|Housing Starts||Chemical Capacity Utilization||Chemical Production|
Running tab of macro indicators: 13 out of 20
The number of new jobless claims fell by a disappointing 10,000 to 1.30 million in the week ending 11 July. Continuing claims fell by better-than-expected 422,000 to 17.34 million and the advance unemployment rate for the week eased 0.3 percentage points to 11.9%, continuing a downward trend.
Continuing the rebound from May, retail sales rose another 7.5% in June. Sales rose across nearly all segments except food and beverage stores and non-store retailers (i.e., online platforms), both of which saw a surge in sales during the lockdowns. The largest gains were in clothing, electronics, furniture, and sporting goods stores. Restaurant sales rose 20%. Compared to a year ago, retail sales were ahead 1.1%.
Following three months of declines, consumer prices bounced back in June, up 0.6%, slightly ahead of expectations and the largest monthly increase in eight years. The gain reflects a sharp increase in gasoline prices, which accounted for half of the overall index. Food prices also continued to rise. Excluding food and energy, core consumer prices also moved higher on increases in prices for apparel, transportation services, and medical care. Compared to a year ago, headline consumer prices were up 0.6%, while core prices were up 1.2% Y/Y. Despite the gain, the inflation trend remains muted, giving the Fed the latitude to continue quantitative easing. Import prices rose for a second month, up 1.4% with a large gain in prices for imported fuels offset by a smaller gain in nonfuel import prices. Export prices also rose by 1.4% with gains across agricultural and nonagricultural export prices. Compared to a year ago, import prices were off 3.8% while export prices were off 4.4% Y/Y.
In line with expectations, combined business inventories fell 2.3% in May, the largest monthly decline since the Census Bureau began tracking it in 1992. This follows a 1.4% decline in April. Among the segments, retail inventories declined the most, by 6.2%. Wholesale inventories also declined (by a smaller amount) and manufacturing inventories edged higher. Combined business sales surged, however, up 8.4% after a 14.4% decline in April. Compared to a year ago, business inventories were off 4.8% while sales were down 11.8% Y/Y. The inventories-to-sales ratio fell from 1.67 in April to 1.51 in May with declines across all three segments. A year ago, the ratio was 1.40. Inventory investment is a component of GDP and will be a negative contributor in Q2.
The NFIB index of small business optimism rose a larger-then-expected 6.2 points to 100.6 in June, a move up but still below the pre-coronavirus levels. Owners are anticipating improving sales, more hiring, and are more optimistic over the outlook for general business conditions. While small businesses owners felt more optimistic about the future, they also reported that the current crisis is taking a toll on earnings.
As expected, homebuilding continued to rebound in June with a 17.3% gain in housing starts. Chemistry-intensive single-family starts also rose strongly, by 17.2%. There were gains across all regions except the West. Forward-looking building permits also rose, by 2.1%. Housing activity remained off from year-ago levels, however, with starts and permits off by 4.0% and 2.5% Y/Y, respectively. Despite mortgage rates falling below 3% for the first time ever, millions remain out of work and those with jobs remain cautious. Homebuilder sentiment rebounded to its pre-Covid high in July. The NAHB/Wells Fargo Housing Market Index rose 14 points to 72, with gains across all three segments (current sales, sales expectations, and buyer traffic).
Following a small gain in May, industrial production continued to expand in June, up by a better-than-expected 5.4%. Reflecting the collapse in oil & gas, mining production continued to decline, but utility and manufacturing output increased. Overall manufacturing output rose 7.2%, with gains across every major segment, as restrictions eased across the country. Motor vehicle output doubled and there were also strong gains in the output of plastic & rubber products, apparel, machinery, furniture, nonmetallic mineral products, textiles, and aerospace. Compared to last year, overall industrial production was off 10.8% Y/Y. Capacity utilization firmed by 3.5 percentage points to 68.6%. While a huge improvement, capacity utilization is still well below a year ago when it was 77.7%
The New York Fed, in its July Empire State Manufacturing Survey, indicated that business activity increased in New York State for the first time in several months. The headline general business conditions index rose 17.4 points to 17.2, its first positive reading since February. New orders and shipments also increased, and unfilled orders were steady. Delivery times were somewhat longer, and inventories declined. Employment levels and the average workweek were little changed. Firms remained optimistic about the six-month outlook, though less so than in June. The Philadelphia Fed Business Outlook Survey indicated that activity in the region’s manufacturing sector continued to expand this month with the headline general business activity at 24.1. The survey’s current indicators for new orders and shipments showed positive readings for the second consecutive month, coinciding with the phased reopening of the economy in the region. The employment index reached positive territory for the first time since March. Although the future indicators for general activity fell to 36.0, it remains elevated, suggesting that the firms expect overall growth over the next six months.
