|Retail Sales||Producer Prices||Chemical Production|
Running tab of macro indicators: 13 out of 20
The number of new jobless claims fell by 26,000 to 360,000 during the week ending 10 July. Continuing claims fell by 126,000 to 3.241 million and the insured unemployment rate for the week ending 3 July was stable at 2.4%.
Following a decline in May, retail sales rose by 0.6% in June, a bit ahead of expectations. Declines in sales of motor vehicles & parts (related to the semiconductor shortage curbing assemblies) and furniture (also facing supply chain challenges) was offset by stronger sales in clothing, electronics, restaurants, and department stores. Sales at restaurants and clothing suggest a return to more “normal” activity. Compared to a year ago, retail sales were up 18.0%.
During May, business inventories rose 0.5% to $2.039 trillion. Stocks rose among manufacturers and wholesalers but fell among retailers as the economy reopened and consumer returned to shopping. Driven by a sharp fall in retail, business sales eased 0.3% to $1.616 trillion. This pushed the inventory-to-sales ratio up slightly to 1.26. A year ago, it was 1.55. Sales were up 28.7% Y/Y and inventories up 4.5% Y/Y.
The NFIB reported that confidence among small business improved during June, with the Small Business Optimism Index rising 2.9 points to a reading of 102.5. Seven of the 10 index components improved and three declined. Owners continue to worry about a labor shortage and inflation. A net 47% of owners reported raising average selling prices, the highest reading since January 1981, while a net 39% of respondents face rising employee compensation costs, up from 34% in May and marking the highest reading on record going back to 1984. Nearly 90% of small employers attempting to add staff report finding few or no qualified candidates for the position.
Consumer prices continued to jump in June, up 0.9%, nearly double what was expected. Prices were higher in all major categories (except medical commodities and electricity), with the largest increases in prices for used car and trucks, energy commodities, and transportation services. Core consumer prices (excluding food and energy) also rose by 0.9% during the month. Compared to a year ago, headline prices were up 5.4% and core prices were up by 4.5% Y/Y. The former is at its fastest pace since August 2008, while the latter marked the hottest reading since November 1991. It is more than double the Federal Reserve’s 2% annual inflation target. Producer prices ran hotter than expected, rising 1.0% in June, accelerating from a 0.8% gain in May and a 0.6% gain in April. Six-tenths of the gains occurred in the service sectors, which are now responding. Included are motor vehicle retailing; machinery and vehicle wholesaling; hardware, building materials, and supplies retailing; guestroom rental; professional and commercial equipment wholesaling; and transportation of passengers. On the goods side, prices for industrial chemicals rose as did prices for gasoline, meats, electric power, processed poultry, and motor vehicles. Producer prices are up 7.3% Y/Y. Finally, import prices also continued to move higher, up 1.0% with gains in prices for imported fuels and nonfuel industrial supplies and materials, foods, and consumer and capital goods. Compared to a year ago, import prices were up 11.2%.
Industrial production continued to advance, up 0.4% in June following a 0.7% gain in May and flat growth in April. Mining and utility output expanded, but overall manufacturing production (on a NAICS basis) was flat. Within manufacturing, gains in primary metals, aerospace, printing, chemicals, furniture, and petroleum products offset declines in the production of motor vehicles (tied to the semiconductor shortage), nonmetallic minerals, apparel, machinery, food & beverages, and wood products. Compared to a year ago, industrial production was up 9.8%. Capacity utilization ticked higher, up 0.3 percentage points to 75.4% in June, still well below the long-term average of 79.6%, but ahead of last year’s 68.7%. Capacity growth was flat compared to a year ago.
The New York Fed reported that July manufacturing activity grew at a record-setting pace in New York, with the headline general business conditions index shooting up 25.6 points to +43.0. New orders and shipments increased robustly. Delivery times continued to lengthen substantially, and inventories expanded. Employment grew strongly. Input prices continued to increase sharply, and selling prices rose at the fastest pace on record. Looking ahead, firms remained optimistic that conditions would improve over the next six months, with the index for future employment reaching another record high. The Philadelphia Fed reported that regional manufacturing activity continued to expand this month. The indicators for general activity, shipments, and new orders all declined but remain elevated. The firms continued to report increases in employment and prices. Most of the survey’s future indexes tempered but continue to indicate overall optimism about growth over the next six months.
Published by the Federal Reserve, the Beige Book compiles an assessment of business conditions among the 12 Federal Reserve districts. A summary of recent economic conditions is below.
“The U.S. economy strengthened further from late May to early July, displaying moderate to robust growth. Sectors reporting above-average growth included transportation, travel and tourism, manufacturing, and nonfinancial services. Energy markets improved slightly, and agriculture had mixed results. Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods. Strained car inventories resulted in somewhat lower car sales despite steady demand, and home sales rose slightly despite limited supply. Nonauto retail sales grew at a moderate pace on balance, and tourism was buoyed by the further abatement of pandemic-related concerns. Residential construction softened in several Districts in response to rising costs, while commercial construction was mixed but up slightly on balance. Bank lending activity increased slightly or modestly in most Districts. The outlook for demand improved further, but many contacts expressed uncertainty or pessimism over the easing of supply constraints.”
The rig count rose by four at 479 rigs during the week ending 9 July. Energy prices continued to advance compared to last week on projections for a recovery in oil demand. OPEC announced that it expects global oil demand to return to pre-pandemic levels by 2022 averaging nearly 100 million BPD. Oil prices were also higher on Chinese demand for LNG and increased consumption for electricity generation in the Northwest where drought conditions have curbed hydroelectric output.
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 10.5% to 31,220 railcars the week ending 10 July (week 27). Loadings were up 3.0% Y/Y and up 5.9% YTD/YTD. The 13-week moving average, which is used to smooth out volatility, was up 15.9%.
Chemical producer prices rose for a 13th consecutive month in June, up 2.5%. This follows gains of 1.6% in May and 2.7% in April. There were sequential gains across all segments. The largest gains were in agricultural chemicals, plastic resins, synthetic rubber, manufactured fibers, and petrochemicals & organic chemicals. Feedstock costs also surged, up 54.4% in June. Compared to a year ago, chemical prices were ahead 20.7% with double digit gains across many product categories. Chemical import prices also rose in June, up by 1.3%. Export prices declined by 0.6%, the first decline in a year. Compared to a year ago, chemical import prices were up 19.5% while export prices were 31.3% higher Y/Y.
Among the chemical industry-specific comments in July’s Beige Book,
Chemical industry production continued to recover from the winter storm, rising by 0.4% in June, following gains averaging 3.4% per month during March through May. Inorganic chemicals and plastics resins improved while organic chemicals were flat. Synthetic rubber, manufactured fibers, coatings, and other specialty chemicals declined. Agricultural chemicals declined while consumer products gained. Compared to a year ago, chemical output was up 5.2% Y/Y. (Note that the Federal Reserve revised its industrial production program and the results for the chemical industry do not reflect reality. We are developing our own measures of industry output.)
Capacity continues to expand and despite the gain in output, capacity utilization eased 0.1 percentage points to 78.1% in June, still well below the long-term average of 84.8% and last June’s last year’s 79.8%.
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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.