|Global CPRI||Chemical Shipment||ISM Manufacturing|
Running tab of macro indicators: 13 out of 20
The number of new jobless claims fell by 99,000 to 1.314 million in the week ending 4 July. Continuing claims were 18.1 million and the advance unemployment rate for the week was 12.4%, continuing a downward trend. A better-than-expected report.
Non-farm payroll employment rose by a record 4.8 million in June, a reflection of the continued resumption of economic activity that was curtailed in March and April due to the coronavirus and associated lockdowns. In June, employment in leisure and hospitality rose sharply. Notable job gains also occurred in retail trade, education and health services, other services, manufacturing, and professional and business services. Compared to a year earlier, hourly wages featured a strong gain. Payrolls had expanded by 2.7 million in May and about one-third of the job losses have been recovered. The unemployment rate declined by 2.2 percentage points to 11.1% in June, and the number of unemployed persons fell by 3.2 million to 17.8 million. Although unemployment fell in May and June, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February. Both participation rate and employment-population ratios improved.
Producer prices eased by 0.2% in June, following a 0.4% gain in May. While energy prices (gasoline, diesel, jet fuel) continued to firm, food prices (especially meat) declined. Other goods that saw price increases included cheese, basic organic chemicals and vegetables. Excluding food and energy, core producer prices edged higher by 0.1%. Prices for final demand services continued to slide, especially for trade services. Compared to a year ago, headline prices were down 0.8% and core prices were off 0.1% Y/Y.
U.S. goods and services trade was down 2.4% in May (compared to April) and down 25.8% since the beginning of the year. Exports fell 4.4% to $145 billion and imports fell 0.9% to $199 billion in May. Exports were down 31.3% since the beginning of the year and imports were down 21.1%. The trade deficit has widened by $12.6 billion since January and stood at $54.6 billion in May. Goods exports have fallen 30.1% since the beginning of the year, falling hardest in April (down 29.0%) and continuing to fall in May (down 5.3%) to $91 billion. The fall in goods exports reflects lower exported industrial supplies and materials (including crude oil, fuel oil and other petroleum products) and lower exported capital goods. U.S. goods imports have fallen 16.7% since the beginning of the year, also falling hardest in April (down 14.9%) and continuing to fall in May (down 1.1%) to $165 billion. Imports of autos and parts and capital goods were down while imports of consumer goods and industrials supplies and materials increased in May. The deficit in goods trade widened by $3.3 billion to $74.1 billion in May.
The Conference Board’s measure of consumer confidence rose a larger-than-expected 12.2 points to 98.1 after virtually no change in May. The gain was led by the present situation component which rose 17.8 points (to 86.2) while expectations component rose 8.4 points (to 106.0). The overall index is still below pre-coronavirus levels. Looking ahead, consumers are less pessimistic about the short-term outlook but do not see a significant pickup in economic activity. Plans to purchase homes improved, while plans to purchase autos held steady and plans to purchase appliances eased. Non-mortgage consumer debt fell for a third consecutive month in May (by 0.4%), however the pace of decline slowed compared to April. Revolving debt (e.g., credit cards) continued to fall, but non-revolving credit (e.g., auto and student loans) resumed growth. Compared to a year ago, debt was up 0.9%.
Light vehicle sales continued to recover in June, rebounding to a 13.05 million unit pace with gains across all categories; growth continues to be driven by retail sales rather than fleet sales. A further recovery in sales is dependent on the broader economic recovery, especially jobs and incomes.
Construction spending fell for a third consecutive month, by 2.1%, in May. A small gain was expected. Private construction spending fell with declines across most residential and nonresidential segments. Spending on publicly funded projects rose. Compared to a year ago, construction spending was ahead by 0.3%. While construction was considered an essential industry in many states during the lockdown, uncertainty and cost-cutting has delayed many projects not already underway.
Wholesale trade rebounded in May, up 5.4%, with gains across nearly all categories. The strongest gains were in apparel, automotive, furniture, hardware, lumber, and alcohol. Wholesale inventories, however, fell 1.2% with mixed performance among sectors. The largest inventory declines were in alcohol, automotive, furniture, computer equipment, machinery, and hardware. Compared to a year ago, wholesale inventories were off 4.2%, while sales were down 16.2% Y/Y. The inventories-to-sales ratio moved lower from 1.63 in April to 1.53 in May, still far ahead of the ratio a year ago (1.34).
