasn’t as deep as expected but likely to fall deeper in April. The decline and less favorable assessment was more extensive in the short-term outlook than in present conditions.
With widespread weakness across segments, light vehicle sales fell from a 16.74 million unit pace in February to an 11.74 million unit pace in March. The turnaround came midmonth as lockdowns on dealer showrooms affect sales and shutdowns on manufacturing affect assemblies. Companies are reviving promotions used in 2007-09 but industry observers expect sales to further deepen.
The U.S. trade deficit in goods and services was $39.9 billion in February, down $5.5 billion from $45.5 billion in January. The deficit was at its lowest level since September 2016. The decline in the deficit reflects a month of lower total trade volumes and one where imports fell faster than exports. Exports were down 0.4% compared to January and imports were down 2.5%. A decline in travel services were a drag on exports in February. The decline in imports reflects a drop in travel services and transport services, as well as declines in imported capital goods (computers and accessories, telecommunications equipment) and industrial supplies and materials.
Construction spending fell 1.3% in February with declines across all three main segments. A decline in repairs and improvements offset a gain in chemistry-intensive single-family construction. Spending across the nonresidential sector, however, was negative across the board. Compared to a year ago, construction spending remained ahead 6.0% with positive year-ago comparisons in spending on private residential and public projects offset by slightly below year-ago spending for privately-funded nonresidential projects.
Factory orders were unexpectedly flat in February, following a 0.5% decline in January, a sign of global manufacturing weakness. Many analysts were expecting a small increase. An increase in orders for durable goods offset a decline in nondurable goods orders. New orders for construction materials fell 1.1% and core capital goods orders were off 0.9%. Compared to a year ago, core orders were up 1.5% while headline orders were up 2.9% Y/Y. Unfilled orders, a measure of the manufacturing pipeline, ticked slightly higher, following flat growth the previous month. Manufacturing shipments declined for a second month by 0.2%. Inventories also fell for a second month by 0.4%. Shipments were up 1.2% Y/Y while inventories were up 1.5% Y/Y.
The Dallas Fed in its latest Texas Manufacturing Outlook Survey indicates that Texas factory activity declined sharply in March. The production index–a key measure of state manufacturing conditions–plummeted 51.7 points from +16.4 to -35.3, the largest monthly decline on record, and suggesting a notable contraction in output. Other measures of manufacturing activity also point to a sudden decline in March. The new orders index dropped to -41.3, its lowest reading since March 2009 during the Great Recession. The capacity utilization and shipments indexes fell to -33.4 and -33.8, respectively, also the lowest readings since the Great Recession. Capital expenditures declined sharply, with the index dropping from 6.9 to -34.3. The Chicago PMI (also known as the Chicago Business Barometer™) fell by 1.1 points to 47.8 in March, marking a ninth consecutive contraction reading. Among the main five indicators, production and new orders saw the only monthly declines, while supplier deliveries recorded the largest gain. Inventories shifted deeper into contraction, slipping to the lowest level since October 2009.
The ISM PMI fell 1.0 point to a contractionary 49.1 reading in March. Production, new orders (a leading indicator), and employment are all contracting as is the backlog of orders, exports, imports, and raw material inventories. Customer inventories are deemed too low. Supplier deliveries are slowing at a faster pace. Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility. Of the 18 industries, 10 reported growth.
The coronavirus pandemic continued to cause disruption across global manufacturing in March, with the JPMorgan Global Manufacturing PMI at 47.6, up slightly from February, but still a contracting reading. This was due almost entirely to a stabilization of the China PMI. Output fell sharply as new orders contracted at the fastest pace since March 2009. The impact also reverberated through supply chains, with supplier lead times lengthening to a near-record extent, as well as in labor markets as companies cut staff headcounts. Business confidence slumped to a record low.
The ISM NMI fell 4.8 points to 52.5 in March. While this suggests an expansion in the largely-services sector, slower supplier deliveries likely contributed to the higher-than-expected reading. The business activity component fell 9.8 points to 48.0, a contraction that followed 127 months of expansion. Employment and inventories also swung from expansion to contraction, but new orders continued to expand at a slower rate.
