|U.S. CPRI||Railcar Loadings||Consumer Spending|
Running tab of macro indicators: 10 out of 20
The number of new jobless claims fell by 60,000 to 1.48 million in the week ending 20 June. Continuing claims were 19.5 million and the advance unemployment rate for the week was 13.4%, continuing a downward trend.
As widely expected with many states reopening, consumer spending rebounded in May, up by 8.2%, slightly below expectations. This follows a 12.6% collapse in April and a 6.6% decline in March. Spending on durable goods was the strongest gain. Spending on nondurable goods and services also rose following large declines the previous month. Following a record jump in April from federal stimulus payments, personal income fell 4.2%, better than the larger decline that was expected. Compared to a year ago, disposable personal income was up 8.2% while consumer spending was off 9.8% Y/Y. The savings rate continued to rise and came in at 9.6%. The price index for personal consumption expenditures edged slightly higher for the month following two months of declines and was up 0.5% Y/Y. The core PCE price index (excluding food and energy) was up 1.0% Y/Y. Real gross domestic product (GDP) decreased at an annual rate of 5.0% in 1st quarter according to the “third” estimate. In the fourth quarter, real GDP increased at a 2.1% pace. This third GDP estimate is based on more complete source data than were available for the “second” estimate issued last month, which was also 5.0%. With the third estimate, an upward revision to business fixed investment was offset by downward revisions to inventories, consumer spending, and exports.
Existing home sales continue to fall across all regions in May, down 9.7% to a 3.91 million unit pace. Sales were off 26.6% Y/Y, the largest year-earlier decline since 1982. The median selling price continued to rise, up 2.3% Y/Y to $284,600. Inventories were off 18.8% Y/Y and represent a 4.8-month supply, up from 4.3 months one year ago. New home sales surged in May, however, up 16.6%, with gains across all regions except the Midwest. This follows declines the previous three months. Despite the rebound, sales remain well below pre-Covid levels. Inventories of unsold new homes fell 2.2% and are now running at a leaner 5.6-month supply. The median sales price rose 1.7% Y/Y to $317,900. A note on the difference between the two: existing home sales tend to lag new home sales by a month or two.
New orders for durable goods rebounded in May, up 15.8%, a better than expected reading. All major segments posted gains, some in the double digits. The largest gains were in motor vehicles & parts, civilian aircraft, primary metals, and metal products. New orders for core business goods rose 2.3% following a 6.5% decline in April. Compared to a year ago, however, headline durable orders were off 21.4% while core business orders were off only 3.6% Y/Y.
The Richmond Fed reported that Fifth District manufacturing held fairly steady in June, with the composite index rising from −27 in May to 0. Shipments were relatively flat but more firms reported increases in new orders. Firms generally reported declines in employment. The index for local business conditions rose notably in June, indicating optimism among firms after three months of some of the most negative readings on record for that series. Manufacturers were also optimistic that conditions would improve in the next six months. The Kansas City Fed reported that Tenth District manufacturing activity grew slightly (rising from -19 in May to +1 in June) after sharply decreasing for three straight months. The improvement in activity was driven by non-durable goods plants, while durable goods factories, especially nonmetallic mineral products, primary metals, fabricated metals, and computer and electronics plants continued to decline. Production, shipments, new orders, and supplier delivery times recovered to positive levels, while order backlogs, employment, new orders for exports, and inventories remained negative. Activity still remained well below year-ago levels, while expectations for future activity rebounded moderately.
The rig count continued to collapse during the week ending 19 June, falling by 13 rigs to 264. Signs of recovering demand for gasoline and other petroleum products are apparent but demand is still well below pre-Covid levels and with continued supply and indications of rising coronavirus cases and a potential second wave and further challenges for the global economy, crude oil prices eased this past week. Supply continues to be an issue in natural gas as LNG cargoes are cancelled and industry has yet to fully recover. As a result, natural gas prices fell even further than oil thus boosting the oil-to-gas ratio.
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 920 to 28,401 railcars during the week ending 20 June (week 25). Loadings were down an improved 11.2% compared to the same week in 2019 and down 4.4% YTD/YTD, the 9th consecutive week of increasing declining comparisons. Loadings have been on the rise for five of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 12.2% compared to last year.
The U.S. Chemical Production Regional Index (U.S. CPRI) fell by 2.0% in May following a 2.7% decline in April and a 0.9% decline in March. During May, chemical output continued to decline across all regions, with the steepest decline in the Midwest and West Coast regions. The lower level of activity is directly related to supply chain disruptions and continued restrictions across much of the U.S. during May. Compared with May 2019, U.S. chemical production was off by 6.0%, the twelfth and consecutive month of Y/Y declines. Chemical production was lower than a year ago in all regions, with the largest year ago declines in the West Coast, Ohio Valley and Midwest regions.
Deemed an essential industry by the Department of Homeland Security, chemical production continued to ease (on a 3MMA basis) with declines in all segments except plastic resins, which rose. Within several major segments, however, production of some chemical materials was up including supply chains tied to PPE and disinfection products. For the most recent month of May chemical production appears to be trending higher as the recovery gets underway.
As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. As restrictions eased in many parts of the U.S., many factories reopened. Overall manufacturing activity, however, continued to be lower by 6.2% (on a 3MMA basis) with declines (in some cases quite steep) across all industry sectors.
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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.