Running tab of macro indicators: 13 out of 20
The number of new jobless claims fell by 51,000 to 364,000 during the week ending 26 June. Continuing claims rose by 56,000 to 3.469 million and the unemployment rate for the week ending 19 June was unchanged at 2.5%.
Nonfarm payrolls rose by 850,000 in June, a gain above expectations. Notable job gains occurred in leisure and hospitality, public and private education, professional and business services, retail trade, and other services. Mining and manufacturing employment also gained while construction jobs eased. Average hourly wage for non-supervisory production workers rose to $25.68 per hour, a level up 3.7% Y/Y. Labor force participation edged up slightly and, with the household survey showing a slight easing in employment, the unemployment rate rose by 0.1 percentage points to 5.9%. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 233,000 to 4.0 million, following a decline of 431,000 in May. This measure is 2.9 million higher than in February 2020.
The Conference Board reported that consumer confidence improved further in June, following gains in each of the previous four months, with the index rising 7.3 points to 127.3 (1985=100), its highest level since the start of the pandemic. Furthermore, the May figure was upwardly revised. Consumers’ take on current conditions improved and consumers’ short-term outlook for income, business, and labor market conditions improved as well. Consumers’ plans to purchase homes, automobiles, and major appliances all rose and vacation intentions also rose.
With semiconductor shortages causing the OEMs to shutter capacity, dealer stocks are minimal and, as widely expected, light vehicle sales fell from a 17.04-million-unit pace to 15.37 million in June. Weakness was across the board, but headline sales were up 18.0% Y/Y. For the 2nd quarter, sales averaged a 17.0-million-unit pace, a very solid pace. With limited inventory, companies are losing sales opportunities. Demand fundamentals are solid with consumers flush with cash, improving employment, low interest rates, and high used-vehicle values, which gives consumers’ higher trade-in values.
Construction spending eased by 0.3% in May as a small gain in residential construction was not enough to offset declines in spending on private nonresidential and publicly funded construction projects. Compared to a year ago, however, construction spending was up by 7.5%.
The ISM PMI eased 0.6 points to 60.6, a still very solid reading. New orders and production are growing although employment contracted. Supplier deliveries are slowing at slower rate, the order backlog is growing as are raw material inventories. Customers’ inventories are deemed too low. Prices paid are increasing with the index component at its highest level since July 1979. Exports and imports are growing. Seventeen of 18 manufacturing industries reported growth in June. The JP Morgan Global PMI eased 0.5 points to 55.5, indicating that global manufacturing remained in a strong growth phase in June, with output, new orders and employment all rising and business optimism at robust levels. Stressed global supply chains, however, continued to disrupt production schedules and delay supplier deliveries resulting in sharp price increases. Twenty-two of 30 nations expanded and Europe remained a bright spot within global manufacturing, with the top seven ranked countries all located in the region. The U.S. was in eighth position.
The various U.S. regional surveys provide additional details on manufacturing. The Dallas Fed reported that manufacturing activity continued to expand, with production accelerating in June. Other measures of manufacturing activity also pointed to accelerated growth. Perceptions of broader business conditions improved markedly. Labor market measures indicate robust growth in employment and work hours and broad price and wage pressures accelerated further. Expectations regarding future manufacturing activity pushed higher. The Chicago PMI is a good proxy for underlying plastics demand and the PMI fell 9.1 points to 66.1 in June after hitting its highest level in 47 years. It is still expanding at a solid pace although the overall prices paid surged to the highest level since December 1979.
New orders for manufactured goods rose 1.7% in May, following a 0.1% decline in May. New orders for core business investment goods (nondefense capital goods excluding aircraft) edged higher by 0.1%, following a 2.7% increase in April. Compared to a year ago, headline factory orders were up 30.6% while core business orders were ahead 24.0% Y/Y. Both reflect base year effects. Manufacturing shipments rose 0.7% while inventories advanced 0.9%. The inventories-to-shipments ratio remained stable at 1.49. A year ago, it was 1.79.