Factory orders rose by 8.0%, in May as the spread of Covid-19 and associated lockdowns eased and business leaders became slightly more confident. The gain was widespread among industries but only partially offset the 13.5% and 11.0% declines posted in April and March respectively. Notable exceptions were mining and oil & gas machinery, machine tools, materials handling machinery, electronic components, and some electrical equipment. Unfilled orders (a measure of the manufacturing pipeline) rose 0.1%. Manufacturers’ shipments rose by 3.0% with gains across most segments. Inventories rose 0.2% and the inventories-to-sales ratio eased from an abnormally high 1.70 in April to 1.65 in May. A year ago, the ratio was 1.38.
Global semiconductor sales rose 1.5% to $35.0 billion in May, a level up 5.8% Y/Y. Sales increased in China, Japan and the Americas, but decreased in Europe and elsewhere. On a Y/Y basis, sales increased significantly in the Americas (+25.5%) and more modestly in China (+4.9%), Asia Pacific/All Other (+2.5%), and Japan (+1.5%), but decreased in Europe (-12.9%). The Semiconductor Industry Association forecast that global sales will increase 3.3% in 2020 and 6.2% in 2021.
The ISM reported that the NMI® (Non-Manufacturing ISM®) rose 11.7 points to 57.1, a gain well above expectations and follows two months of contraction. The gain was led by strong business activity/production, new orders, exports, and inventories. Employment, however, is still contracting just at a slower pace. Fourteen industries reported growth while three contracted.
The Manufacturing ISM® (PMI®) rose 9.5 percentage points to 52.6% in June, a move into expansion territory. New orders and production are growing as are inventories. Supplier deliveries slowing at slower rate and the order backlog are contracting. Customer inventories are deemed too low. Prices are expanding but imports, exports, and employment are contracting. Of the 18 manufacturing industries, 13 reported growth in June. The J.P.Morgan Global Manufacturing PMI™ rose by a record 5.4 points to 47.8 as the downturn eased in June. Production and new orders contract at vastly reduced rates in June. International trade flows remain a drag and job losses continue to mount. Among the largest industrial nations, growth was registered in China, the U.S. the United Kingdom, and Brazil while downturns eased in the Japan, South Korea, and India. Results in the Euro Area were mixed. Only Mexico saw a steeper pace of contraction than in the prior survey month. Future output was seen to be positive.
In its latest Texas Manufacturing Outlook Survey, the Dallas Fed reported that Texas factory activity rebounded strongly in June with production rising sharply into positive territory, indicating moderate expansion in output following three months of record or near-record declines. Other measures of manufacturing activity (new orders, capacity utilization, shipments, etc.) also pointed to a rebound in growth this month. Labor market measures indicated virtually flat employment levels and shorter workweeks this month. Prices and wages showed mixed movements in June. Expectations regarding future business conditions were universally positive in June. The Chicago Business Barometer edged up 4.3 points to 36.6 in June as shutdowns eased and business activity picked up. Among the main five indicators, production and new orders saw the largest monthly gains, while supplier deliveries and employment faltered.
ACC’s CAB leading economic indicator featured a 3.5% gain in June following a 2.2% gain in May and a 6.3% decline in April. The diffusion index – which marks the number of positive contributors relative to the total number of indicators monitored – rose from 35% to 53%. Production-related indicators were slightly positive in June. Trends in construction-related resins, pigments and related performance chemistry were mixed, as were resins used in appliances, light vehicles, machinery, and other durable goods. Plastic resins used in packaging and for consumer and institutional applications were positive. Performance chemistry rebounded and U.S. exports were weak. Equity prices were mixed and product and input prices are firming. Inventory and other supply chain indicators were mixed. Two consecutive months of gains in the unadjusted data is a positive development.
The rig count continued to fall during the week ending 3 July, down two rigs to 261. The slower pace of decline is encouraging. Oil prices fell back this week as concerns over rising coronavirus cases in the United States and in Latin America fostered fears of slower economic growth and oil demand. Gas inventories continued to build and are near the top of the five-year historic range. Following a record 13.0 BPD production rate earlier this year, the EIA now expects U.S. crude production to fall by around 5% in both 2020 and 2021
For the business of chemistry, the indicators still bring to mind a red 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 638 to 28,681 railcars during the week ending 4 July (week 27). This follows two consecutive weeks of gains and, as a shortened holiday week, a W/W decline is not unexpected. Loadings were down an improved 4.7% compared to the same week in 2019, following six weeks of double-digit comparisons. Year-to-date comparisons continue to fall: loadings were down 5.0% YTD/YTD, the 11th consecutive week of increasing declining comparisons. Loadings have been on the rise for six of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 12.7% Y/Y.
