|Consumer Spending||New Homes Sales||CAB|
Running tab of macro indicators: 17 out of 20
The number of new jobless claims fell by 67,000 to 847,000 during the week ending 23 January. Continuing claims fell by 203,000 to 4.77 million and the unemployment rate for the week ending 16 January eased 0.1 percentage points to 3.4%.
After rebounding at a record 33.4% pace in the 3rd quarter, real GDP rose at a 4.0% annual pace in the 4th quarter. This gain was despite many COVID-related headwinds. The increase reflected increases in exports, business investment, consumer spending, and inventory accumulation. These were offset by shrinking government spending and higher imports. Personal income rose 0.6% in December, a reversal from weakness earlier in the quarter. Higher compensation and return on assets were drivers. Consumer spending, however, led by weakness in durable goods, ended the year on a soft note, easing 0.2% in December. The personal savings rate rose to 13.7%. Headline inflation, after flat performance earlier in the quarter, accelerated to a 0.4% gain in December. In a similar manner, so-called core inflation (excluding food and energy) accelerated from flat performance to a 0.3% gain.
Consumer confidence moved higher in January following a decline in December; the index rose 2.2 points to 89.3. With a rise in COVID-19 cases through the beginning of the month, consumers’ appraisal of current conditions weakened further in January. Expectations for the short-term outlook improved, however. Plans to purchase homes, new autos, and appliances all improved. This bodes well for January consumer spending.
New home sales rose 1.6% to an annual pace of 842,000 in December, a level up 15.2% Y/Y. Sales rose in the Midwest and West but fell in the Northeast and South. At the same time, homes for sale rose 4.1% to 302,000, a level off 6.2% Y/Y and representing a supply of 4.3 months at the current sales rate. A year ago, months’ supply was 5.3. The median sales price of new houses sold in December 2020 was $355,900, and up 8.0% Y/Y.
With weakness in aircraft, headline durable goods orders rose only 0.2% in December, a bit of a miss. Orders for non-defense capital goods less aircraft, a proxy for business investment (aka core orders), rose 0.6%, a little softer than the 1.0% gain in November and the 1.7% gain in October. During December, there were gains in primary metals, fabricated metal products, communications equipment, and some other durable categories but a particularly strong 2.4% gain in machinery orders, representing an acceleration during the final quarter of the year. Headline orders were up 3.8% Y/Y and core orders were up 11.1% Y/Y.
The Dallas Fed reported that Texas factory activity continued to expand in January, albeit at a markedly slower pace, as the general business activity index remained positive but edged down 2.5 points to 7.0. The production index, a key measure of state manufacturing conditions, fell from 26.8 to 4.6, indicating a sharp deceleration in output growth. Other measures of manufacturing activity — new orders, capacity utilization, and shipments — also point to more muted growth this month. Uncertainty regarding companies’ outlooks continued to rise but firms remain optimistic about future broader business conditions. The Richmond Fed reported that manufacturing activity in the Fifth District (which includes the Carolinas, Maryland & West Virginia) continued to expand in January, but at a slower pace. The composite index fell 5 points to +14 suggesting slower growth. Components for shipments, new orders, and employment all continued to expand during January. The Chicago PMI rose a much-larger-than expected 5.1 points to 63.8, its highest level since July 2018. Production, new orders, order backlogs, and inventories all experienced large gains although employment continued to ease.
The Conference Board Leading Economic Index® (LEI) rose 0.3% in December to 109.5 (2016 = 100), following a 0.7% increase in November and a 0.9% increase in October. Seven of the ten indicators that make up the LEI increased in December, a broad-based improvement. The slowing pace, however, suggests U.S. economic growth will moderate in the 1st quarter.
Our CAB leading indicator of the U.S. business cycle showed a 1.2% gain in January, accelerating from a 0.7% increase in December. In January, production-related indicators were positive. 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. Trends in construction-related resins and related performance chemistry were solid and suggest further gains in housing, a sector that has performed well during the recession due to COVID-19. Reflecting strength in light vehicles and new business investment, resins and chemistry used in other durable goods were strong. Gains in plastic resins used in packaging and for consumer and institutional applications were positive. Performance chemistry for industry was strong, reflecting a strong manufacturing sector. U.S. exports were positive, while equity prices increased. Product and input prices were positive, as were inventory and other supply chain indicators. The diffusion index climbed to 79% in January from 71% in December. With nine months of gains, the latest CAB reading is consistent with expansion in the U.S. economy.
The rig count rose by five to 377 rigs during the week ending 22 January. With mild weather, there was another below modest draw on natural gas inventories.
For the business of chemistry, the indicators still bring to mind a green 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 1,800 to 32,140 railcars the week ending 23 January (week 3). Loadings were up 2.7% Y/Y, up 4.9% YTD/YTD and the 13-week moving average, which is used to smooth out volatility, was steady at 3.3%.
Our updated measure of China chemical production indicated a very strong 4th quarter that ended on a solid note with output rising 3.2% in December to a level up 8.6% Y/Y. Year-earlier gains occurred in nearly all segments.
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“The New US Administration – Where Are We Heading?” Virtual Discussion Group
4 February (4:00 – 5:00 pm)
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17 February (1:00 – 2:15 pm)
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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.