|Global CPRI||Chemical Railcar Loadings||GDP|
Running tab of macro indicators: 14 out of 20
As expected, consumer spending rose 0.3% in December. Growth in personal income slowed to a 0.2% gain (in part due to lower subsidy payments to farmers). Compared to a year ago, real disposable personal income was up 2.0% while consumer spending was ahead by 3.3% Y/Y. The large Y/Y comparison for consumer spending reflects the dip in December 2018 when the Federal Government was shut down. Led by higher energy prices, the price index for personal consumption expenditures (PCE) rose by 0.3% (the largest gain since April) and was up 1.6% Y/Y, the highest annual pace in a year. The core PCE price index was also up by 1.6% Y/Y, in line with recent gains.
The Conference Board reported that consumer confidence increased in January. This was above expectations and the index now stands at 131.6 (1985=100), up from 128.2 (an upward revision) in December. The gain was driven primarily by more positive consumers’ assessment of the current job market and increased optimism about the outlook, especially future job prospects. Plans to purchase homes and appliances improved while plans for auto purchases eased.
Real gross domestic product (GDP) increased at an annual rate of 2.1% in the 4th quarter of 2019, the same pace as the 3rd quarter. The increase in real GDP in the 4th quarter reflected positive contributions from consumer spending, government spending, residential fixed investment, and exports that were partly offset by negative contributions from inventory accumulation and business fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
With weakness in the Northeast and the South offsetting gains in the Midwest and the West, December new home sales eased 0.4% to a 694,000 unit pace. Inventories of homes for sale rose slightly to 327,000 at the end of December, a 5.7-month supply. A year ago, months’ supply was 7.4. Sales were up 23.0% Y/Y and inventory off 5.5% Y/Y. With demand more pronounced at the low end of the market, the median sales price of $331,400 was up only 0.5% Y/Y.
Headline new durable goods orders, led by transportation,increased 2.4% to $245.5 billion in December. This increase, up two of the last three months, followed a 3.1% November decrease. New orders for non-defense capital goods excluding aircraft (a proxy for business investment) decreased 0.9% to $68.6 billion, a level up 1.8% Y/Y. Strength in orders for fabricated metal products, communications equipment, and a few other segments was offset by weakness in primary metals, machinery, computers & related products, motor vehicles, and electrical equipment, appliances, and components. Shipments and unfilled orders were weak while inventories rose.
The Dallas Fed reported that Texas manufacturing activity picked up this month, with a large gain in production accompanied with other indicators pointing to an acceleration of activity. Perceptions of broader business conditions were largely unchanged but expectations were slightly more optimistic. The Chicago PMI is a good proxy for underlying plastics demand, and after months of gains, slipped further in to contraction and is at its lowest level since late-2015. All five major components of the headline index saw a monthly decline, with order backlogs leading the way lower, followed by new orders. We don’t normally report on the Richmond Fed manufacturing activity (we do monitor it) but the January survey indicates a large improvement in district activity.
The oil and gas rig count fell by two to 791 rigs. Oil prices eased this week on fears that the coronavirus outbreak will curb demand in China and elsewhere. Natural gas inventories fell by 201 BCF last week, the largest draw this season. Despite the draw, prices were continued to move lower. The Energy Information Administration released its 2020 Annual Energy Outlook this week. The U.S. continues to produce historically high levels of crude oil and natural gas. Slow growth in domestic consumption of these fuels leads to increasing exports of crude oil, petroleum products, and liquefied natural gas. In 2020, the U.S. is expected to become a net exporter of energy for the first time since 1953.
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 3.7% to 31,284 railcars during the week ending 25 January (week 4). Loadings were up 0.3% Y/Y, up 2.1% YTD/YTD 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 1.6% compared to last year.
The U.S. Geological Survey reported that monthly production of soda ash in November was 1,020 thousand tons, up 1.0% compared to the previous month and up 2.3% Y/Y. Stocks rose 2.1% over October to 336 thousand tons at the end of the month, a 10-day supply. Ending stocks were up 8.7% Y/Y.
Chemical industry respondents to the Texas Manufacturing Outlook Survey indicated that “Local regulatory agencies and the costs associated with wasteful fees to municipalities are an ongoing burden to business. Poor infrastructure in our primary location is not conducive to attracting and keeping quality employees.” And “A decrease in car sales has a negative effect on our customers’ volume.”
Led by a large gain in China, the ACC’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production grew by 0.7% in December, an acceleration from the 0.3% gain in November, and a reversal of the 0.2% decline in October. During December, chemical production increased in Latin America, the Former Soviet Union, Africa & the Middle East, and the Asia-Pacific region. Production fell in North America and Europe. Headline global production was up only 1.8% Y/Y on a 3MMA basis and stood at 118.5% of its average 2012 levels. For 2019 as a whole, global production was up 1.7%.
Among chemical industry segments December 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 December, global capacity rose by 0.2% and was up 3.4% Y/Y. As a result, capacity utilization in the global chemical industry rose 0.4 points to 82.1%. This is down from 83.3% last December and below the long-term (1987-2017) average of 86.5%.
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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.