|U.S. CPRI||Global CPRI||ISM Manufacturing|
Running tab of macro indicators: 15 out of 20
The Conference Board reported that its index of consumer confidence eased 0.3 points to 126.5 (1985=100) in December. Consumers’ assessment of current business and labor conditions improved while expectations were less upbeat. Consumer plans to purchase homes gained while plans to purchase new autos and appliances eased. Confidence during November was revised upwards and despite the December easing is still at relatively high levels, which is good for the economy.
New home sales rose 1.9% in November, but the gain occurred on a downwardly revised October figure. There were gains in the Northeast and West regions, but sales in the South (the largest region) declined. Sales in the Midwest were flat. Inventories were also flat. As a result, the months’ supply of new homes edged lower to 5.4 from 5.5 in October. A year ago, there was a 6.5-month supply. Low inventories continue to put pressure on prices. The median price for a new home rose 7.2% Y/Y to $330,800. Overall construction spending rose 0.6% in November with gains in private residential and publically-funded projects. Spending on private nonresidential projects continued to fall. Compared to a year ago, construction spending was up 4.1% Y/Y with the largest year ago gains in publicly-funded construction projects, such as schools, roads, power, water supply, and waste treatment.
Durable goods orders unexpectedly fell in November, off 2.0%. The decline was unexpected and reflected, in large part, declines in orders for aircraft. Orders increased for motor vehicles, fabricated metal products, computers, communications equipment and electrical equipment. Core business orders edged higher by 0.1% following a 1.1% gain in October. Core orders were off 1.1% Y/Y, while headline durable orders were off 5.7% Y/Y. With declines in Europe, Japan and Asia-Pacific offsetting gains in the Americas, global semiconductor sales eased 0.3% to $36.7 billion in November. Global sales were off 10.8% Y/Y with all major markets posting negative year-over-year sales.
The ISM Manufacturing PMI fell 0.9 points to 47.2, suggesting manufacturing contracted at a faster pace in December. A slight improvement was anticipated, thus the report disappointed. New orders, production, backlogs, inventories, exports, imports and employment all contracted with supplier deliveries slowing at faster pace and prices increasing. Customers’ inventories were deemed too low. Of the 18 industries covered, only three reported growth. Globally, manufacturing also remained weak at the end of 2019 as the JP Morgan Global PMI eased by 0.2 points to 50.1. The reading suggests that manufacturing expanded only slightly in December. Growth of production and new orders were both marginal, as weak trade flows held back hopes for a stronger recovery from the mid-year downturn. Employment fell and export orders declined at a slower pace. There was expansion in the consumer goods sector, but intermediate and investment goods continued to struggle.
The regional surveys provide additional insight into manufacturing trends. The Chicago PMI rose 2.6 points in December to a four-month high of 48.9. That said, activity was still contracting; just less so. Among the main five categories, supplier deliveries and production led the improvement. This indicator is considered to be a leading indicator of the US economy and a proxy for underlying plastics demand. The Texas Manufacturing Outlook Survey indicated broader business conditions were mixed in December. The general business activity index remained slightly negative at -3.2, while expectations regarding future business conditions remained optimistic. Production rebounded to 3.6 after dipping into negative territory in November. New orders rebounded into positive territory as well.
The Chemical Activity Barometer (CAB) leading economic indicator created by the American Chemistry Council (ACC) was stable (0.0% change) in December on a three-month moving average (3MMA) basis following a 0.1% gain in November. On a year-over-year (Y/Y) basis, the barometer rose 0.4% Y/Y (3MMA) and follows two months of negative year-earlier comparisons. The unadjusted December data was flat (0.0% change) following a revised 0.5% gain in November. The diffusion index fell to 47% in December. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. 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 eased in December. Although trends in construction-related resins, pigments and related performance chemistry were mixed, they suggest further slow gains in housing, which has been on an upward trend. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry eased, reflecting weakness among industrial end-use markets. U.S. exports were weak. Equity prices rose sharply again in December, while product and input prices were mixed. Inventory and other indicators were mixed. In summary, the CAB signals slow gains in U.S. commerce into 3rd quarter 2020.
The oil and gas rig count rose by three to 1,083 rigs. Oil prices declined as U.S. production continues to set new records. Natural gas prices were up during the last week, but are lower than a month ago as robust supplies and milder than usual winter weather have constrained demand. Inventory draws have been smaller than usual for this time of the year. In wake of last night’s U.S. military airstrike on a top Iranian commander in Iraq, oil prices were volatile this morning. Equity markets have followed suit. The growth of U.S. shale oil production provides a tempering force.
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 10.8% to 28,874 railcars during the week ending 28 December (week 52) which included the Christmas holiday. Loadings were down 12.0% Y/Y, down 6.6% YTD/YTD and have been on the rise for six 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 details in the ISM report indicate that the chemical industry contracted in December. New orders, production, employment, inventories, order backlogs, export orders and imports all contracted. Supplier deliveries slowed while customer inventories were deemed too low. One chemical industry respondent noted that “Due to sluggish sales, we have introduced promotions to generate increased sales.”
The U.S. Chemical Production Regional Index (U.S. CPRI) fell by 0.8% in November, following gains the previous three months. During November, chemical output declined across all regions. Compared to November 2018, U.S. chemical production was off by 1.9% on a year-over-year basis, the sixth consecutive month of year ago 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 three-month moving average output trend of fertilizers, chlor-alkali, coatings, synthetic dyes & pigments, and industrial gases. These gains were offset by declines in the output of synthetic rubber, miscellaneous inorganic chemicals, pesticides, organic chemicals, consumer products, adhesives, other specialty chemicals, and manufactured fibers.
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 edged lower for a third month in November, off by 0.1%. Output expanded, however, in several chemistry-intensive manufacturing industries, including food & beverages, aerospace, computers, semiconductors, iron & steel products, oil & gas extraction, paper, structural panels, printing, and textile mill products.
The Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production grew by 0.3% in November, a reversal of the 0.2% decline in October. This gain follows three months of decline. During November, chemical production increased in Latin America, Africa & the Middle East, and the Asia-Pacific region. Production fell in North America, Europe and the Former Soviet Union (FSU). Headline global production was up only 1.4% year-over-year (Y/Y) on a 3MMA basis and stood at 117.7% of its average 2012 levels.
Among chemical industry segments November results were mixed with inorganic chemicals, bulk petrochemicals & organics, plastic resins, coatings, and other specialties showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in manufactured fibers, followed by synthetic rubber, plastic resins, other specialties, and coatings.
During November, global capacity rose by 0.2% and was up 3.5% Y/Y. As a result, capacity utilization in the global chemical industry rose 0.1 points to 81.7%. This is down from 83.4% last November and below the long-term (1987-2017) average of 86.7%.
The benchmark S&P 500 index rose by 2.1% in December. Chemical equity prices as measured by the S&P index for chemical companies also rose, by 2.9%. Equity prices are often a good indicator of future activity and represent one component of the leading economic indicators. For 2019 as a whole, chemical equities were up 19.4% while the S&P 500 index was up by 28.9% for the year.
Construction spending for chemical manufacturing projects eased by 0.1% in November to a $28.8 billion annual pace. Chemical construction spending accounted for 40.5% of spending in the broader manufacturing sector. Compared to a year ago, spending was down 2.8%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
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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.