|Chemical Production||Chemical Prices||Housing|
Running tab of macro indicators: 13 out of 20
In line with expectations, food service and retail sales rose 0.3% during the last month of the year. With the late Thanksgiving, a chunk of the typical post-Thanksgiving holiday spending was postponed until December (i.e., Cyber Monday). Core retail sales (excluding autos and gas station sales) rose 0.5%, the best gain since last summer. There were gains across all segments except autos and department stores which have struggled in recent years. Compared to a year ago, headline retail sales were up 5.8% Y/Y.
Business inventories fell 0.2% to $2,037.4 billion at the end of November, with an inventory build by manufacturers offset by drawdowns by retailers and, to a lesser extent wholesalers. At the same time, the combined value of distributive trade sales and manufacturers’ shipments rose 0.7% to $1,465.7 billion with gains across-the-board. Overall inventories were up 2.8% Y/Y while sales were up 1.0% Y/Y. The inventories-to-sales ratio based on seasonally adjusted data at the end of November was 1.39, down from 1.40 in October but still up from 1.37 a year earlier. The supply chain imbalance lingers but is clearly improving.
Overall consumer prices rose 0.2% in December and were up 2.3% Y/Y. Higher prices for gasoline, shelter, and health care accounted for most of the increase but prices for apparel, motor vehicle insurance, recreation and new vehicles also rose. Prices for used vehicles, household furnishings and operations, and airline fares were among those that declined. Core consumer prices (less food and energy) rose 0.1% and were also up 2.3% Y/Y. Producer prices also edged higher in December, by 0.1%, following flat growth in November. Higher energy and transportation prices were offset by lower prices for food, trade services, and other services. Core producer prices edged higher by 0.1% and were up 1.5% Y/Y. Headline producer prices were up 1.3% Y/Y, an improving comparison, but still weak given low unemployment. Import prices rose by 0.3%, the largest gain since March. Higher energy prices were offset by flat growth in prices for nonfuel imports. Export prices fell 0.2%, with declines in prices for both agricultural and non-agricultural exports. Compared to a year ago, import prices were up 0.5% Y/Y (due to higher oil prices) and export prices were off 0.7% Y/Y.
Homebuilding finished the year with fireworks as housing starts surged 16.9% in December to a seasonally adjusted 1.608 million unit annual pace. This was the highest level since December 2006 and came on an upwardly revised figure for November. Strong gains in single-family starts (up 11.2% to a 12-year high) contributed to the increase. Multifamily starts also jumped. Warm weather, continued wage and job gains, and lower mortgage rates provided tailwinds to housing during the last part of the year. Forward-looking building permits, however, moved lower by 3.9%. Compared to a year ago, building permits were up 5.8% Y/Y while housing starts were up by 40.8% Y/Y.
As expected, industrial production fell by 0.3% in December. The strong gain in November was revised downward, but remained a solid 0.8% increase. A warmer-than-typical December caused utility output to decline, while mining and manufacturing activity rose. Manufacturing output increased by 0.2% in December, following a 1.1% gain in November. The industries with the largest gains in output included nonmetallic mineral products, primary metals, computers, wood products, food & beverages, and petroleum products. Among the industries that saw the largest output declines were motor vehicles and printing. Compared to a year ago, overall industrial production was lower by 1.0% Y/Y while manufacturing output was off 1.3% Y/Y. Capacity utilization rates loosened by 0.4 percentage points to 77.0%. A year ago, capacity utilization was running at a 79.5% rate. Over the same time, overall capacity was 2.1% Y/Y higher.
Small business optimism ended the year historically strong, with a reading of 102.7, down 2.0 points from November. Seven of 10 components fell, two improved, and one was unchanged. An increased number of small business owners reported better business conditions and expect higher nominal sales in the next three months. Plans to raise compensation and expand are still at relatively high levels. The report is still favorable for the economy.
