|245,000||1.8 points to 57.5||1.5%|
|Nonfarm Payrolls||ISM PMI||Global Chemical Production|
Running tab of macro indicators: 16 out of 20
With the Thanksgiving holiday, the number of new jobless claims fell by 75,000 to 712,000 during the week ending 28 November. Continuing claims fell by 569,000 to 5.52 million and the unemployment rate for the week ending 21 November decreased 0.4 percentage points to 3.8%.
Total nonfarm payroll employment rose by 245,000, following gains of larger magnitude in the prior six months. October gains were 610,000 and September gains were 711,000. This is a marked slowdown, leaving nonfarm payrolls off 6.5% (or 9.8 million jobs) below February levels. Notable job gains occurred over the month in construction, manufacturing, transportation and warehousing, professional and business services, and health care. Employment declined in government and retail trade. Average wages of $24.87 per hour were up 4.5% Y/Y. With easing labor force participation and softness in household employment, the unemployment rate edged down to 6.7%. The rate is down by 8.0 percentage points from its recent high in April but is 3.2 percentage points higher than it was in February. The number of unemployed persons, at 10.7 million, continued to trend down in November but is 4.9 million higher than in February. The average length of unemployment continues to trend upwards.
Consumer spending rose by 0.5% (higher than expected) in October. It was the smallest gain in the past five months as consumer spending rebounded following the lockdowns, fueled by Federal stimulus. Spending on durable goods and services rose, offsetting a decline in purchases of nondurable goods. Personal income fell by 0.7%, reversing a gain in September. The price index for personal consumption expenditures (PCE) rose at a 1.2% Y/Y rate while the core PCE price index rose by 1.4% Y/Y, both decelerations compared to September. Compared to last year, income was up 5.0% while spending was still off, by 1.8% Y/Y.
Real GDP increased at an annual rate of 33.1% in the 3rd quarter according to the “second” estimate that is based on more complete source data than were available for the “advance” estimate issued last month that also showed an increase in real GDP of 33.1%. Upward revisions to business fixed investment, residential investment, and exports were offset by downward revisions to state and local government spending, inventory accumulation, and consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised up.
The Conference Board index of consumer confidence declined 5.3 points to 96.1 in November. The expectations component led the decline as households were less optimistic about prospects for business and employment conditions in the next six months. Current assessments also eased. Despite dampened sentiments, consumer plans to purchase homes, new autos and appliances all improved.
New home sales in October 2020 eased to an annual pace of 999,000, down 0.3% from the 1.002 million unit pace in September. Sales rose strongly in the Northeast and Midwest but were offset by weakness in the South and West. New houses for sale at the end of October was unchanged at 278,000. This represents a supply of 3.3 months at the current sales rate with inventories off 13.4% Y/Y. Sales were up 41.5% Y/Y. The median sales price of new houses sold in October 2020 was $330,600, a level up 2.5% Y/Y. Construction spending rose by a better-than-expected 1.3% in October. Private residential surged by 2.9% as homebuilding activity has ramped up in recent months. Spending on privately-funded nonresidential projects continued to slide, however, down 0.7%. Publicly-funded construction rose by 1.0%. Compared to a year ago, overall construction spending was up 3.7%, fueled by 14.5% Y/Y growth in residential.
Light vehicle sales fell by 727,000 to a 15.55 million unit pace in November. This was below expectations and October sales eased slightly, making this the second decline. Weakness was across segments but most pronounced in light-duty trucks.
The U.S. trade deficit increased in October by $1.0 billion to $63.1 billion. Both imports and exports expanded. Exports were up 2.2% to $182.0 billion, a level down 16.4% YTD/YTD. The October gain reflects higher exports of industrial supplies and materials (including natural gas and organic chemicals), capital goods (including aircraft engines and semiconductors), and travel and transport services. Imports were up by 2.1% to $245.1 billion, a level down 11.5% YTD/YTD. The October gain reflects increased imports of consumer goods (including cell phones), capital goods (including computer accessories and industrial machinery), industrial supplies and materials, autos and parts, and travel and transport services.
Factory orders rose for the sixth month, by 1.0% ($4.9 billion) to $480.8 billion in October. This follows a 1.3% gain in September. Orders for non-defense capital goods excluding aircraft (a proxy for business investment) rose 0.3% and were up 5.6% Y/Y. Orders rose for primary metals; fabricated metal products; many machinery types (machine tools orders being the most important as they lead); computers and electronics; and electrical, appliances and components, among others. Shipments, also up six consecutive months, increased $4.9 billion or 1.0% to $488.6 billion. This followed a 0.5% September increase. Unfilled orders, down seven of the last eight months, decreased $2.6 billion (or 0.2%) to $1,073.3 billion. The unfilled orders-to-shipments ratio was 6.38, down from 6.57 in September. Inventories, up two of the last three months, increased $1.2 billion (or 0.2%) to $687.3 billion, and follows a 0.1% September decrease. The inventories-to-shipments ratio was 1.41, down from 1.42 in September.