According to data released by ACC’s Plastics Industry Producers Statistics Group, U.S. production of major plastic resins was 7.4 billion pounds in May, down 0.8% Y/Y. Year-to-date production was 37.5 billion pounds, up 3.2% compared to the same period in 2019. Sales and captive (internal) use of major plastic resins fell 2.9% Y/Y, totaling 7.4 billion pounds but were up 2.4% on an YTD/YTD basis, at 37.7 billion pounds.
The details in the ISM PMI report indicated that the chemical industry was one of the 13 reporting growth. New orders, production, and order backlogs expanded while inventories and export orders continued to decline. The industry reported slower supplier deliveries in June and customer inventories were deemed too low. Employment and imports were apparently. A chemical industry respondent noted, “While we are seeing signs of an uptick in business activity, it is a slow recovery at this point.” But it’s a recovery indeed.
The benchmark S&P 500 Index rose by 1.8% in June. Chemical equity prices, as measured by the S&P, for chemical companies also moved higher (by 0.8%). Equity prices are often a good indicator of future activity and represent one component of the leading economic indicators. Compared to the beginning of the year, chemical equities were off 9.1% while the S&P 500 Index was off 4.0% year-to-date.
Producer prices for chemicals rose 0.6% in June, only partially offsetting several months of decline, with gains in bulk petrochemicals & organic intermediates, plastic resins, coatings, other specialties, and agricultural chemicals offsetting weakness in inorganic chemicals, synthetic rubber, manufactured fibers, and consumer products. Feedstock costs rose 12.5% during June but was still off 18.8% Y/Y. Compared to a year ago, chemical producer prices were off 5.5%.
With improving activity in China only partially offset by widespread weakness elsewhere ACC’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production fell 0.5% in May, an improvement from the 1.3% decline in April and the 3.2% decline in March. The last monthly gain was in December. During May, chemical production decreased in every major region except Asia-Pacific. Headline global production was off 6.6% Y/Y on a 3MMA basis and off 7.7% from the peak December level. Global output stood at 109.8% of its average 2012 levels.
During May, global capacity rose by 0.3% and was up 3.2% Y/Y. As a result, with the decline in production, capacity utilization in the global chemical industry fell 0.6 points to 75.1%. This is down from 83.0% last May, below the long-term (1987-2017) average of 86.5%, and at its lowest level since March 2009.
Among chemical industry segments, May results were negative across most segments with some gains in consumer products, synthetic rubber, and manufactured fibers (primarily in China) providing some support. Considering year-earlier comparisons, growth was lacking among segments, with a strong decline in coatings.
Chemical shipments rebounded by 0.4% in May, to $40.8 billion. Agricultural chemicals were one of the very few segments to report decreasing sales. Sales of coatings & adhesives and other chemicals gained. Inventories of chemicals continued to ease, down 0.7%. Inventories of agricultural chemicals edged slightly higher, but were offset by lower inventories of coatings & adhesives and all other chemicals. The inventories-to-sales ratio for chemicals eased to 1.24 in May, the second highest ratio since December 2008. Shipments were off 10.4% Y/Y while inventories were down 4.2% Y/Y, a widening gap.
Sales of chemicals at the wholesale level rose 3.2% in May, following an 18.3% decline in April. Wholesale chemical inventories also rose, up 1.3% (following a 1.8% gain in April). Inventories were off 6.6% Y/Y while sales were down 20.0% Y/Y. The inventories-to-sales ratio eased from 1.42 in April to 1.40 in May, still well above the ratio of 1.20 a year ago.
Construction spending for chemical manufacturing projects fell by 0.6% in May to a $30.47 billion annual pace. Chemical construction spending accounted for 42.9% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 12.0%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
The decline in US chemicals trade decelerated towards a possible turn-around point in May. After a 13% buildup in March, chemicals trade fell 12% in April and fell 3% in May to $17.7 billion. Following a 10% rise in March and a 17% decline in April, chemicals exports fell 3.4% to $9.7 billion in May. Chemicals exports were down 7% YTD/YTD in May. By comparison, exports in other goods were down by 15%. With the exception of agricultural chemicals, consumer products, synthetic fibers and adhesives and sealants, all other categories of chemicals exports were down month/month. Chemical imports fell 2% in May and were down 10% YTD/YTD. The decline in imports reflects drops in all categories except bulk petrochemicals and intermediates and other specialties. As exports fell harder than imports, the US trade surplus in chemicals fell by 10% to $1.6 billion in May.
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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.