|Chemical Wholesale Trade||Vehicle Sales||ISM PMI|
Running tab of macro indicators: 14 out of 20
The number of new jobless claims fell by 3,000 to 787,000 during the week ending 2 January. Continuing claims fell by 126,000 to 5.07 million and the unemployment rate for the week ending 26 December eased 0.1 percentage points to 3.5%.
The much anticipated payroll report disappointed as it showed that payroll employment fell by 140,000 in December, following seven months of job growth. Expectations were for a small gain. Data for October and November were revised upward, however. Of the 22 million jobs lost during the lockdowns last spring, only 12 million have been recovered as 2020 ended. With rising COVID rates and additional restrictions, the number of jobs in leisure and hospitality (including restaurants) dropped by nearly half a million. Most other sectors–including construction, manufacturing, retail trade and transportation and warehousing–continued to gain. Reflecting in part the reduction of low-paid leisure and hospitality jobs, average hourly earnings rose 5.1% Y/Y. The unemployment rate remained stable at 6.7%. The participation rate also remained stable at 61.5%.
Light vehicle sales rose from a 15.6 million unit pace in November to a 16.3 million unit pace in December. This is the eighth such gain since the cyclical trough in April and a good finish to the year. Gains occurred in foreign auto sales and domestic light vehicles with some easing in other categories. 2020 finished out at 14.43 million units, down from 16.95 million in 2019. Strength in truck and SUV sales helped sales to close the year on a good note.
Construction spending rose 0.9% in November, slower than expected, but the fifth gain in the past six months. As in past months, the gain was led in spending on privately funded residential projects. Publicly-funded construction and private nonresidential construction spending fell in November. Compared to a year ago, overall construction spending was ahead 3.8%.
ISM’s Services (formerly Non-Manufacturing) PMI rose 1.3 points to 57.2, indicating that the non-manufacturing sector continued to expand in December. Fourteen of the 18 industries covered reported growth, however many of the comments suggested slower activity toward the end of the month. The Manufacturing PMI report indicated the manufacturing sector grew at a likely stronger pace in December, with the headline PMI rising 3.2 points to 60.7. A large 4.0 point gain occurred in production (to 67.9) and new orders and employment grew as well. Supplier deliveries slowed at a faster pace and the order backlog grew. Raw material inventories grew and customer inventories are deemed too low. Prices are increasing and exports and imports expanded as well, just at a slower pace. Sixteen of 18 industries expanded. The JPMorgan Global PMI was stable at 53.8 in December, with its strongest showing on production and new orders in a decade. Global manufacturing built on the return to growth seen since the end of the 2nd quarter. Brazil and India saw the strongest output growth, while expansions were also seen in most of the other large industrial regions including China, the U.S. and the Euro Area. Although Japan was a notable exception to the growth trend, it nonetheless saw output volumes stabilize following 23 months of decline.
Wholesale trade rose 0.2% in November, following a 1.7% gain in October. Sales within segments were mixed with the largest gains in computer and professional equipment, lumber, farm products, apparel, and chemicals. Wholesale inventories were flat, with gain in durable goods inventories offsetting declines in nondurable inventories. Wholesale trade was off 0.2% Y/Y while inventories were off 2.1% Y/Y. The inventories-to-sales ratio remained stable at 1.31, which was lower than a year ago. Inventories that built up during the lockdowns have been largely worked off at this point.
Factory orders continued to rise in November, up 1.0%, following 1.3% gains in both September and October. There were gains in orders for primary metals, machinery electrical equipment, and motor vehicles. Orders for nondefense capital goods, ex. aircraft (a proxy for core business investment) also continued to rise, up 0.5%. Compared to a year ago, headline orders remained off by 0.6% while core business orders were up 7.6% Y/Y. Unfilled orders continued to edge lower, off by 0.1%. Manufacturers’ shipments rose 0.7% and inventories also rose by 0.7% leaving the inventories-to-shipments ratio steady at 1.41. Compared to a year ago, shipments remained off by 1.3% Y/Y while inventories were 6.3% lower on a Y/Y basis.
The U.S. trade deficit in goods and services deepened 8% in November, reaching $68.1 billion. U.S. exports rose by 1.2% while imports rose by 2.9% in November. Year-to-date, exports were down 16.1% while imports were down 10.5%. The November gain in exports was driven by increased exports of food and beverages, industrial supplies and materials (including natural gas), and travel and transport services. Imports rose in consumer goods (including cell phones and household goods), industrial supplies and materials, capital goods, and transport and travel services. Imports of autos and parts were down reflecting lower imports of passenger cars.
