|New Home Sales||CAB Leading Indicator||Global Chemical Production|
Running tab of macro indicators: 16 out of 20
The number of new jobless claims decreased by 98,000 to 1.006 million during the week ending 22 August. Continuing claims fell by 223,000 to 14.54 million and the unemployment rate for the week eased 0.2 percentage points to 9.9%.
The “second” estimate showed that real gross domestic product (GDP) decreased at an annual rate of 31.7% in 2nd quarter 2020, off from the previously reported 32.9% pace of decline and worse than the 5.0% pace of decline in the 1st quarter. This GDP estimate is based on more complete source data than were available for the “advance” estimate issued last month. With the second estimate, inventory change and consumer spending decreased less than previously estimated.
Personal income rose 0.4% (by $70.5 billion) and the increase was led by compensation of employees as portions of the economy continued to reopen. Proprietors’ income and rental income of persons also contributed to the increase. Partially offsetting these increases were decreases in government social benefits and income on assets. Consumer spending rose 1.9% ($267.6 billion) with gains across all spending segments. Inflation remains contained so the real (or inflation-adjusted) measures were good as well. The savings rate eased to 17.8%.
With the uptick in coronavirus cases during July and early August, consumer confidence unexpectedly fell for a second month in August, down 6.9 points to 84.6, a six-year low. July’s reading was downwardly revised as well. Confidence about both the current situation and expectations for the next six months deteriorated. Plans to buy appliances, autos and new homes all eased.
Further evidence of the strengthening housing market, new home sales rose 13.9% in July to a 901,000 pace, the fastest pace since the end of 2006. Sales rose in all regions except the comparatively small northeast region. Inventories edged lower by 1.6% at the end of the month and represent a 4.0-month supply at the current sales pace, down from 6.0 months a year ago. Sales were up 36.3% Y/Y while inventories were off 8.8% Y/Y. Home prices continue to rise with the median sales price up 7.2% Y/Y.
Durable goods orders rose by a robust 11.2% in July, following gains of 7.7% in June and 15.0% in May. The gains were broad-based with every major sector increasing. The largest gains were in motor vehicles, defense aircraft, computers, and communications equipment. Core business orders (nondefense capital goods excluding aircraft) were up 1.9%. Compared to a year ago, durable orders were off 5.0%.
Manufacturing activity in the Fifth District (Richmond) continued to strengthen in August. The composite index rose 8 points to 18 as all three components (shipments, new orders, and employment) increased. The Tenth District (Kansas City) manufacturing activity rose moderately in August but remained below year-ago levels. The month-over-month composite index was 14 in August, moderately higher than 3 in July and 1 in June. Production, shipments, and new orders grew considerably compared to a month ago. The Chicago PMI retreated 0.7 points to 51.2, below expectations but still positive. Production improved to its highest level since June 2019 and new orders edged up to a one-year high. Inventories fell in August, hitting the lowest level since March, indicating that companies continue to run down their stocks.
The Chemical Activity Barometer (CAB), a leading economic indicator created by ACC, rose by 2.5% in August on a 3MMA basis following a 3.0% gain in July. The barometer was down 6.1% Y/Y in August. The unadjusted data show a 1.8% gain following a 1.5% gain in July and a 4.1% gain in June. The diffusion index rose from 41% to 59%, the first time since January that it has been above 50%. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for July was revised upward by 1.08 points and for June was revised upward by 0.77 points. With four consecutive months of gains, the latest CAB reading is consistent with recovery in the U.S. economy, which is likely to be slow. The August reading is only 5.8% below its pre-coronavirus level, and the indicator appears to be improving at a fairly good pace.
The rig count rose for the first time since February, up 10 to 252 rigs during the week ending 21 August. Because of the surge in unconventional oil and gas production from shale, Gulf of Mexico energy production accounts for a much smaller share of total U.S. energy production. As a result, compared to the 2005 hurricanes, price impacts and both oil and gas have been much smaller.
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, rose by 0.7% to 31,408 railcars the week ending 22 August (week 34). Loadings were down 0.4% 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 8.2%, but continues to edge up slightly.
With improving activity in many nations, our Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production rose 1.4% in July, continuing the global recovery that started in June following declining activity during January through May. During July, chemical production increased in most major regions except Latin America and Africa & the Middle East. Headline global production was off 5.1% Y/Y on a 3MMA basis and off 5.2% from the peak December level. Global output stood at 112.4% of its average 2012 levels.
During July, global capacity was stable and was up 2.3% Y/Y. As a result, with improving production, capacity utilization in the global chemical industry rose 1.0 point to 77.0%. This is down from 83.1% last July and below the long-term (1987-2017) average of 86.5%. Among chemical industry segments, July results were positive with gains across all segments. Considering year-earlier comparisons, growth was lacking among segments, with a strong decline in coatings.
We updated our annual report on Chemistry and Light Vehicles. The $449 billion North American light vehicle industry represents an important sector of economy of all three nations and a large end-use customer market for chemistry. In 2019, the 15.93 million light vehicles assembled in the U.S., Canada, and Mexico required some $50.6 billion in chemistry (chemical products and chemical processing), or $3,174 of chemistry in every vehicle, up from $2,907 in 2009.
The latest data indicate that the average weight of North American light vehicles fell by six pounds in 2019 to 3,989 pounds. The use of plastic and composites rose three pounds to an average of 362 pounds per vehicle and the plastics percentage of total vehicle weight rose slightly to 9.1%. Plastics and polymer composites are essential to a wide range of safety, performance and aesthetic breakthroughs in today’s cars, pickups and SUVs. In fact, the use of plastics and polymer composites in light vehicles has increased significantly from less than 20 pounds per vehicle in 1960. In addition to plastics and composites, the typical light vehicle also utilizes 217 pounds of rubber and 47 pounds of manufactured fibers. The latter are almost entirely synthetic fibers derived from hydrocarbons. The typical North American light vehicle also featured 29 pounds of coatings (dry weight) in 2019. The full report is available on MemberExchange.
ACC members can access additional data, economic analyses, presentations, outlooks, and weekly economic updates through MemberExchange.
In addition to this weekly report, ACC offers numerous other economic data that cover worldwide production, trade, shipments, inventories, price indices, energy, employment, investment, R&D, EH&S, financial performance measures, macroeconomic data, plus much more. To order, visit http://store.americanchemistry.com/.
Every effort has been made in the preparation of this weekly report to provide the best available information and analysis. However, neither the American Chemistry Council, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.
Contact us at ACC_EconomicsDepartment@americanchemistry.com
“The Future of Office Space Post-COVID-19”
Dr. Victor Canalog – Head of Commercial Real Estate Economics, Moody’s Analytics
National Economists Club Webinar
3 September 2020 – 12:00-1:00pm
The 10th ICIS World Surfactants Virtual Conference
16-18 September 2020
ADI Chemical Market Resources
22 September 2020
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.