Due to the Christmas holiday, the Weekly Chemistry and Economic Trends report will not be published next week. The next update will be 3 January 2020.
|Chemical Production||Specialty Chemicals||Housing|
Running tab of macro indicators: 15 out of 20
Today’s GDP report, featuring the “final” estimate, indicates that the economy in the 3rd quarter still expanded at a 2.1% pace. This GDP estimate is based on more complete source data than were available for the “second” estimate issued last month. With this new estimate, upward revisions to consumer spending and business investment were offset by a downward revision to the change in inventories.
Consumer spending remained solid going into the end of the year, up 0.4% in November. The expected gain follows a 0.3% increase in October. Personal income rose 0.5% following flat growth in October. Compared to a year ago, real consumer spending was up 2.4% while personal income rose 3.1% Y/Y. The price index for personal consumption expenditures continued to move higher by 0.2% and was up 1.5% Y/Y, slightly higher than previous months, but still below the Fed’s 2% target.
Housing starts rose 3.2% to a 1.365 million unit pace in November, a gain well above expectations. Moreover, earlier month’s starts were revised upwards. Building permits rose 1.4% to a 1.482 million unit pace, with strong gains in the Northeast and Midwest more than offsetting weakness in the South. Low mortgage interest rates are fueling strength in this sector—and that permits exceed housings—is encouraging. Starts were up 13.6% Y/Y and permits were up 11.1% Y/Y. Separately, the NAHB/Wells Fargo homebuilder sentiment indicator jumped by 5 points to 76, the highest level in 20 years. The gain was led by stronger sales and higher foot traffic. This may signal further improvement in homebuilding going into 2020.
Existing home sales fell by 1.7% in November, a higher than expected decline. Higher sales in the Northeast and Midwest were offset by declining sales in the larger South and West markets. Inventories moved lower and represented a 3.7-month supply at the end of the month, down from 3.9 months in October. Lower inventories have put pressure on prices with the median price of an existing home rose 5.4% Y/Y to $271,300. Compared to a year ago, sales were up 2.7%.
Following two months of declines, industrial production rebounded in November, up by 1.1%. Mining output continued to edge lower, but utility and manufacturing output posted solid gains. Compared to a year ago, headline industrial production was off 0.8%. The large gain in manufacturing was led by motor vehicles (up 12.4% for the month as the GM strike ended), primary metals, computers & electronics, and plastic & rubber products. The largest declines were in apparel, petroleum products, chemicals, furniture, and nonmetallic mineral products. Capacity utilization tightened to 77.3%, up from 76.6% in October. Capacity utilization remains below where it was a year ago at 79.6% (close to its long-term average). Compared to a year ago, overall industrial capacity was up 2.1%.
The Empire State Manufacturing Survey edged higher by 0.6 points to 3.5 in December, suggesting that manufacturing conditions in New York remained stable. Any reading above zero signals expansion, while a reading below zero signals contraction. While shipments accelerated, new orders grew at a slower pace. Unfilled orders fell at a faster pace and inventories expanded. Looking ahead over the next six months, expectations for future business conditions improved with gains across many subcomponents. The Manufacturing Business Outlook Survey prepared by the Philadelphia Federal Reserve indicated that activity in the region’s manufacturing sector was essentially flat this month. The survey’s broad indicator for current activity dropped to a reading near zero (from +10.4 to +0.3) this month, although readings for new orders, shipments, and employment remained at higher positive readings. The survey’s future activity indexes remained positive, suggesting continued optimism about growth for the next six months.
The Swiss Army knife of economic reports, the Conference Board’s index of leading economic indicators (LEI) was unchanged in November after three monthly declines. Six of 10 indicators improved with strength in housing, financial markets and consumer sentiment offsetting weakness in manufacturing and labor. The report suggests stabilizing economic growth in 2020
The oil and gas rig count remained steady at 796 rigs, down from 1,071 a year ago. Natural gas inventories fell by 107 BCF, a typical draw for this week. Energy prices continue their volatility. Oil prices are trading around three-month highs, supported by announced OPEC production cuts and the possibility of stronger economic growth (and oil demand) as a “phase-one” trade deal between the U.S. and China apparently has been reached. In addition, there are signs of stabilizing of economic growth. Mild winter weather and record production levels have weighed on natural-gas prices.
For the business of chemistry, the indicators 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 by 4.2% to 30,908 railcars during the week ending 14 December (week 50). Loadings were down 3.2% Y/Y, down 0.5% YTD/YTD and have been on the rise for 7 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was down 1.1% compared to last year.
The Chlorine Institute (CI) reported that production of chlorine was 32,906 in November, up 8.3% over the previous month; YTD production was down 2.3% Y/Y. The output of co-produced caustic soda rose to 35,342, up 9.4% compared to October and YTD production fell 1.8% Y/Y.
The Fed’s industrial production report indicates that chemicals production fell 0.8% in November. This follows a 1.2% decline in October and a 0.4% decline in September. A rise in production of inorganic chemicals, coatings, and consumer products was more than offset by weakness in bulk petrochemicals & organics, plastic resins, synthetic rubber, manufactured fibers, other specialties, and agricultural chemicals. Production was off 0.2% Y/Y after a year in which the trade war affected chemicals, the largest exporting sector. Capacity eased slightly in November but the drop in output pushed the capacity utilization rate down by 0.6 percentage points to 80.9% in November.
Fourth quarter U.S. specialty chemicals market volumes continue on a mixed note, with a 0.3% decline in November following a 0.1% gain in October. All changes in the data are reported on a 3MMA basis. Of the 28 specialty chemical segments we monitor, eight expanded in November, off from 14 in October. Eighteen markets declined in November and two were flat. During November, large market volume gains (1.0% and over) occurred only in electronic chemicals. On a sequential basis, diffusion was 32%, off from 55% in October.
During November, the overall specialty chemicals volume index was off 0.4% on a Y/Y 3MMA basis. Year-earlier comparisons have eased after 3rd quarter 2018. The index stood at 112.4% of its average 2012 levels in October. This is equivalent to 7.65 billion pounds (3.47 million metric tons). On a Y/Y basis, there were gains in 10 market and functional specialty chemical segments. Compared to last year, volumes were down in 17 segments and flat in one. On a year-earlier basis, diffusion was 38%, a worsening comparison.
The unadjusted data before the three-month moving average, however, actually rose 0.5% during November and follows a 0.5% decline in October. Performance chemistry reflects trends in manufacturing and activity is off from 4th quarter 2018 levels. The data represent the sales volume of various specialty chemical markets indexed where the average 2012 volume is equal to 100. A spreadsheet (with monthly history back to January 1997) is available for ACC members on MemberExchange. The spreadsheet also contains notes on the methodology. Note: There were revisions to some segments this 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.