The CAB leading economic indicator created by the American Chemistry Council (ACC), fell 2.6% in March on a 3MMA basis following a downwardly revised 0.1 % gain in February. On a Y/Y basis, the barometer fell 1.3% in March. The unadjusted data shows an 8.0 % decline in March following a 1.1 % decline in February and a 1.2 % gain in January. The unadjusted decline in March is the largest in the post-World War II period. The diffusion index slumped to 27% in March. The CAB reading for February was revised downward by 1.13 points; January was revised downward by 0.38 points. The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. Production-related indicators generally declined in March. Trends in construction-related resins, pigments and related performance chemistry were generally negative. Plastic resins used in packaging and for consumer and institutional applications were generally negative. Performance chemistry was negative and U.S. exports were weak. Equity prices collapsed, but are improving this week. Product and input prices declined. Inventory and other supply chain indicators were negative. The CAB leading indicator signals recessionary conditions in U.S. commerce. ACC believes a recession to be occurring when the barometer declines for three consecutive months and falls 3.0% or more from the peak. As of March, the CAB has declined for two straight months and fallen 8.9% from the peak.
Commercial oil inventories in the U.S. climbed 13.8 million barrels last week to 469.2 million barrels, near the historic five-year average for this time of year. Natural gas inventories are well above the five-year average as we near the end of the winter heating season. Due to the coronavirus and lockdown of much of the world economy, oil demand has slumped by nearly 20 million BPD, resulting in burgeoning oil inventories and falling oil prices. With the global market this long, storage is quickly emerging as an issue and a constraint.
For the business of chemistry, the indicators bring to mind a yellow banner for basic and specialty chemicals
According to data released by the Association of American Railroads, chemical railcar loadings, the best ‘real time’ indicator of chemical industry activity, fell by 1,765 to 32,706 railcars during the week ending 28 March (week 13). Loadings were down 3.3% Y/Y, up 3.1% YTD/YTD and have been on the 3.1% rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was up 3.1% compared to last year.
According to the ACC Plastics Industry Producers’ Statistics Group, U.S. production of major plastic resins was 7.2 billion pounds during February 2020, up 8.1% compared to last year. Year-to-date production was 15.1 billion pounds, up 6.7%. Sales and captive (internal) use of major plastic resins was 7.2 billion pounds, up 3.1% compared to last year and YTD sales were up 5.0%, totaling 15.0 billion pounds.
Comments from chemical manufacturers in the March Texas Manufacturing Outlook Survey include:
Looking at the details of the ISM PMI, the chemical industry was one that expanded. New orders, production, inventories, order backlogs, export orders, and imports all expanded while employment contracted. Supplier deliveries are slowing and customer inventories were deemed too low. One respondent noted, “The two main issues affecting our business [are] COVID-19 and the oil-price war. We are in daily discussions and meeting constantly, updating tracking logs to document high risk concerns.”
Shipments of chemicals fell 1.0% in February, following a 0.2% decline in January. Shipments fell in all major categories, with the largest decline in agricultural chemical shipments. Inventories of chemicals edged higher by 0.2% in February, following declines the previous three months. Inventories fell slightly in agricultural chemicals, but rose in other categories. Compared to a year ago, inventories were off 1.5% while shipments were down 0.8% Y/Y. The inventories-to-sales ratio ticked higher to 1.21. A year ago, the ratio was 1.22.
Construction spending for chemical manufacturing projects fell by 3.1% in February to a $31.0 billion annual pace. Chemical construction spending accounted for 42.5% of spending in the broader manufacturing sector. Compared to a year ago, spending was up 0.5%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
Like most industries, chemical industry (including pharma) employment fell, by 0.4% (3,000 jobs) in March. Production workers fell by 1.4% (7,800), implying an increase in supervisory and non-production workers by 4,800 (1.6%). The average workweek edged lower to 40.8, suggesting that the total labor input fell 1.7%, in contrast to the ISM report. Compared to a year ago, total industry employment was essentially flat. Average hourly earnings rose 2.3% Y/Y.
In a month of wild fluctuations as markets assessed the economic upheaval, the benchmark S&P 500 Index tumbled by 12.9% in March. Chemical equity prices, as measured by the S&P, for chemical companies also fell sharply (by 15.9%). Equity prices are often a good indicator of future activity and represent one component of the leading economic indicators. Compared to the beginning of the year, chemical equities were down 28.3% while the S&P 500 Index was off 20.0% year-to-date.
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The banner colors represent observations about the current conditions in the overall economy and the business chemistry. For the overall economy we keep a running tab of 20 indicators. The banner color for the macroeconomic section is determined as follows:
Green – 13 or more positives
Yellow – between 8 and 12 positives
Red – 7 or fewer positives
For the chemical industry there are fewer indicators available. As a result we rely upon judgment whether production in the industry (defined as chemicals excluding pharmaceuticals) has increased or decreased three consecutive months.