|Leading Indicators||Chemical Production||Specialty Chemical Market Volumes|
The number of new jobless claims declined by 29,000 to 348,000 during the week ending 14 August. This was the lowest level since the beginning of the pandemic. Continuing claims declined by 79,000 to 2.820 million (also a pandemic low) and the insured unemployment rate for the week ending 7 August was stable at 2.1%.
Following a revised 0.7% gain in June, headline food service and retail sales fell by 1.1% in July, more than expected. Excluding sales of autos (beset by ongoing supply chain disruptions) and gas station sales, core retail sales were off by 0.7%. Readings are further complicated by seasonality adjustments in a year where spending patterns have been unusual due to the pandemic. Consumer spending has been a driver as consumers have been spending savings accumulated during the pandemic, however, in recent months that spending has shifted away from goods and toward services. Compared to a year ago, retail sales were up 15.8% Y/Y.
Business inventories rose 0.8% to $2,057.4 billion at the end of June. All sectors boosted inventories as well as sales. Business sales rose 1.4% to $1,640.8 billion in June. The stronger gain pushed the inventory-to-sales ratio down slightly to 1.25. A year ago, the ratio was 1.40. Sales were up 19.9% Y/Y and inventories were up 6.6% Y/Y.
An unexpected 7.0% fall in housing starts to a 1.534-million-unit pace was disappointing. The weakness was centered across much of the nation with only the South having a gain. That New England experienced a 49.3% monthly decline is suspicious. On a positive note, forward-looking building permits rose 2.6% to a 1.635-million-unit pace. Regionally, New England and the South were soft, and weakness was centered in the single-family segment. Both May and June permits data, however, were revised up. Labor and supply-chain issues continue to plague this sector. Starts were up 2.5% Y/Y and permits up 6.0% Y/Y. Housing leads the business cycle and this warrants close monitoring.
The New York Fed reported that manufacturing activity continued to expand in New York State, though growth was significantly slower than last month’s record-setting pace. The headline general business conditions index fell 24.7 points to +18.3, a still very solid reading. New orders increased modestly, and shipments grew slightly. Delivery times continued to lengthen substantially, and inventories were somewhat higher. Employment and the average workweek increased modestly. Input prices continued to rise sharply, and the pace of selling price increases set another record. Looking ahead, firms remained optimistic that conditions would improve over the next six months, with substantial increases in employment and prices expected. Business conditions in the Philadelphia region also continued to grow at a slower pace according to the Philadelphia Fed’s Manufacturing Business Outlook Survey. The general business activity index fell by 2.5 points to 19.4 with slowing growth in shipments. New orders, prices and employment grew at a faster pace, however. Delivery times improved, but inventories contracted at a faster pace. Expectations for business conditions in February 2022 softened but remained positive.
Industrial production rose 0.9% in July (better than expected), following a 0.2% increase in June. Utility output declined, but mining and manufacturing activity posted solid growth. Within manufacturing, there were strong gains across nearly all segments. Fabricated metal products, apparel & leather, and petroleum products were the exceptions. Compared to a year ago, industrial production was up 6.6% Y/Y. Capacity utilization tightened by 0.7 points to 76.1%, nearly back to its pre-Covid level. Overall industrial capacity was 0.1% higher than a year ago.
The index of leading economic indicators (LEI) rose by a robust 0.9% in July, marking the fifth consecutive gain and suggesting economic growth momentum continues. The largest contributors were financial in nature but real economy measures (building permits, manufacturing workweek, new orders, etc.) were also strong. The LEI is up 10.6% Y/Y and is consistent with strong economic growth in the second half of the year. Next week we will release our CAB leading indicator which will provide insight into the direction of the business cycle from August data.
SURVEY OF ECONOMIC FORECASTERS
The rig count rose by nine to 499 rigs during the week ending 13 August. Amid fears of economic slowdown, oil prices continued to retreat for the most part this past week. Natural gas prices also eased.
According to data released by the Association of American Railroads, chemical railcar loadings, the best ‘real time’ indicator of chemical industry activity, fell by 2.1% to 32,970 railcars during the week ending 14 August (week 32). Loadings were up 5.7% Y/Y and up 6.0% YTD/YTD. The 13-week moving average, which is used to smooth out volatility, was up 12.0%.
The Chlorine Institute (CI) reported that production of chlorine was 33,419 in July, up 9.1% over the previous month; YTD production was down 3.3% Y/Y. The output of co-produced caustic soda rose to 35,338, up 7.3% compared to June and YTD production was down 3.2% Y/Y.
According to the Federal Reserve, chemical Industry production eased 0.1% in July, following a 0.2% increase in June. Output of consumer products and basic chemicals declined. Weakness in the latter was found in inorganic chemicals, bulk petrochemicals & organics, and plastic resins. Synthetic rubber and manufactured fiber output gained. Coatings and other specialties increased as did agricultural chemicals. Compared to a year ago, production was up 6.4% Y/Y. Chemical industry capacity utilization eased by 0.1 points to 83.2%. Overall industrial capacity was 3.4 % higher than a year ago.
U.S. specialty chemicals market volumes entered the 3rd quarter on a strong note, rising 1.1% in July, a much faster pace than the 0.3% gain in June. This gain left volumes off 2.4% from pre-coronavirus levels. Of the 28 specialty chemical segments we monitor, 23 expanded in June, up from 13 in June. Four segments fell back in July, and one was neutral. Thus, on a sequential (one-month change) basis, diffusion was 84%, up from 46% in June. During July, 16 segments — too many to mention separately — featured gains of 1.0% or more.
During July, overall specialty chemicals volumes were up 10.1% on a year-over-year (Y/Y) basis from the levels of last year, when lockdowns were still widespread. Total volumes stood at 103.7% of their average 2017 levels in July. This is equivalent to 7.61 billion pounds, or 3.45 million metric tons. On a year-earlier basis, there were gains in all 28 chemical segments. Thus, diffusion was 100% in July, up slightly from 96% in June.
Since last year, the recovery has largely been V-shaped. Entering the 3rd quarter, volumes were up 3.9% year-to-date (YTD). Should the economic recovery continue, 2021 should be a good year for specialties.
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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.