Global semiconductor sales gained for the fifth consecutive month, rising 1.1% to $39.4 billion in November. Regionally, sales increased across all territories except the Asia-Pacific region. Japan experienced the largest monthly increase in sales at 5.2%. Sales were up 7.0% Y/Y. The Americas are leading all territories with sales rising 12.5% Y/Y. Europe is the only region posting declining sales year over year.
The rig count rose by three to 350 rigs during the week ending 30 December. Oil prices rose to their highest level in nearly a year on the surprise announcement that Saudi Arabia would cut production by 1.0 million bpd in February and March. Natural gas inventories fell by 130 BCF, but remain above their five-year historic average.
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, rose by 4,081 to 31,560 railcars the week ending 2 January (week 1). Loadings were up 1.8% Y/Y and the 13-week moving average, which is used to smooth out volatility, was up for the fourth week in a row, by 1.9%, the highest reading since early April 2020.
The details in ISM Manufacturing PMI report indicate that the chemical industry registered moderate-to-strong growth in December. Gains occurred in new orders, order backlogs, production, employment, inventories, export orders and imports. Supplier deliveries were slower and customer inventories were deemed too low. One chemical industry respondent noted: “Continued to survive COVID-19 shutdowns, customer restrictions and personnel issues (work from home and COVID-19 outbreaks) and managed to maintain slight growth over 2019.”
According to data from the ACC Plastics Industry Producers’ Statistics Group, U.S. production of major plastic resins totaled 8.0 billion pounds during November 2020, up 3.8% compared to October and up 15.0% Y/Y. Year-to-date production was 83.0 billion pounds, up 2.9% compared to the same period in 2019. Sales and captive (internal) use of major plastic resins was 7.4 billion pounds, down 0.5% percent compared to October, but up 5.8% Y/Y. Year-to-date sales and captive use was 83.2 billion pounds, a 2.2% increase Y/Y.
Following a 1.8% gain in October, chemical industry shipments rose by 1.1% in November with widespread strength across segments. Chemical inventories eased, off 0.1% during the month. Compared to a year ago, inventories were off 2.4% while shipments were off 2.6% Y/Y. The inventories-to-shipments ratio edged lower from 1.17 in October to 1.16 in November, just where it was a year ago.
Chemical wholesale trade jumped by 3.4% in November to $10.1 billion. Wholesale inventories continued to move lower, off 0.7%. The inventories-to-sales ratio fell from 1.21 in October to 1.16 in November, back to pre-COVID levels. Compared to a year ago, wholesale sales were off 5.1% Y/Y while inventories were off 7.0% Y/Y.
Chemical industry (including pharma) employment edged higher, up by 600 (0.1%) in December, following a 500 decline in October. The industry is still off by 15,300 jobs compared to pre-COVID levels. Compared to last year, employment remained lower by 17,500 (2.1%). In December, a 0.2% gain in production workers was offset, in part, by a similar decline in supervisory and non-production workers. Average wages were up 1.7% Y/Y to $25.91. The average workweek rose by 12 minutes to 41.4 hours. Combined with the gain in the number of workers, the total labor input into the chemical industry rose by 0.7%, suggesting chemical production expanded in December, which is in consistent with the ISM survey.
The US surplus in chemicals trade fell by 8% in November as exports fell harder than imports over the month. YTD, the surplus was $26 billion in November. Chemicals exports fell by 3% or $351 million dollars in November. Exports were down in all categories except inorganic chemicals. Imports fell by 1% in November. Lower consumer products imports were a drag as were inorganics and other basic chemicals.
Following a decline in September, construction spending for chemical manufacturing projects edged lower by 0.1% in November to a $30.1 billion annual pace. Chemical construction spending accounted for 43.3% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 13.5% Y/Y. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
The benchmark S&P 500 Index rose by 3.7% in December. Chemical equity prices, as measured by the S&P, also rose, by 1.8%. Equity prices are often a good indicator of future activity and represent one component of the leading economic indicators. For the year as a whole, chemical equities were up 15.4% while the S&P 500 Index was up 16.3% YTD.
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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.