|Specialty Chemicals Index||U.S. CPRI||Lead Economic Indicators|
Running tab of macro indicators: 16 out of 20
The number of new jobless claims increased by 135,000 to 1.106 million during the week ending 15 August. Continuing claims fell by 636,000 to 14.84 million and the unemployment rate for the week eased 0.4 percentage points to 10.2%.
Housing starts rose by a larger-than-expected 22.6% to a 1.496 million unit pace in July. Moreover, prior months’ activity was revised upwards. July gains were widespread but more pronounced in the multiple-family segment. Building permits rose 18.8% to a 1.495 million unit pace. Again, prior months’ activity was revised upwards. Gains occurred across all regions but were most pronounced in the Northeast and the South. Starts were up 23.4% Y/Y and permits were up 9.4% Y/Y. With record low mortgage interest rates, the major headwinds are supply-side in nature. The NAHB reported that homebuilder sentiment rallied this month with the Housing Market Index (HMI) increasing six points to 78, matching the record high set in December 1998. Record low mortgage rates and a desire by many households to live in suburban and rural areas that are less populated is supporting the housing market. Headwinds include high coronavirus cases and soaring lumber prices.
Existing home sales surpassed expectations in July, up 24.7% to a 5.86 million annual pace, ahead of its pre-Covid levels. Compared to a year ago, sales were up 8.7% Y/Y. Housing inventory moved lower and was 21.1% below year-ago levels. As a result, the inventory of existing homes fell to a 3.1-month supply at the current sales pace. The median sales price was up 8.5% Y/Y to $301,100. The shift to remote work is changing the housing market, with rising demand for larger homes outside city centers.
August business activity edged slightly higher in New York, according to the Empire State Manufacturing Survey. The headline general business conditions index fell 13.5 points to +3.7, signaling a slower pace of growth than in July. New orders were little changed, and shipments increased modestly. Unfilled orders were down, and inventories declined. Employment inched higher, while the average workweek declined. Input prices increased at about the same pace as last month, while selling prices increased for the first time in several months. Firms remained optimistic that conditions would improve over the next six months, though optimism fell (by 4.1 points) for a second consecutive month. The Philadelphia Fed’s Manufacturing Business Outlook Survey indicated that manufacturing activity continued to expand in August. The general business activity index eased to +17.2 points and indicators for new orders and shipments remained positive for the third consecutive month. Employment remained positive but also slowed. Most of the future indicators remained elevated, suggesting that the firms expect growth over the next six months.
The Conference Board’s Leading Economic Indicator (LEI) rose by 1.4% in July, the third gain although at a slower pace. The LEI rose 3.0% in June and 3.1% in May, and suggests that the pace of “economic growth will likely weaken in the final months of 2020.” Six of the 10 indicators comprising the LEI expanded, fewer than the previous two months. Next week our CAB leading indicator will provide insight into what the August data are saying.
SURVEY OF ECONOMIC FORECASTERS
The rig count fell by three to 242 rigs during the week ending 14 August. Oil prices closed on Thursday at essentially the same place as last week. Prices were higher earlier in the week, however, on a larger than expected inventory withdrawal and bullish comments by Saudi Arabia’s energy minister. Natural gas inventories continued to build at a pace typical for this time of the year.
For the business of chemistry, the indicators still 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 slightly (0.3%) to 31,194 railcars the week ending 15 August (week 33). Loadings were down 6.1% Y/Y and down 5.0% YTD/YTD. Railcar loadings continue to show improvement, and have been on the rise for 8 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down an improved 9.0% Y/Y.
The Chlorine Institute reported that production of chlorine was 28,674 tons per day in July, up 3.9% over the previous month, but down 17.3% compared to July 2019; YTD production was down 17.3% Y/Y. The output of co-produced caustic soda rose 7.0% to 30,552 tons per day; YTD production was down 7.8% Y/Y.
With a further recovering U.S. economy, U.S. specialty chemicals market volumes rebounded a slower 1.9% in July, off from a strong revised 4.6% gain in June, a revised 0.1% decline in May, and the record 12.4% decline in April. Of the 28 specialty chemical segments we monitor, 25 expanded in July, an improvement from 24 rising in June and all 28 declining in April. Thus, on a sequential (one-month change) basis diffusion was 91%, an improvement from 89% in June and much better than 0% diffusion recorded in April. Of the 25 segments rising in July, 17 (too numerous to mention individually) featured gains of 1.0% or more.
During July, overall specialty chemicals volumes were off 9.1% on a year-over-year (Y/Y) basis, an improvement from the prior month. Volumes stood at 101.0% of their average 2012 levels in June. This is equivalent to 6.88 billion pounds (3.12 million metric tons). On a Y/Y basis, there was a gain in only three market and functional specialty chemical segments: cosmetic additives, electronic chemicals, and flavors & fragrances. On a year-earlier basis, diffusion was 11% in July, an improvement from May and April but much worse than at the start of the year.
The U.S. Chemical Production Regional Index (U.S. CPRI), which is measured as a three month moving average, rose by 0.8% in July following a 1.6% decline in June and a 2.0% decline in May. During July, chemical output expanded in all regions, with the largest gains in the Gulf Coast, Midwest, and Ohio Valley regions. Compared with July 2019, U.S. chemical production was off by 5.9% on a year-over-year basis, the fourteenth consecutive month of Y/Y declines, but an improvement over the past several months. Chemical production remained lower than a year ago in all regions, with the largest year ago declines in the Northeast and West Coast regions.
As measured on a three month moving average (3MMA) basis, chemical production improved in many segments including, plastic resins, chlor-alkali, organic chemicals, industrial gases, synthetic dyes & pigments, consumer products, and fertilizers. Production continued to move lower in adhesives, coatings, other specialty chemicals, crop protection, synthetic rubber, and manufactured fibers.
As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. The recovery strengthened in July, with overall factory activity up by 4.9% (on a 3MMA basis). Among industry segments, there was broad improvement with gains in the output of food & beverages, appliances, motor vehicles, aerospace, construction supplies, fabricated metal products, computers, semiconductors, refining, iron & steel, foundries, plastic products, rubber products, tires, structural panels, printing, textile mill products, apparel, and furniture.
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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.