The services sectors rose for the sixth month. The ISM NMI eased 0.7 points to 55.9, indicating a slowing but still sound expansion of activity, new orders, and order backlogs. Inventories contracted while employment and prices accelerated. Fourteen of 18 non-manufacturing sectors expanded. As expected (from the various regional surveys), the ISM PMI (purchasing managing index) for manufacturing eased 1.8 points to 57.5 in November. This was below expectations but is still flagging a good rate of expansion, just at a slower pace. New orders, production and inventories gains slowed but order backlogs firmed. A negative note was that employment slipped into contraction. A sixth consecutive expansion, 16 of 18 industries expanded. The JP Morgan Global PMI rose 0.7 points to 53.7 in November, its faster pace since November 2018 and one of the best growth rates in a decade. International trade volumes improved and there was a mild increase in employment, as capacity constraints rose and business optimism hit a near six-year high. Nineteen of 30 nations/territories expanded.
The rig count rose by 11 to 318 rigs during the week ending 27 November. With mild weather, the latest week shows only a small draw on natural gas inventories and with nearly a month into the winter heating season, stocks are in good shape. U.S. crude oil inventories eased slightly and in recognition of the growing importance of U.S. oil exports in global energy markets, Brent crude, the international gauge for oil prices, may be overhauled by including prices for Texas crude. OPEC and a group of Russia-led oil producers agreed to increase their collective output by 500,000 BPD next month, signaling they believe the worst of a pandemic-inspired shock to demand is behind us.
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 12.5% to 28,628 railcars the week ending 28 November (week 48), following a 2.5% increase the week prior. The week-over-week decline is typical for a holiday week. Loadings were up 3.2% Y/Y, and down 4.2% on a YTD basis compared to 2019. Loadings have been on the rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 1.7%.
The benchmark S&P 500 Index rose by 10.8% in October. Chemical equity prices, as measured by the S&P, also rose sharply, by 14.4%. Equity prices are often a good indicator of future activity and represent one component of the leading economic indicators. Compared to the beginning of the year, chemical equities were up 13.4% while the S&P 500 Index was up 12.1% YTD.
The details in ISM PMI report indicate that the chemical industry expanded in November. Production, new orders, order backlogs, exports, and employment rose as did inventories, imports and prices. Supplier deliveries slowed. Customer inventories were deemed too low. One industry respondent noted, “Production issues for petrochemicals are getting resolved after a very active hurricane season. That is helping balance supply and demand.”
Following a 0.8% gain in September, chemical industry shipments rose by 1.7% in October, led by gains in agricultural and other chemicals. Shipments of coatings & adhesives eased. Chemical inventories continued to expand, up 0.5%. Inventories rose across major chemical categories. Compared to a year ago, inventories were off 2.5% while shipments were off 3.4% Y/Y. The inventories-to-shipments ratio edged lower from 1.19 in September to 1.17 in October, just slightly ahead of where it was a year ago.
Chemical industry (including pharma) employment moved lower, down by 1,900 (0.2%) in November, following a 500 decline in October. The industry is still off by 17,300 jobs compared to pre-COVID levels. Compared to last year, employment remained lower by 19,800 (2.3%). In November, a 0.9% decline in production workers was offset, in part, by a gain supervisory and non-production workers. Average wages were up 1.0% Y/Y to $25.91. The average workweek fell by 30 minutes to 41.0 hours. Combined with the gain in the number of workers, the total labor input into the chemical industry fell by 2.1%, suggesting production contracted in November, which is in contrast to the ISM survey.
With improving activity across nearly all nations, our Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production rose 1.5% in October, a slightly slower pace from September, and continuing the global recovery that started in June following declining activity during the January through May period. During October, chemical production increased in most regions with the FSU the exception. Headline global production was up 2.0% Y/Y on a 3MMA basis and is now above the peak in December. Global output stood at 119.5% of its average 2012 levels.
During October, global capacity rose 0.1% and was up 2.3% Y/Y. As a result, with improving production, capacity utilization in the global chemical industry rose 1.1 points to 81.3%. This is down slightly from 81.6% last October and below the long-term (1987-2017) average of 86.5%.
Among chemical industry segments, October results were positive with gains across all segments. Considering year-earlier comparisons, growth was mixed, with gains in plastic resins, synthetic rubber, manufactured fibers, bulk petrochemicals & organics, inorganic chemicals, agricultural chemicals and consumer products but declines in coatings and other specialties.
Following a decline in September, construction spending for chemical manufacturing projects rose by 1.0% in October to a $30.5 billion annual pace. Chemical construction spending accounted for 44.0% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 2.4% Y/Y. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
On an SITC basis, US chemicals trade picked up in October. Exports were up 10% to $13 billion and imports rose 4% to $11 billion in October. Aside from fertilizers, exports of all major categories of chemicals were up in October. YTD/YTD, exports were down 8% and imports were down 3%.
According to data from ACC’s Plastics Industry Producers’ Statistics Group, production of major plastic resins totaled 7.7 billion pounds during October 2020, up 8.2% compared to the prior month, and an increase of 5.6% compared to the same month in 2019. Year-to-date production was 75.0 billion pounds, a 1.8% increase YTD/YTD. Sales and captive (internal) use of major plastic resins was up slightly (0.6%) compared to the previous month, at 7.5 billion pounds, but down 3.6% Y/Y. Year-to-date sales and captive use was 75.8 billion pounds, a 2.0 percent increase as compared to 2019.
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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.