|Specialty Chemical Markets||CAB||Leading Economic Indicator|
Running tab of macro indicators: 14 out of 20
Bouncing back from a November pause, December existing home sales jumped 3.6% to a 5.54 million unit pace. The Midwest was the only region that was weak. Inventories fell 14.6% to 1.40 million units at the end of the month, resulting in a very low 3.0 months’ supply. Sales were up 10.8% Y/Y while inventories were off 8.5% Y/Y, a very tight market. The median sales price of $274,500 was up 7.8% Y/Y. Lower mortgage rates and continued job and wage gains are supportive.
The Conference Board Leading Economic Index® (LEI) decreased 0.3% in December, following a gain of 0.1% in November and a 0.2% decline for August, September and October. In December, five of the ten component indicators increased. The weakness has become slightly more widespread. The LEI suggests that the expansion in economic activity will continue into 2020, but at a moderate pace
Providing an early look at January, our Chemical Activity Barometer (CAB) — a leading economic indicator –jumped 0.6% in January on a three-month moving average (3MMA) basis following a 0.1% gain in December. On a year-over-year (Y/Y) basis, the barometer rose 1.4% Y/Y. The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. Production-related indicators improved in January. Trends in construction-related resins, pigments and related performance chemistry improved, suggesting further gains in housing. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry improved, while U.S. exports were weak. Equity prices rose, while product and input prices were mixed. Inventory and other indicators were mixed. The CAB signals gains in U.S. commerce into the 3rd quarter of 2020.
ACC SURVEY OF ECONOMIC FORECASTERS
Every month, the Economics & Statistics Department of the American Chemistry Council (ACC) collects forecasts from a number of economic professionals who have a track record for accuracy and expert knowledge of manufacturing. The data presented in the accompanying table are averages of their forecasts.
Expectations for the current year improved over the past month. Our economists expect the economy to rise by 1.9% in 2020, up 0.1 points from last month. Consumer spending is now expected to rise 2.3%, the same as last month. Expectations for business investment were also flat with expectations of a 1.3% gain. Expectations for light vehicle sales improved by 100,000 to 16.6 million units. Expectations for 2020 housing starts also improved, by 20,000 to 1.27 million units. Industrial production, however, 0.2% in 2020, down 0.2 points from last month. Industrial output is a more meaningful benchmark than GDP for comparing performance of basic and specialty chemicals. The unemployment rate is expected to average 3.7% for the year the same as last month. The yield for the 10-year Treasury note is now expected to average 2.07% slightly higher than last month’s survey. Inflation is expected to average 1.8% for the year, the same as last month.
Looking ahead, expectations for 2021 were slightly higher across many indicators compared to last month, though down significantly from expectations at the beginning of last year. Economic growth is still expected to accelerate to a 2.0% pace, 0.1 points higher than last month. Growth will be driven by consumer spending, which is anticipated to increase by 2.2%, the same as last month. Capital formation is essential for long-term growth. Business investment is expected to gain 3.0%, 0.3 points higher than last month’s survey. Overall consumer prices are projected to rise 2.1% in 2021 (up 0.1 points) and the unemployment rate is expected to average 3.7% (the same as last month). The 10-year Treasury note yield is expected to average 2.32% in 2021, flat compared to last month’s survey. Turning to the real economy, light vehicle sales are expected to come in at 16.5 million units (lower than last month’s survey) and housing starts are expected to rise to 1.34 million units, up by 50,000 from last month’s forecast. The forecasters expect a 1.6% gain for industrial production in 2021, up 0.2 points from last month.
There are signs of stabilization in the world economy. As a result, the forecasters continue to expect global GDP growth of 2.6% in 2020 before improving to a 2.8% rate in 2021. Improved prospects are due, in part, to lower trade tensions at the beginning of 2020 compared to 2019. Tariffs disrupt trade and production and the uncertainty creates headwinds for business investment.
The latest forecasters’ survey results — including the range of responses; historical data from 1994 through 2019; forecasts from 2020 through 2024 and beyond; as well as forecasts for other major nations — are available on MemberExchange for ACC members.
