|Core Business Orders||CAB||Consumer Spending|
Running tab of macro indicators: 15 out of 20
In the “second” estimate, real gross domestic product (GDP) increased at an annual 2.1% pace in 4th quarter 2019, the same as previously reported and the same pace as the 3rd quarter. This estimate is based on more complete source data than were available for the “advance” estimate issued last month. The increase in real GDP reflected positive contributions from consumer spending, government spending, and residential fixed investment that were partly offset by negative contributions from inventories and business fixed investment.. Imports, which are a subtraction in the calculation of GDP, decreased. Personal income rose by a better-than-expected 0.6% in January. Consumer spending rose by 0.2%, in line with expectations. The gain in consumer spending was led by durable goods purchases and services. Compared to a year ago, real disposable personal income was up 2.2% while consumer spending was ahead 2.7% Y/Y. The price index for personal consumption expenditures (PCE) was up 1.7% Y/Y, the highest pace in more than a year, but still well below the 2% Fed target. Core consumer prices were up 1.6% Y/Y. Inflation pressures remain muted.
Consumer confidence improved slightly in February, with the headline index moving up 0.3 points to 130.7 and is still at an elevated level. The gain was centered in the expectations component, as the current situation assessment of business and labor market conditions decreased. Consumer plans to purchase homes, new autos and appliances all improved.
New home sales rose 7.9% to a 764,000 annual pace in January, the highest level since 2007. Prior data were largely revised upwards and January gains were centered in all regions except the South. Keep in mind that sales may reflect the warmer-than-usual weather in January. New houses for sale at the end of January eased slightly to 324,000, a supply of 5.1 months at the current sales rate and off from a 6.1 months’ supply last January. Sales were up 18.6% Y/Y whiles inventories were off 6.6% Y/Y. The median sales price of new houses sold in January 2020 was $348,200, up 14.0% Y/Y.
Durable goods orders fell 0.2% in January, following a 2.9% gain in December. Lower spending on defense equipment offset gains in other segments. There were gains in orders for metals, machinery and civilian aircraft, but orders for motor vehicles, computers, communications equipment and electrical equipment were lower. Core orders for capital goods excluding aircraft rose 1.1% and were up 1.4% Y/Y. Headline orders, however, were off 2.3% Y/Y.
Manufacturing activity improved slightly in Texas as the Texas Manufacturing Outlook Survey rose 1.4 points to +1.2. The production component accelerated, but new orders and capital spending rose at a slower pace. Shipments and capacity utilization remained largely stable; employment contracted. Looking ahead over the next six months, optimism for future business conditions improved. The Chicago PMI rose a larger-than-expected 6.1 points to 49.0, the highest reading since August. This is still contractionary reading. Delivery times lengthened and production turned positive, but new orders, order backlogs, input prices and employment are still contracting. The report cited anecdotal commentary that COVID-19 is disrupting supply chains and delaying shipments from China. The Richmond Fed regional index showed weakness but the Kansas City regional survey improved for the first time in eight months, although over 40% of District contacts report negative effects from COVID-19.
Our CAB leading economic indicator rose 0.4% in February on a 3MMA basis following a 0.7% gain in January. The barometer increased 2.0% Y/Y. The unadjusted February data, however, showed a 0.4% decline following a 1.5% increase in January and a 0.3% gain in December. The diffusion index rose to 68% in February. The CAB has four main components, each consisting of a variety of indicators: production, equity prices, product prices, and inventories and other indicators. Production-related indicators increased in February. Trends in construction-related resins, pigments and related performance chemistry generally improved and suggest further gains in housing. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry improved, with widespread gains among segments. U.S. exports were mixed. Equity prices surged, while product and input prices improved. Inventory and other indicators were mixed The CAB signals gains in U.S. commerce into 4th quarter 2020. That said, the February provisional data does not fully reflect disruptions and trends due to COVID-19 and pricing and equity components were volatile this week. Major revisions to the February are likely.
The oil and gas rig count rose by one to 789 rigs. With COVID-19 spreading to more countries outside China, oil prices fell to their lowest level in four years.
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, rose by 819 to 33,284 railcars during the week ending 22 February (week 8). Loadings were up 7.4% Y/Y, up 2.6% YTD/YTD and have been on the rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was down 1.2% compared to last year.
Our normal report on the Global CPRI (Chemical Production Regional Index) is delayed. We hope to complete the report next week.
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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.