|Railcar Loadings||Chemical Wholesale Trade||Global Semiconductor Sales|
Running tab of macro indicators: 16 out of 20
The number of new jobless claims increased by 137,000 to 853,000 during the week ending 5 December. Continuing claims increased by 230,000 to 5.76 million and the unemployment rate for the week ending 28 November increased 0.1 percentage points to 3.9%. The Thanksgiving holiday may have affected results as have California claim submissions.
Consumer credit expanded $7.2 billion (0.4%) to $4,157 billion at the end of October. This was below expectations and lower than the previous month’s $15.1 billion expansion. The expansion was driven by a $12.7 billion increase in non-revolving (auto loans, educational loans, etc.) credit. Revolving credit (i.e., credit cards) decreased by $5.5 billion. Consumer credit was up 0.3% Y/Y. ‘
Consumer prices rose 0.2% in November, following flat growth in October. Energy prices rose and food prices edged lower. Excluding food and energy, core consumer prices rose by 0.2%. The indices for lodging away from home, household furnishings and operations, recreation, apparel, airline fares, and motor vehicle insurance all increased in November. The indices for used cars and trucks, medical care, and new vehicles all declined over the month. Compared to a year ago, headline consumer prices were up 1.2% Y/Y and core prices were up 1.6% Y/Y. Producer prices for final demand goods and services edged higher by 0.1% in November. Prices for goods rose 0.4% as gains in energy and food prices rose faster than core goods prices. Service prices were flat as declines in prices for trade and transportation services were offset by gains in prices for other services. Compared to a year ago, producer prices were up 0.8% Y/Y with core prices up 0.9% Y/Y.
Small business optimism in the U.S. economy decreased in November compared with the previous month. The NFIB Small Business Optimism Index fell 2.6 points to 101.4 in November. This was in line with expectations and is still above the historical 47-year average. Six of the 10 index components declined, while four increased. The fall in optimism levels was almost entirely driven by a plunge in short-term expectations. Despite good news on Covid-19 vaccine developments, the number of owners expecting better business conditions over the next six months declined 19 points to a net 8%.
Wholesale trade rose 1.8% to $496.6 billion in October, with an upwardly revised gain for September. Sales were fairly broad-based among wholesalers with particularly strong gains in automotive, metals, apparel and petroleum. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices rose 1.1% to $649.0 billion at the end of October. This pushed the inventory-to-sales ratio down from 1.32 to 1.31. A year ago it was 1.35. Sales were up 0.9% Y/Y and inventories were off 2.2% Y/Y. The imbalance has largely disappeared.
With sequential gains in all regions, global semiconductor sales rose 3.1% to $39.0 billion in October 2020, a level up 6.0% Y/Y. Regionally, sales increased on a year-earlier basis in the Americas, China, and Asia Pacific/All Other but decreased in Japan and Europe. The SIA released it new WSTS industry forecast, which projects annual global sales will increase 5.1% to $431.1 billion in 2020, followed by an increase of 8.4% in 2021. Projections for both years are higher than they were in the previous WSTS forecast released in July. The largest growth contributors are memory followed by sensors. In 2020, Americas and Asia Pacific regions are expected to grow.
FEDERAL RESERVE BEIGE BOOK
The Beige Book is a compilation of reports on the regional economies in each of the 12 Federal Reserve districts. This version of the Beige Book reflects conditions through November 20th.
Most Federal Reserve Districts have characterized economic expansion as modest or moderate since the prior Beige Book period. However, four Districts described little or no growth, and five narratives noted that activity remained below pre-pandemic levels for at least some sectors. Moreover, Philadelphia and three of the four Midwestern Districts observed that activity began to slow in early November as COVID-19 cases surged. Reports tended to indicate higher-than-average growth of manufacturing, distribution and logistics, homebuilding, and existing home sales, although not without disruptions. Banking contacts in numerous Districts reported some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated. Most Districts reported that firms’ outlooks remained positive; however, optimism has waned–many contacts cited concerns over the recent pandemic wave, mandated restrictions (recent and prospective), and the looming expiration dates for unemployment benefits and for moratoriums on evictions and foreclosures.
Petrochemical manufacturers noted that reduction in crude oil refining has lowered the availability of residual products used for fuel, which ultimately has affected production supply chains, capabilities, and costs. While some energy contacts noted that petrochemical and chemical processing expansion projects were gradually restarting, others reported that many projects that were delayed will be on hold into 2021.