FED BEIGE BOOK
The Fed Beige Book is a compilation of anecdotal information about the state of the economy across the 12 Federal Reserve districts.
Economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic. Consumer spending picked up as many nonessential businesses were allowed to reopen. Retail sales rose in all Districts, led by a rebound in vehicle sales and sustained growth in the food and beverage and home improvement sectors. Leisure and hospitality spending improved, but was far below year-ago levels. Most Districts reported that manufacturing activity moved up, but from a very low level. Demand for professional and business services increased in most Districts, but was still weak. Transportation activity rose overall on higher truck and air cargo volumes. Construction remained subdued, but picked up in some Districts. Home sales increased moderately, but commercial real estate activity stayed at a low level. Financial conditions in the agriculture sector continued to be poor, while energy sector activity fell further because of limited demand and oversupply. Loan demand was flat outside of some Paycheck Protection Program (PPP) activity and increased residential mortgages. The PPP and loan deferrals by private lenders reportedly provided many firms with sufficient liquidity for the near term. Outlooks remained highly uncertain, as contacts grappled with how long the COVID-19 pandemic would continue and the magnitude of its economic implications.
The Dallas Fed noted that “Refiners and chemical manufacturers noted modest improvements in utilization rates, though margins were still depressed. Chemical firms said demand for PPE and disinfectant products remained robust, but resin and basic chemical demand was soft.”
The rig count continued to fall during the week ending 10 July, down five rigs to 256. Crude oil prices gained on the week over vaccine hopes, signs of global economic recovery and falling inventories. Natural gas inventories continued to rise (up 45 BCF) and are brushing against the top edge of the five-year historic range.
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, rose by 1,634 to 30,351 railcars during the week ending 11 July (week 28). This is the highest week since the end of March and off only by 1.4% Y/Y. On a YTD basis, loadings were down 5.1% Y/Y. Loadings have been on the rise for seven of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 12.5% Y/Y.
The Chlorine Institute (CI) reported that production of chlorine was 27,598 in June, down 4.0% over the previous month; YTD production was down 6.0% Y/Y. The output of co-produced caustic soda fell by 5.4% to 28,555; YTD production was down 6.0% Y/Y.
The U.S. Geological Survey reported that monthly production of soda ash in April was 823 thousand tons, down 19.3% compared to the previous month and down 17.6% Y/Y. Stocks rose 2.1% over March to 333 thousand tons at the end of the month, a 12-day supply. Ending stocks were down 0.6% Y/Y.
Chemical import prices continued to edge lower (off 0.1%) for a fourth consecutive month in June. Chemical exports also continued to slide, by 0.3%. Compared to a year ago, both import and export prices for chemicals were down 6.7%, an improvement from the previous month.
Chemical production rebounded further, by 0.4% in June, a slightly slower pace than in May. There were strong gains in the production of inorganic chemicals, bulk petrochemicals & organic intermediates, plastic resins, synthetic rubber, and manufacturing fibers. Consumer products gained as well. On the other hand, coatings and other specialties declined as did agricultural chemicals. Industry capacity rose 0.1% and, as a result, capacity utilization rose 0.3 points to 75.3% in June. A year earlier, it was 80.9%. Production was off 4.9% Y/Y.
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UPCOMING EVENTS OF INTEREST
“Likely Impact of the COVID-19 Pandemic on the Global Chemical Industry”
Paul Hodges – Chairman, International eChem
Société de Chimie Industrielle Complimentary Webinar for Members &
19 August 2020 – 11:00 am – 12:00 pm ET
The 10th ICIS World Surfactants Conference – Virtual
16-18 September 2020
New Jersey, NJ
ADI Chemical Market Resources
22 September 2020
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.