|Global CPRI||Chemical Employment||Chemical Shipment|
Running tab of macro indicators: 12 out of 20
Non-farm payrolls rose by a much larger-than-expected 266,000 in November, with upward revisions to prior months. Notable job gains occurred in health care and in professional and technical services. Employment rose by 54,000 in manufacturing, reflecting the return of workers from the GM strike. Average hourly earnings of production workers of $23.83 per hour were up 3.7% Y/Y, a pace much stronger than inflation and supporting rinsing incomes. The unemployment rate eased 0.1 points to 3.5%, a level consistent with 1969. Labor participation and employment-population ratio held steady.
According to the “second” estimate, real gross domestic product (GDP) increased at an annual rate of 2.1% in the 3rd quarter. This GDP estimate is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was a 1.9% annual pace. In this second estimate upward revisions were made for inventories, business investment and consumer spending that were partially offset by a downward revision to state and local government spending.
Personal income was flat in October as falling returns on assets and farm incomes offset solid wage and salary gains. Despite a fall in durable goods purchases, consumer spending gained 0.3% in October. The savings rate eased during the month. Adjusting for inflation, consumer spending was up 2.3% Y/Y while personal income was up 2.8% Y/Y. The PCE price index rose 0.2% and the index excluding food and energy rose 0.1%, leaving both price indexes up 1.3% Y/Y and 1.6% Y/Y respectively.
Consumer confidence in November eased 0.6 points to 125.5 (1985=100), the fourth monthly decline and a slight disappointment. The weakness was in consumers’ assessment of the present situation as their short-term outlook for income, business and labor market conditions – increased this month. Confidence levels still remain elevated and should support solid Christmas holiday spending. Plans to purchase autos improved while plans to purchase appliances and homes eased.
The U.S. trade deficit in goods and services decreased to $47.2 billion in October from $51.1 billion in September, as imports decreased more than exports. In October, monthly imports were down 1.7% while exports were down 0.2%. Exports of goods fell reflecting declines in consumer goods, autos and parts, and civilian aircraft engines. Exports of industrial supplies and materials rose. Imports of goods fell reflecting declines in consumer goods and autos and parts.
Led by higher sales of domestic cars and trucks, SUVs, and crossovers, light vehicle sales rose from a 16.53 million unit pace in October to a 17.09 million unit pace in November. Sales were off from a year ago, but rising incomes and low interest rates support sales at what is a still elevated level.
Construction spending fell in October for a second month, off by 0.8%. There were broad declines across the three main segments, with the largest declines in private nonresidential spending. Compared to a year ago, construction spending was up 1.1% Y/Y.
New home sales fell back by 0.7% in October, but September’s home sales were upwardly revised well ahead of expected levels. Sales were higher in the West and Midwest, but lower in the South and Northeast. The inventory of unsold homes edged higher during the month, but remains off 3.3% Y/Y. New home sales were up 31.8% Y/Y. The median sales price was off 3.5% Y/Y.
Factory orders moved higher in October, up 0.3%. The gain was in durable industry orders, led by increasing orders for computers and electronics; machinery, fabricated metal products, and aircraft. New orders for investment goods rose by 1.1%, following two months of declines. Compared to a year ago, business investment orders were off 0.5% Y/Y while headline factory orders were off by 1.3% Y/Y. Unfilled orders, a measure of the manufacturing pipeline, edged higher by 0.1%. Manufacturers’ shipments, however, were flat in October, following declines in August and September. Inventories edged higher for a second month by 0.1%. Compared to a year ago, inventories were up 2.3% Y/Y while shipments were off by 1.6% Y/Y. At 1.40, the inventories-to-shipments ratio remained steady compared to last month, but was up from 1.34 a year ago, suggesting inventory levels are becoming elevated.
For a fourth month, the ISM Manufacturing PMI came in below 50, suggesting contraction in U.S. manufacturing. The headline manufacturing PMI edged lower in November, by 0.2 points to 48.1, weaker than expected. Only five of the 18 industries covered reported growth. New orders, backlogs, inventories, export orders and employment contracted at a faster pace, while production declined at a slower pace. Supplier deliveries, however, slowed. Continuing trade tensions remain a significant challenge manufacturers. Globally, manufacturing expanded. The ISM Non-Manufacturing NMI eased 0.8 points to 53.9 in November. Production (or activity) gains slowed but new orders and employment gains strengthened. Twelve of 18 industries expanded and respondents noted trade tensions affecting these sectors.
