|Housing Starts||Chemical Production||Specialty Chemicals|
Running tab of macro indicators: 16 out of 20
The number of new jobless claims increased by 23,000 to 885,000 during the week ending 12 December. This is a labor market warning sign. Continuing claims decreased by 273,000 to 5.51 million and the unemployment rate for the week ending 5 December eased 0.1 percentage points to 3.8%.
Import prices edged higher by 0.1% in November, following a slight decline in October. Energy prices rose 4.3% and prices for nonfuel imports fell for the first time, by 0.3%, since April. Prices for nonfuel industrial supplies and materials rose, but were offset by declining prices for imported foods, feeds, and beverages. Export prices rose 0.6% on strong gains in agricultural exports and softer gains in non-agricultural exports. Compared to a year ago, headline import prices remained off 1.0%, the same as last month. Export prices also remained lower, down 1.1% Y/Y.
With gains across the supply chain, business inventories rose 0.7% to $1,948.7 billion at the end of October, a level off 4.0% Y/Y. The combined value of distributive trade sales and manufacturers’ shipments rose 0.9% to
$1,482.3 billion, a level up 2.2% Y/Y. Gains were widespread along the supply chain. This pushed the inventory-to-sales ratio down slightly to 1.31. A year ago it was 1.40, indicating that supply imbalances are easing.
Following a 0.1% dip in October, headline food service and retail sales continued to fall in November, down 1.1%. The decline was more than expected as consumers held back during the traditional start of the holiday shopping season. Sales fell across nearly all categories except food & beverage, building material & garden centers, and non-store retailers (i.e., online platforms). Compared to a year ago, retail sales remained ahead by 4.1%. Surging COVID cases across the U.S. have prompted new restrictions and caution among consumers.
Seasonally-adjusted housing starts continued to climb in November, up 1.2% to a 1.55 million unit pace. Single family starts slowed to a 0.4% gain following solid gains since May. Starts were higher in the Northeast and West and lower in the Midwest and South. Forward-looking building permits also rose, by 6.2%. Compared to a year ago, housing starts were up 12.8% (single-family up 27.1% Y/Y) while building permits were up 8.5% Y/Y. Housing has been a bright spot as new patterns of work and distance learning have fueled demand for new housing.
Ending three successive months of record highs, builder confidence in the market for newly built single-family homes fell four points to 86 in December, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). Despite the decline, this is still the second-highest reading in the history of the series after last month’s 90. Demand for housing is strong as we enter 2021, but housing affordability challenges are present as inventory remains low and construction costs are rising.
Following a downwardly revised 0.9% gain in October, industrial production moved higher by 0.4% in November. Mining output increased, but utility output was lower. Manufacturing, which represents the lion’s share of the industrial sector, rose by 0.8% with mixed performance among sectors. Most durable sectors saw output grow with the largest gains in primary metals, motor vehicles, electronics and aerospace. Nondurable goods output edged higher with gains in paper and foods & beverages offsetting declines in other nondurable segments. Compared to a year ago, industrial production was still lower by 5.5%. Total capacityutilization rose by 0.3 percentage points to 73.3%, still off from 77.6% a year ago. Growth in overall industry capacity was flat.
In the Empire State Manufacturing Survey, the New York Fed reported that December business activity edged higher. The headline general business conditions index eased 1.4 point to 4.9, a slight disappointment but still signaling expansion. New orders increased marginally and shipments were modestly higher. Inventories continued to move lower, and delivery times edged up. Employment posted its strongest gain in months, and the average workweek lengthened. Input prices increased at the fastest pace in two years, while selling prices increased at about the same pace as last month. Looking ahead, firms remained optimistic that conditions would improve over the next six months, with the headline index rising 2.4 points to 36.3. The Philly Fed reported in its Manufacturing Business Outlook Survey that December activity in the region continued to grow, but growth was less widespread as the headline index fell 15.8 points to +11.1. As with the headline, current indicators for new orders and shipments remained positive for the seventh consecutive month but fell notably from their readings in November. Some future indexes also moderated this month but continue to indicate that firms expect growth over the next six months. The Kansas City Fed reported that District factory activity expanded further, with the headline current composite index rising by three to 14 in December. Shipments, new orders, order backlog, employment, new orders for exports, and supplier delivery time increased at a faster pace. Materials inventories rebounded while finished goods inventories declined further. The future composite index was slightly lower than 21 in November but remained positive at 17 in December.
The index of leading economic indicators (LEI) increased 0.6% in November to 109.1 (2016 = 100), following an 0.8% increase in October and a 0.7% increase in September. The pace of improvement has been decelerating in recent months, suggesting moderation in growth as the U.S. economy heads into 2021. Seven of the 10 indicators improved in November.
The rig count rose by 16 to 337 rigs during the week ending 11 December. Oil prices moved to a 9-month high this week and natural gas prices also edged higher. As winter weather arrives in parts of the country, natural gas inventories fell by 122 BCF last week. With rising COVID cases, the International Energy Agency (IEA) lowered its short-term recovery forecast. IEA now expects weaker growth in oil demand in 2021, particularly jet fuel.
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, fell by 3,703 to 32,591 railcars the week ending 12 December (week 50). Loadings were up 1.6% Y/Y and down 3.6% 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 up 0.3%, the first positive comparison since mid-April.
The U.S. Geological Survey reported that monthly production of soda ash in September was 734 thousand tons, down 10.0% compared to the previous month and down 24.9% Y/Y. Stocks fell 27.8% to 231 thousand tons compared to August, a 9-day supply. Ending stocks were down 24.0% Y/Y.
Chemical import prices rose by 0.3% in November, the sixth consecutive gain. Prices for chemical exports rose 1.6%, the largest monthly gain in two years. Compared to a year ago, import prices remained off by 1.3% while exports were up 0.9% Y/Y.
The Federal Reserve reports that, following a strong gain in October due to recovery from the hurricanes, chemical industrial production eased 0.3% in November. Weakness was across the board with only agricultural chemicals and bulk petrochemicals & organics among major segments gaining. Compared to a year ago, production was off 3.3%. Chemical capacity edged up slightly. The drop in production pushed chemical capacity utilization down 0.3 points to 78.9%. A year ago, capacity utilization was at 81.8%.
U.S. specialty chemicals market volumes increased 0.4% in November, a tempered pace from a revised 1.5% gain in October. Of the 28 specialty chemical segments we monitor, 17 expanded in November, off from 25 in October. Thus, on a sequential (one-month change) basis, diffusion was 61%, down from 91% in October. Of the 17 segments rising in November, six (catalysts, lubricant additives, mining chemicals, oilfield chemicals, paper additives, and plasticizers) featured gains of 1.0% or more.
During November, overall specialty chemicals volumes were off 5.8% Y/Y, a better comparison than in October. Volumes stood at 105.3% of their average 2012 levels. This is equivalent to 7.17 billion pounds (3.25 million metric tons). On a year-earlier basis, there were gains in seven chemical segments: cosmetic additives, dyes, electronic chemicals, flavors & fragrances, food additives, paper additives, and plastic compounding. On a year-earlier basis, diffusion was 25% in November, an improvement from 20% the prior month.
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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.