The U.S. trade deficit in goods and services expanded in May by 3.1% to $71.2 billion, as growth in U.S. imports outpaced exports. Exports were up 0.6% in May to $206.0 billion. Good exports were higher in consumer goods (including pharma); foods, feeds, and beverages; and semiconductors. Exports of autos and parts were down in May. Imports were up 1.3% to $277.3 billion in May. Imports were higher in industrial supplies and materials (including crude oil, fuel oil and lumber) and foods, feeds and beverages. Imports of capital goods were down.
The rig count remained stable at 470 rigs during the week ending 25 June. With continued signs of rising demand, oil prices rose above $75 per barrel for the first time since 2018.
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 2.4% to 31,624 railcars the week ending 26 June (week 25). Loadings were up 7.8% Y/Y, a continuing trend reflective of last year’s COVID-related closures. Loadings were up 5.3% YTD/YTD and the 13-week moving average, which is used to smooth out volatility, was up 16.1%.
The ISM PMI report indicated that the chemical industry continued to expand in June. New orders and production are growing as is employment. Supplier deliveries are slowing at slower rate and the order backlog is growing, as are raw material inventories. Customers’ inventories are deemed too low. Exports and imports are growing. One chemical industry respondent noted that “Continue to see very strong demand across all business units. In many cases, we are limited on our ability to supply by raw-materials availability. Still running at record volume but could be producing much more. Even if we were able to get all the raw materials needed, we would have capacity issues on many of our production units. Manpower has been a concern.”
One chemical industry respondent to the Dallas Fed survey noted: “Petroleum-based raw materials… availability continue[s] to affect the industry. The outlook on raw material availability is improving as the economy continues to open, and demand for petroleum products continues to increase. Product demand remains variable; while consumer demand continues to increase, availability of other raw materials remains a concern for our customers and affects our sales. A strong inventory and production position has allowed for capturing opportunities created by COVID-19 and raw material constraints in international and domestic markets.”
U.S. production of major plastic resins totaled 8.0 billion pounds during May 2021, an increase of 0.1% compared to the prior month, and up 7.0% compared to the same month in 2020, according to statistics released The ACC Plastics Industry Producers’ Statistics Group. Year-to-date production was 36.4 billion pounds, down 2.9% Y/Y. Sales and captive (internal) use of major plastic resins totaled 7.4 billion pounds, up 1.7% compared to April, and down 0.6% Y/Y. Year-to-date sales and captive use were 36.4 billion pounds, down 3.5% compared to the same period in 2020.
Chemical industry shipments rose for a third consecutive month by 0.7% to $43.3 billion in May and followed a 1.7% gain in April. Lower shipments of coatings, adhesives and agricultural chemicals were offset by higher shipments of other chemical products. Compared to a year ago, shipments were up 12.5% Y/Y. Inventories rose 0.9% in May and followed a 0.7% gain in April. Gains across most segments left inventories up 4.9% Y/Y. this pushed the inventory to sales ratio up to 1.24 in May (from 1.23 in April), a level still well below 1.35 a year ago. Inventories are still comparatively lean.
Chemical industry (including pharma) employment expanded in June, up by 1,700 (0.2%) in May, following a decline of 300 in May. Compared to June 2020, employment remained higher by 22,300 (2.7%). Production worker jobs edged lower by 0.1% in June, but supervisory and non-production employment rose by 0.2%. Average wages were up 2.3% Y/Y to $26.79. The average workweek edged up by 0.4 hours to 41.8, the highest since November 2019. Combined with the gain in production workers, the total labor input into the chemical industry edged higher by 0.9%, suggesting chemical production expanded in June consistent with the ISM report.
The benchmark S&P 500 index rose by 1.2% in June. Chemical equity prices, as measured by the S&P index for chemical companies also ended higher, up 2.2% for the month. 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 up 17.6% while the S&P 500 index was up 14.4% year-to-date.
Chemical industry construction spending fell by 3.4% in May to $29.3 billion, following small decline in April. Chemical industry construction spending was ahead by 5.4% Y/Y compared to May 2020. As a share of overall spending on manufacturing construction, chemicals represented 42.4%.
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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.