The oil and gas rig count fell by 15 to 778 rigs. According to the American Petroleum Institute, petroleum exports hit a new all-time high of 9.0 million barrels per day (BPD) in December and U.S. crude oil production rose for a fifth month to 12.9 million BPD. Natural gas prices slid below $2 per million BTUs this week as milder than usual weather has limited inventory withdrawals. Fears over slowing global economic growth (and oil demand) due to the coronavirus breakout in China pushed oil prices down in recent days.
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 3.8% to 32,478 railcars during the week ending 18 January (week 3). Loadings were up 2.0% Y/Y, up 2.7% YTD/YTD 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 2.0% compared to last year.
The Chlorine Institute (CI) reported that production of chlorine was 32,951 in December, up 0.1% over the previous month; 2019 total production was down 2.5% compared to 2018. The output of co-produced caustic soda rose to 35,464, up 0.3% over November and total 2019 production was down 2.1% Y/Y.
U.S. specialty chemicals market volumes ended the 4th quarter (and 2019) on a soft note, with a 0.3% decline in December following a 0.1% gain in November. All changes in the data are reported on a three-month moving average (3MMA) basis. Of the 28 specialty chemical segments we monitor, 16 (mostly smaller segments) expanded in December, up from 10 in November. Ten markets declined in December and two were flat. During December, large market volume gains (1.0% and over) occurred only in electronic chemicals. On a sequential (one-month change) basis, diffusion was 61%, up from 39% in November.
During December, the overall specialty chemicals volume index was off 0.3% on a year-over-year (Y/Y) 3MMA basis. Year-earlier comparisons have eased since 3rd quarter 2018. The index stood at 113.1% of its average 2012 levels in December. This is equivalent to 7.71 billion pounds (3.50 million metric tons). On a Y/Y basis, there were gains in 10 market and functional specialty chemical segments. Compared to last year, volumes were down in 18 segments. On a year-earlier basis, diffusion was 36%, a worsening comparison.
Performance chemistry reflects trends in manufacturing and activity for 2019 as a whole was up only 1.0% from average 2018 levels. During 2019, only 13 segments expanded. A spreadsheet (with monthly history back to January 1997) is available for ACC members on MemberExchange. The spreadsheet also contains notes on the methodology.
The U.S. Chemical Production Regional Index (U.S. CPRI) fell by 0.3% in December, following a 0.7% decline in November and a 0.4% gain in October. During December, chemical output declined across all regions. Compared to December 2018, U.S. chemical production was off by 2.6% on a year-over-year basis, the seventh consecutive month of Y/Y decline. Chemical production was lower than a year ago in all regions, with the largest year ago declines in the Gulf Coast and Midwest regions.
Chemical production was mixed over the three-month period. There were gains in the three-month moving average output trend of chlor-alkali, other inorganic chemicals, synthetic rubber, and manufactured fibers. These gains were offset by declines in the output of pesticides, organic chemicals, consumer products, fertilizers, adhesives, other specialty chemicals, synthetic dyes & pigments, and industrial gases. Coatings output was flat.
Nearly all manufactured goods are produced using chemistry in some form or another. Thus, manufacturing activity is an important indicator for chemical production. On a three-month-moving average basis, manufacturing activity rose by 0.2% in December, following three months of declines. Output expanded in several chemistry-intensive manufacturing industries, including food & beverages, appliances, motor vehicles, aerospace, construction supplies, machinery, computers & electronics, semiconductors, iron & steel products, oil & gas extraction, plastic products, rubber products, paper, structural panels, and furniture.
ACC members can access additional data, economic analyses, presentations, outlooks, and weekly economic updates through MemberExchange.
In addition to this weekly report, ACC offers numerous other economic data that cover worldwide production, trade, shipments, inventories, price indices, energy, employment, investment, R&D, EH&S, financial performance measures, macroeconomic data, plus much more. To order, visit http://store.americanchemistry.com/.
Every effort has been made in the preparation of this weekly report to provide the best available information and analysis. However, neither the American Chemistry Council, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.
Contact us at ACC_EconomicsDepartment@americanchemistry.com
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Kathy Bostjancic, Chief US Financial Economist at Oxford Economics and
evin Swift, Chief Economist at the American Chemistry Council
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Joseph Chang – Global Editor of ICIS Chemical Business; Robert Westervelt – Editor-in-Chief of IHS Chemical Week; and Peter Young – CEO & President of Young & Partners
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AgChem Summit 2020: Innovation in Action
28-30 April 2020
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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.