The headline general business conditions index of the Empire State Manufacturing Survey rose 1.5 points to +4.8 in January. New orders and shipments edged higher. Delivery times were somewhat shorter and inventories eased slightly. Employment continued to expand although the average workweek was little changed. Both input prices and selling prices increased at a significantly faster pace than in December. Optimism about the six-month outlook and capital spending plans remained relatively firm. Results from the Philadelphia Fed’s Manufacturing Business Outlook Survey suggest that manufacturing activity in the region improved sharply this month, with the general assessment of current conditions index improving by 14.6 points to +17.0. The survey’s indicators for new orders, shipments, and employment were all positive and increased from their readings in December. The survey’s future activity indexes remained at relatively high readings, suggesting continued optimism about growth for the next six months.
The Organization for Economic Co-operation and Development (OECD) released its composite leading indicator (CLI) designed to provide early signals of turning points (peaks and troughs) between expansions and slowdowns of economic activity and the latest data feature a gain (the first in two years) and show stabilizing, although below long-term trend in most advanced economies. The CLIs continue to point to stable growth momentum in Japan, Canada and the Euro Area. In the U.S. and the UK, the signs of stabilization, signaled in last month’s assessment, have been confirmed. In addition to the developed nations, the OECD has also developed CLIs for the major six OECD non-member economies (Brazil, China, India, Indonesia, Russian Federation and South Africa). As a result, the CLI for the OECD+6 is a good leading indicator for global economic activity. Among major emerging economies, stable growth momentum remains the assessment for Russia and China. Growth is expected to gain momentum in Brazil but the CLI for India continues to point to easing growth momentum. The CLI+6 improved in November and is up 2.7% Y/Y, a stronger comparison that earlier in the year.
The oil and gas rig count fell by 15 to 778 rigs. With tensions in the Middle East easing, oil prices fell during much of the past week. Traders are assessing the effects on the economy and oil demand from Senate approval of the U.S. trade deal with Mexico and Canada and the China-U.S. trade accord.
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 8.9% to 33,764 railcars during the week ending 11 January (week 2). Loadings were up 2.5% Y/Y and have been on the rise for 8 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was down 1.9% compared to last year.
The Fed’s industrial production report indicates that chemical production rose 0.6% in December. This follows a 0.6% decline in November and a 0.4% decline in October. A rise in production of inorganic chemicals, bulk petrochemicals & organic chemicals, plastic resins, synthetic rubber, manufactured fibers, and other specialties was only partially offset by weakness in offset by weakness in agricultural chemicals, consumer products and coatings. Production was off 2.8% Y/Y after a year in which the trade war affected chemicals, the largest exporting sector. Capacity was stable in December but the gain output pushed the capacity utilization rate up by 0.4 percentage points to 81.6% in December.
The U.S. Geological Survey reported that monthly production of soda ash in October was 1,010 thousand tons, up 3.4% compared to the previous month and flat Y/Y. Stocks rose 7.5% over September to 331 thousand tons at the end of the month, a 10-day supply. Ending stocks were up 39.7% Y/Y.
Producer prices for chemicals fell by 1.2% in December, following a 0.3% decline in November. Weakness in prices for bulk petrochemicals, plastic resins, synthetic rubber, manufactured fibers, agricultural chemicals, and consumer products offset gains in prices for inorganic chemicals and other specialty products. Feedstock prices were up 12.8% for the month and down 32.3% Y/Y. Compared to a year ago, chemical prices were off 3.4% Y/Y, a slowing comparison.
Import prices for chemicals rose by 0.3% in December, the first gain since May and the largest monthly gain since August 2018. Export prices, however, continued to move lower, down 0.7%. Compared to a year ago, chemical import prices were off 5.4% Y/Y while export prices were off 3.4% Y/Y.
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Kathy Bostjancic, Chief US Financial Economist at Oxford Economics and Kevin Swift, Chief Economist at the American Chemistry Council
Chemical Marketing & Economics Group – ACS NY Section
11 February 2020
The Penn Club
New York, NY
“The Chemical Industry Outlook”
Joseph Chang – Global Editor of ICIS Chemical Business; Robert Westervelt –
ditor-in-Chief of IHS Chemical Week; and Peter Young – CEO & President of Young & Partners
Société de Chimie Industrielle
19 February 2020
The Yale Club
New York, NY
TZMI TiO2 Summit 2020
12-13 May 2020
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.