The JP Morgan Global Manufacturing PMI rose to a seven-month high of 50.3 in November, up 0.5 points from October’s reading. The gain was led by faster growth in the consumer goods sector. There was improvement in output and new orders. New export orders continued to decline at the same rate. Future output is expected to grow and employment was stable.
With gains in all regions, global semiconductor sales rose 2.9% to $36.6 billion in October 2019, the fourth such monthly gain and thus a positive trend. That said, global sales were off 13.1% Y/Y with year-earlier weakness in all regions. The Semiconductor Industry Association (SIA) released it latest forecast and projects a 12.8% decline in 2019, but a rebound in 2020, with sales increasing 5.9%.
Manufacturing activity continued to contract in Texas, though at a slower pace. The Texas Manufacturing Outlook general activity index rose by 3.8 points to -1.3. The production component, however, fell to -2.4, the first negative reading since mid-2016. Shipments and new orders also contracted. Looking ahead over the next six months, survey respondents were more optimistic and expect growth in the Texas manufacturing sector in the spring.
The oil and gas rig count continued to decline, falling by one to 799 rigs. A year earlier, the count was 1,076 rigs. Despite cold weather, U.S. working gas in storage fell by 19 BCF, roughly half the typical draw for this week. With the cold weather, however, natural gas prices gained this week. With evidence of an improving Chinese economy and prospects of further OPEC production cuts, oil prices have gained in recent days, but ended lower than a week ago.
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 13.0% to 27,694 railcars during the week ending 30 November (week 48), which was a shortened week due to the Thanksgiving holiday. Loadings were down 0.4% 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 0.8% compared to last year.
The U.S. Geological Survey reported that monthly production of soda ash in September was 969 thousand tons, up 4.6% compared to the previous month and down 1.9% Y/Y. Stocks rose 32.8% over August to 308 thousand tons at the end of the month, a 10-day supply. Ending stocks were up 14.9% Y/Y.
The details of the ISM Manufacturing PMI report suggest that the chemical industry contracted in October. Production, export orders and employment grew, but new orders, order backlogs, and inventories contracted. One respondent noted, “[the] chemical industry has been slow globally, but the curve seems to be flattening.”
The American Chemistry Council’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production fell by 0.2% in October, a slower pace of decline than the 0.5% drop in September. During October, chemical production increased in North America, Latin America, the Former Soviet Union and Africa & the Middle East. Production fell in Europe and Asia-Pacific. Headline global production was up only 1.1% Y/Y on a 3MMA basis and stood at 117.3% of its average 2012 levels.
During October, global capacity rose by 0.2% and was up 3.5% Y/Y. As a result, capacity utilization in the global chemical industry fell 0.3 points to 81.6%. This is down from 83.5% last October and below the long-term (1987-2017) average of 86.4%.
Among chemical industry segments October results were mixed with synthetic rubber, manufactured fibers, and coatings showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in synthetic rubber, followed by manufactured fibers, plastic resins, other specialties, and coatings.
Chemical shipments edged lower by 0.1% in October, following a 0.4% decine in September. The gain was entirely in the “all other chemicals” category, as agricultural shipments were lower and shipments of coatings and adhesives was flat. Inventories rose by 0.5%, following a 0.1% decline in September. Inventories of agricultural chemicals and coatings & adhesives moved lower, but were offset by higher inventories of other chemicals. Compared to a year ago, inventories were up 0.1% while shipments were off by 1.2% Y/Y. The inventories-to-shipments ratio ticked higher to 1.23 compared to September and was higher than the 1.21 ratio from a year ago.
The benchmark S&P 500 index moved rose by 3.4% in November. Chemical equity prices, as measured by the S&P index, for chemical companies also rose (by 3.3%). 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 ahead 16.9% while the S&P 500 index was up by 25.3% year-to-date.
Construction spending for chemical manufacturing projects fell by 1.3% in October to a $29.2 billion annual pace. Chemical construction spending accounted for 41% of spending in the broader manufacturing sector. Compared to a year ago, spending was up 1.5% Y/Y. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
Employment for overall chemistry (which includes pharmaceuticals) rose for a third month in November, by 1,800 (0.2%) to 862,200, a level up by 12,700 (1.5%) from a year ago. There were gains in the number of both supervisory and nonsupervisory/production workers. The average workweek declined by 0.3 hours to 41.8 hours, which offset employment gains when looking at the total labor input for the month which was slightly lower than in October. Thus, given productivity gains, it suggests that chemical production was lower in November, confirming the ISM report. Average hourly wages were off 0.4% Y/Y to $25.62, the first negative Y/Y comparison since last winter.
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7th ICIS US Butadiene and Derivatives Conference
11 December 2019
Park Central Hotel
New York, NY
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.