Running tab of macro indicators: 13 out of 20
The number of new jobless claims increased by 12,000 to 1.434 million in the week ending 25 July. Ill news in the report was that continuing claims rose by 867,000 to 17.02 million and the advance unemployment rate for the week gained 0.5 percentage points to 11.6%, ending a downward trend.
Consumer spending continued to rebound in June, up 5.6%, slightly ahead of expectations. Spending gained across all three major segments with continued strong growth in durable purchases. Personal income, however, continued to move lower, off by 1.1%. Wage and salary income rose, but was offset by lower transfer payments which doubled in April. The implied savings rate moved lower to 19.0%, but remains historically elevated. Compared to a year ago, real consumer spending remained lower by 5.5% while real disposable income was 8.1% Y/Y higher. The price index for personal consumption expenditures rose at a faster 0.8% Y/Y pace compared to April and May; however, it’s clear that inflationary pressures are muted.
Real gross domestic product (GDP) decreased at an annual rate of 32.9 % in the 2nd quarter, a much quicker pace than the 5.0% decline in the 1st quarter. Weakness was across the board although Federal spending gained and imports eased. This is a backward looking indicator and the pace of decline was in the range of expectations but, in a historical perspective, was worse that the Great Financial Crisis and the Great Depression. Much of the decline was centered in April as other data indicate improving activity in May and June. Note that the BEA revised the data back through 2015.
A step forward, a big step back: after rising in June, the Conference Board’s measure of consumer confidence retreated in July, with the overall index falling 5.7 points to 92.6 (1985=100). Consumers’ assessment of present-day conditions improved in July but expectations fell as coronavirus cases rose in many states. Plans to purchase home gained while plans for purchasing autos and appliances eased.
As expected, durable orders continued to rebound into June with a 7.3% gain. The gain was led by motor vehicles and parts which rose 85.7%. There were also smaller gains in primary metals, metal products, machinery communications equipment, and electrical equipment. These gains were offset by declines in aircraft orders as lower demand for air travel has hit order books at Boeing and its suppliers. Orders for the closely-watched capital goods (excluding aircraft) category rose 3.3%, the best monthly gain in two years. Compared to a year ago, durable orders were still off, by 10.8%.
The Federal Reserve Bank of Dallas reported that its Texas Manufacturing Outlook index for current business activity improved during July. Production, new orders, infilled orders, and employment all improved as did the outlook. The Fifth District Survey of Manufacturing Activity prepared by the Richmond Federal Reserve indicated that activity in the region’s manufacturing sector showed signs of recovery in July. The composite index rose from 0 in June to 10, its first positive reading since March, buoyed by increases in all three components. Purchasing managers in the Midwest reported that the Chicago PMI (conducted by the ISM-Chicago and actually named the Business Barometer™) snapped back into positive territory, rising 15.3 points to 51.9 in July, the highest level since May 2019. Business activity recovered following 12 consecutive months of readings below 50. Among the main five main indicators, new orders and production saw the largest monthly gains, while supplier deliveries eased
Our CAB leading economic indicator rose 2.7% in July on a 3MMA basis following a 0.1% gain in June. On a Y/Y basis, the barometer fell 8.9%. The unadjusted data show a 1.3% gain in July following a 3.4% gain in June and a 3.6% gain in May. The diffusion index rose to 41%. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for June was revised upward by 1.36 points and the May reading was revised upward by 1.40 points. With three consecutive months of gains, the latest CAB reading is consistent with recovery in the U.S. economy. The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. Production-related indicators were mixed in July. Despite improvement in new home sales, housing starts and building permits, trends in construction-related resins, pigments and related performance chemistry were soft. Reflecting a recovery in light vehicles and other industries, resins and chemistry used in durable goods were mixed. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry strengthened, while U.S. exports were mixed. Equity prices gained, and product and input prices strengthened. Inventory and other supply chain indicators turned positive.
SURVEY OF ECONOMIC FORECASTERS – GLOBAL
The ACC released its survey of economic forecasters results last week. The data provide a reading on the situation and near-term outlook for the global economy, which is experiencing the worst recession since the Great Depression. Global economic output is expected to contract by 5.0% this year and recover only partially in 2021. Global trade has collapsed as economies across the world entered lockdown earlier this year. World trade volumes will be down significantly in 2020 with the contraction weighing heavily on export-oriented sectors. Global trade is expected to drop 12.8% this year and only partially recover in 2021, growing 10.6%. For most economies, output will not be back to pre-Covid levels until after 2021 as the pace of recovery through 2021 will not be strong enough. China, by exception, is expected to have fully recovered by 2021, as are India and South Korea.
The rig count continued to fall during the week ending 25 July, down two rigs to 249. Natural gas inventories rose by 26 BCF, less than the typical build for the week but leaving inventories at the upper end of the five-year range. At the same time, crude oil inventories dropped by 10.6 million barrels last week, the largest such fall this year, after refinery activity picked up at a faster pace. During the past week, oil prices moved up at a slower pace than natural gas prices and, as a result, the oil-to-gas ratio (our proxy for Gulf Coast petrochemical competitiveness) eased.
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, was essentially flat week-over-week, rising 0.2% to 30,051 railcars the week ending 25 July (week 30). Compared to the same week a year ago, loadings were down 4.2% and on a YTD basis, loadings were down 5.0% Y/Y. Loadings have been on the rise for seven of the last 13 weeks (and for the first time since February). The 13-week moving average, which is used to smooth out volatility, was down 11.2% Y/Y.
With improving activity in China, our Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production rose 0.6% in June, an improvement from the 0.5% decline in May and declining activity during January through April. The last monthly gain was in December. During June, chemical production decreased in most major regions except Asia-Pacific, which gained. Headline global production was off 7.2% Y/Y on a 3MMA basis and off 7.4% from the peak December level. Global output stood at 109.8% of its average 2012 levels.
During June, global capacity was stable and was up 2.6% Y/Y. As a result, with improving production, capacity utilization in the global chemical industry rose 0.5 points to 75.3%. This is down from 83.2% last June and below the long-term (1987-2017) average of 86.5%. Among chemical industry segments, June results were positive with most segments (sans bulk petrochemicals & organics and coatings) providing some support. Considering year-earlier comparisons, growth was lacking among segments, with a strong decline in coatings.
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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.