|Chemical Shipments||Chemical Wholesale||Light Vehicle Sales|
Running tab of macro indicators: 14 out of 20
Non-farm payrolls rose by 145,000 in December, a gain slightly less than expectations. This comes after a strong 256,000 gain in November. Notable job gains occurred in retail trade and health care, while mining lost jobs as did manufacturing. In 2019, payroll employment rose by 2.1 million, down from a gain of 2.7 million in 2018. Payrolls have gained for a record 10 years. Average hourly earnings for private sector production and non-supervisory employees rose slightly to 2$3.79, up 3.0% Y/Y. In December, the unemployment rate held at 3.5%, and the number of unemployed persons was unchanged at 5.8 million. A year earlier, the jobless rate was 3.9%, and the number of unemployed persons was 6.3 million. The labor force participation rate was unchanged at 63.2% in December. The employment population ratio was 61.0% for the fourth consecutive month. The alternative U6 unemployment measure fell to 6.7%, a record low.
Consumer debt grew at a slower pace in November, rising $12.5 billion, or 0.3%. This was below expectations and trends in recent years. Revolving debt (e.g., credit cards) fell $2.4 billion but non-revolving debt (e.g., student and auto loans) rose $14.9 billion. Consumer debt was up 4.5% Y/Y, fairly in-line with incomes and spending.
Measuring the broader non-manufacturing side of the economy, the Institute for Supply Management® (ISM®) NMI® rose by a greater-than-expected 1.2 points to 55.0 in December with 11 of 18 industries reporting growth. Business activity/production expanded at a faster pace and although new orders and order backlogs slowed they are still expanding. Inventories also continued to expand.
Light vehicle sales during December eased to a 16.7 million unit pace, a level off 4.5% Y/Y. Most segments were weak although domestic cars fared well during the month. Light truck and SUV sales accounted for most of the decrease. For the year as whole, light vehicle sales stood at 16.9 million units, off from four years of plus 17.0 million unit sales. The GM strike played a role buts sales remain at an elevated levels and for the year the industry fared better than industry observers expected a year ago. Sales should continue to remain at these elevated levels in light of good employment and income gains, low gasoline prices and interest rates, and variety of new models. Inexpensive leases, low interest rates, and longer terms for loan have helped consumer purchase more expensive vehicles with manageable monthly payments.
The US trade deficit narrowed in November as exports grew by 0.7% and imports fell by 1%. The deficit narrowed by $3.9 billion to $43.1 billion. Reflecting weaker domestic demand, imports of capital goods and consumer goods were down in November. US exports rose in capital goods, consumer goods and autos and auto parts. Higher costs to trade are dampening growth in imports and exports. US-Chinese goods trade contracted, reflecting slower imports and an increase in exports. Some importers (especially of consumer goods) may have pulled forward orders to avoid increased tariffs expected in late 2019. Additionally, some importers may have begun “holding off” in anticipation of a tariff drop in 2020.
Wholesale trade rebounded in November, up by 1.5%. Gains were broad based with the largest increases in automotive, farm products, petroleum, and paper. Inventories edged lower by 0.1% with mixed results among subsectors. The inventories-to-sales ratio moved lower from 1.37 in October to 1.35 in November. A move in the right direction, but still elevated. A year ago, it was 1.32. Inventories were up 3.3% Y/Y while sales were ahead by only 0.8% Y/Y.
Headline factory orders fell 0.7% to $493.0 billion November; disappointing and more than offsetting the 0.2% gain in October. The weakness can largely be attributed to falling transportation equipment orders. Orders for non-defense capital goods excluding aircraft (a proxy for business investment) rose 0.2% and follows a 1.0% gain in October. Gains occurred in fabricated metal products, some machinery segments, computers and electronics, furniture, household appliances, and electrical equipment. Shipments gained during November as did unfilled orders. Inventories rose as well. Trade uncertainty has weighed on business confidence and investment during the past year.
The oil and gas rig count fell by eight to 1,075 rigs. Amid easing U.S.-Iran tensions and a small build in U.S. crude oil inventories, oil prices declined during the past week. Natural gas inventories fell less than expected in the last week and with warmer-than-expected winter weather. Natural gas prices are off about 35% from a year earlier.
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 7.4% to 31,006 railcars during the week ending 4 January (week 1). Loadings were up 3.7% Y/Y 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 2.0% compared to last year.
Following two months of declines, chemicalshipments edged higher by 0.1% in November, with gains in shipments of agricultural chemicals, coatings and adhesives. Other chemical shipments were flat. Chemical inventories fell 0.5%, offsetting a similar increase in October. Higher inventories of coatings and adhesives were offset by lower inventories of agricultural and other chemicals. Compared to a year ago, chemical inventories were 0.8% Y/Y lower while shipments were off 1.3% Y/Y, a narrowing gap compared to October. The inventories-to-sales ratio ticked lower to 1.22. This was slightly higher than the 1.21 ratio a year ago. Inventories are relatively stable, but elevated compared to recent years.
Chemical sales at the wholesale level fell by 3.7% in November, following a gain of 1.1% in October. Wholesale inventories of chemicals continued to fall, down 1.6% in November. As sales fell faster than inventories, the inventories-to-sales ratio rose from 1.11 in October to 1.13 in November. Compared to a year ago, wholesale sales were off 5.7% Y/Y while inventories were down by 3.6% Y/Y. Wholesale inventories remain somewhat elevated relative to sales.
Following a strong gain in November, chemical and pharmaceutical manufacturing employment edged lower in December, by 200 workers to 861,600. This was 11,200 (1.4%) higher than a year ago, however. The decline was led by lower employment in supervisory roles; the number of production workers increased. The average workweek declined by 0.4 hours to 41.2 hours, further reducing the total labor input during December. This confirms the ISM report suggesting that the chemical industry declined during the last month of the year. At $25.63, average hourly wages were flat compared to a year ago.
The US chemicals trade surplus increased by $104 million to $3.2 billion in November. Year-to-date, exports are down 2.7% to $126 billion and imports are down 5.6% to $94 billion. As a result the trade balance reached $31 billion by November. The petrochemicals sector represented about 57% of total chemicals exports in 2019. A 4% fall in petrochemicals exports YTD has pulled down total chemicals exports growth. On the imports side, plastic resins imports are down 12% YTD while exports have only contracted by 1%. As a results, net exports of plastic resins is a driving contributing to US net exports of chemicals.
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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.