The rig count rose by three to 321 rigs during the week ending 4 December. Brent crude topped $50 a barrel for the first time since early March, as supply curtailments and drivers returning to the road. Cold weather pushed through the U.S. last week and natural gas inventories dropped by 91 BCF.
For the business of chemistry, the indicators still bring to mind a green 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 7,666 – 26.8% – to 36,294 railcars the week ending 5 December (week 49). Not only did this more than offset last week’s 12.5% decline, it was the highest weekly railcar count on record (note: ACC’s records date back to January 1985). Loadings were up 12.6% Y/Y, and down 3.8% on a YTD basis compared to 2019. Loadings have been on the rise for 7 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 0.6%.
Chemical wholesale trade fell 0.3% to $9.71billion in October, which follows a 3.4% gain in September. Inventories fell 1.1% to $11.79 billion at the end of October and follows a 1.7% decline in September. This pushed the inventory-to-sales ratio down from 1.22 to 1.21. A year ago it was 1.17. Sales were off 11.6% and inventories were off 8.1% Y/Y.
Following a 1.3% gain in October, chemical prices edged higher by 0.6% in November. There were gains in prices for agricultural chemicals, consumer products, bulk petrochemicals, synthetic rubber, coatings, and manufactured fibers. Prices for plastic resins were flat and prices for inorganic chemicals and other specialty chemicals edged down. Compared to a year ago, chemical prices remained off by 0.5% Y/Y.
ACC YEAR-END 2020 SITUATION AND OUTLOOK
What a year it has been. Just one year ago, our outlook for the U.S. chemical industry was for positive growth, albeit modest. At the start of 2020, U.S. chemistry faced headwinds including a global manufacturing slowdown, challenges from protectionist trade policies, and uncertainty about the upcoming U.S. presidential election. As news of a novel coronavirus in China captured the world’s attention, companies prepared for supply disruptions as significant portions of the world’s largest chemical-producing nations began instituting restrictions in an effort to contain the outbreak. By the end of March, as much as half the world’s population was under some kind of lockdown order, and demand for goods and services collapsed with unprecedented speed and severity.
The ensuing global pandemic hit the pause button on the $84 trillion global economy. In a matter of weeks, spending fell across all economic sectors. Since more than 85 percent of basic and specialty chemicals are sold to the industrial sector, all but a handful of chemistries were negatively affected. Several became hot tickets, however. Increased use of personal protective equipment (PPE), disinfection and sanitation products, medical supplies and equipment, and protective barriers partially offset sharp declines in demand for other chemistry products. As consumers were confined to their homes, plastic packaging enabled food distributors to package bulk foods bound for institutional markets into smaller household-sized packages, alleviating shortages at the retail level.
Deemed an “essential industry” by the U.S. Department of Homeland Security, American chemistry provided critical materials to fight COVID-19. Many of the men and women in our industry worked back-to-back shifts – repurposing business lines to manufacture protective equipment, creating new products, and donating food, clothing and PPE to first responders. These essential chemical workers are among the highest paid manufacturing workers in the country, whose earnings support local communities.
Despite increased demand for several COVID-critical chemistries, overall U.S. chemical production fell in 2020, as did output in nearly every other manufacturing sector. Motor vehicle production fell sharply along with output in its lengthy supply chain. Housing showed strong gains due to shifting patterns of remote work and record-low interest rates. Most other end-use segments declined. With the recovery that began in Q3 now firmly in place and improvement seen among many key chemistry-consuming industries, the path forward suggests continued gains.
During 2020, performance among chemical sectors was mixed. Plastic resins was the only segment to post positive growth, due to its role in PPE, protective barriers, medical supplies, and packaging for food and cleaning products. Other basic chemical segments declined, especially synthetic rubber – a key ingredient in tire manufacturing – which dropped dramatically. Specialty chemicals saw demand falter across nearly all functional and market segments.
Post-COVID, American chemistry will continue to expand. The post-pandemic outlook is for broad-based growth in chemicals supported by solid fundamentals: Growing customer demand, stabilizing export markets, and a continued competitive edge linked to domestic supplies of shale gas and natural gas liquids (NGLs) that serve as key inputs for U.S. chemical manufacturing. Consistent with our heritage of innovation, chemical companies remain dedicated to providing essential materials for a growing population and are actively engaged in finding sustainable solutions for the future.
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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.