|U.S. CPRI||LEI||New Home Sales|
Running tab of macro indicators: 13 out of 20
The number of new jobless claims rose by an unexpected 109,000 to 1.416 million in the week ending 18 July, ending 15 weeks of declining new claims. Good news in the report was continuing claims fell by better-than-expected 1.107 million to 16.2 million and the advance unemployment rate for the week eased 0.7 percentage points to 11.1%, continuing a downward trend.
Existing home sales surged by 20.7% to a 4.72 million unit pace in June, the largest monthly gain on record, with gains across all regions. The increase occurred on top of weak sales in May which were the lowest since 2010 and reflected the lockdowns in March and April. Existing home sales are recorded when transactions close. Low mortgage interest helped as did recovery from lockdowns. Inventories were off 18.2% Y/Y and represented a 4.0 month supply at current sales pace. This is down from 4.3 months a year ago. In recent weeks, the rate for a 30-year fixed mortgage fell to 2.98%, the lowest since 1971. This will be supportive of homebuilding and housing sales. New home sales came in above expectations, up 13.8% in June. This followed a strong gain in May. In contrast to existing home sales, new home sales are recorded when the contract is signed. The inventory of unsold homes edged lower and at the current sales rate, inventories represented a 4.7-month supply, down from a 5.5-month supply a year ago. Compared to a year ago, new home inventories were off 7.0%, but sales were up 6.9% Y/Y.
The Kansas City Fed Manufacturing Survey for July revealed that 10th District manufacturing activity continued to grow slightly after sharply decreasing in the spring. Looking at the details, production, shipments, new orders, and supplier delivery times remained positive, and order backlog and employment recovered to positive levels. Only new orders for exports and inventories indexes remained negative. Current activity still remains well below year-ago levels, while expectations for future activity continued to improve slightly.
The index of leading economic indicators (LEI) rose for the second month, by 2.0% in June after rising 3.2% in May and three prior months of decline. Diffusion was 70% and the gain was led by positive contributions from declining new unemployment claims, increased hours in manufacturing, and the rebound in equity prices. The report reflects improvements brought about but the incremental re-opening of a still weak economy. Next week, our CAB leading indicator will provide insight into July.
SURVEY OF ECONOMIC FORECASTERS
Interest rates (10-year treasury) have touched record lows in 2020, but are expected to gradually increase through the forecast horizon.
The rig count continued to fall during the week ending 17 July, down five rigs to 251. Oil prices touched their highest level in four months earlier in the week on promising vaccine trial results and an unprecedented stimulus package in the EU. Commercial U.S. oil inventories, however, rose unexpectedly, fueling concerns about stalling demand for fuels amid renewed restrictions in some states.
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 325 to 29,990 railcars during the week ending 18 July (week 29). Compared to the same week a year ago, loadings were down 1.1% and on a YTD basis, loadings were down 5.1% Y/Y. 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 12.2% Y/Y.
The U.S. Chemical Production Regional Index (U.S. CPRI), which is measured as a three month moving average (3MMA), fell by 1.1% in June following a 2.0% decline in May and a 3.0% decline in April. During June, chemical output continued to decline across all regions, with the steepest decline in the Gulf Coast, Midwest and West Coast regions. Compared with June 2019, U.S. chemical production was off by 6.8%, the 13th consecutive month of Y/Y declines. Chemical production was lower than a year ago in all regions, with the largest declines in the Northeast and West Coast regions.
Deemed an essential industry by the Department of Homeland Security, chemical production continued to ease (on a 3MMA basis) with declines in most segments except chlor-alkali, industrial gases, other basic inorganic chemicals, and consumer products, which were slightly higher. Within several major segments, production of some chemical materials was up including supply chains tied to PPE and disinfection products. As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. As restrictions continue to ease across much of the U.S., factory activity rose. On a 3MMA basis, however, overall factory activity continued to be lower by 2.3% with declines persisting across most industry segments.
With a further recovering U.S. economy, U.S. specialty chemicals market volumes rebounded a stronger 3.6% in June, an improvement from the revised 1.2% gain in May, and the record 12.6% decline in April. Of the 28 specialty chemical segments we monitor, 25 expanded in June, an improvement from 22 rising during May and all 28 declining in April. Thus, on a sequential (one-month change) basis diffusion was 89%, an improvement from 79% in May and much better than 0% diffusion recorded in April. Of the 25 rising in June, 23 featured gains of more than 1.0%.
During June, overall specialty chemicals volumes were off 11.7% on a Y/Y basis. Volumes stood at 99.0% of their average 2012 levels in June. This is equivalent to 6.74 billion pounds (3.06 million metric tons). On a Y/Y basis, there was a gain in only three market and functional specialty chemical segments: cosmetic additives, electronic chemicals, and flavors & fragrances. On a year-earlier basis, diffusion was 12% in June, an improvement from May and April but much worse than at the start of the year.
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“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.