|Chemical Shipment||Chemical Employment||ISM Manufacturing|
Running tab of macro indicators: 4 out of 20
The number of new jobless claims fell to 1.88 million in the week ending 30 May, the ninth week of falling claims. Some 42.4 million people have filed for unemployment since mid-March but keep in mind that half have since found new jobs, been called back, etc. and continuing claims were 21.5 million, up 649,000 from the prior week. This suggests an insured unemployment rate of 14.8% for the week, a level up 0.5 points from the prior week. That said, some people (i.e., discouraged workers) have left the labor market.
In a stunning report, non-farm payrolls rose by 2.5 million in May; a decline of 8.0 million was expected. In May, employment rose sharply in leisure and hospitality, construction, education and health services, retail trade, and manufacturing. By contrast, employment in government continued to decline sharply. The unemployment rate declined by 1.4 percentage points to 13.3% in May, and the number of unemployed persons fell by 2.1 million to 21.0 million. Labor force participation improved. Reflecting the effects of the coronavirus pandemic and efforts to contain it, the unemployment rate and the number of unemployed persons are up by 9.8 percentage points and 15.2 million, respectively, since February. These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and government lockdown efforts to contain it.
Light vehicle sales rose from an 8.73 million unit pace in April (a 50-year low) to a 12.21 million unit pace in May. This was well above expectations, with gains across all segments. Sales of imported vehicles were especially strong. That said, overall sales were still off 29.8% Y/Y. Sales were aided by the lifting of lockdowns as well as a zero-percent financing, which accounted for 24% of transactions, down slightly from 26% in April but still well above the 4% in February. Jobs losses and weak incomes along with tight lending standards will hinder the pace of sales.
With lockdowns and economies slowing to a halt due to the global COVID-19 pandemic, it came as no surprise that U.S. trade flows dropped off dramatically in April. Both exports and imports declined sharply. Goods exports fell 29% to $95.7 billion in April. That was the largest monthly decline in the record of the series (back to 1992). Imports of goods fell 15% to $166.4 billion, the greatest monthly decline since November 2008. The drop-off in exports reflects declines in aircraft and parts, other industrial machinery, crude oil, fuel oil and other petroleum products as well as declines in auto and auto parts. The drop-off in imports reflects declines in autos and parts and other vehicles, semiconductors, electric apparatus, aircraft and parts, pharmaceutical preparations, and cotton apparel and household goods.
Construction spending fell 2.9% in April as building activity slowed during the lockdowns. Many states included construction as an essential activity; however, uncertainty and demands for social distancing delayed activity on many projects. Private residential construction spending fell 4.5% while spending on private nonresidential projects fell by 1.3%. Spending on publicly-funded projects fell by 2.5%. Compared to a year ago, spending on all construction remained ahead by 3.0%.
As widely expected, manufacturing activity collapsed in April. New orders for manufactured goods fell 13.0%. There were broad declines across most categories, with some exceptions for communications equipment, electronic components, and ships & boats. Orders for construction materials fell 9.9% and orders for core business equipment were off by 6.1%. Unfilled orders, a measure of the pipeline, continued to ease, down another 1.6%. Manufacturers’ shipments fell by 13.5%, also with broad declines. There were some gains, however, in audio & visual equipment; electronic components; defense aircraft, communications & navigation equipment; grain processing; pharmaceuticals; and agricultural chemicals. Aggregate manufacturing inventories continued to fall for a fourth consecutive month, edging lower by 0.4%. Compared to a year ago, inventories were off 19.4% while inventories were only lower by 0.7% Y/Y. The inventories-to-sales ratio surged in April to 1.69 from 1.46 in March and 1.40 in February. A year ago, the ratio was 1.38. During the Great Financial Recession, the inventories-to-sales ratio peaked at 1.46 in April 2009. Clearly, a severe imbalance has emerged across many sectors.
The ISM PMI (Institute for Supply Management purchasing manager index) improved by 1.6 points to 43.1, still contracting, just at a slower pace. Production, new orders, and employment remain in strong contraction and order backlogs, exports, imports and prices are falling as well. Supplier deliveries are slowing at a slower rate; raw materials inventories are growing, and customer inventories are deemed too low. Among the big six industries, only food, beverage & tobacco products expanded.
The coronavirus pandemic continued to weigh on global manufacturing in May, with the JPMorgan Global Manufacturing PMI rising 2.8 points 42.4, a contracting level just at a slower pace of decline. The downturn in the headline index was softened by the relative resilience of the China PMI, a measure to be taken with a grain of salt. Global output continued to fall sharply as did new orders and especially exports. Global supply chains continued to be disrupted with supplier lead times lengthening. The ongoing marked downturn in global manufacturing activity led to sharp cutbacks in employment, purchasing and inventories during May.
The ISM Non-Manufacturing Index (NMI) for the U.S. economy rose 3.6 points to 45.4, a still contacting reading but one indicating a slower pace of decline. Most components contracted but supplier deliveries were slow and prices expanded. Four of 18 industries reported growth: agriculture, forestry, fishing & hunting; finance & insurance; public administration; and information.
With coronavirus-induced weakness in most regions offsetting a gain in China, global semiconductor sales eased 1.2% to $34.4 billion in April. Global sales were up 6.1% Y/Y with gains in the Americas, China and other Asia-Pacific. Compared to a year earlier, there was weakness in Japan and Europe. Early in the supply chain and a good leading indicator, the global semiconductor market has shown some signs of resilience to the economic turmoil but significant uncertainty remains.
The rig count continued to collapse during the week ending 29 May, falling by another 17 rigs to 299. EIA reported that U.S. oil production fell to 12.71 million BPD in April, a six-month low. At the same time, gas production rose for the first time in four months, up to 105.41 BCF per day. Crude oil inventories declined by 2.1 million barrels last week, but are still 12% higher than the average for the week. With an agreement between Saudi Arabia and Russia to extend supply cuts (9.7 million BPD) through July and with improving demand as lockdowns are lifted, oil prices trended higher, closing just shy of $40 per barrel on Thursday, the highest level in nearly three months. The physical market appears to be rebalancing.
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 6.4% to 26,714 railcars during the week ending 30 May (week 30). Loadings were down 15.2% compared to the same week in 2019 and down 3.5% YTD/YTD. Loadings have been on the rise for only 4 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 7.5% compared to last year.
According to data from ACC’s Plastics Industry Producers Statistics Group (PIPS), U.S. production of major plastic resins totaled 7.0 billion pounds in April, down 2.8% compared to the same month in 2019. Year-to-date production was 30.0 billion pounds, up 4.3% Y/Y. Sales and captive (internal) use of major plastic resins totaled 7.3 billion pounds down 2.0% from the same month one year earlier. Year-to-date sales and captive use was 30.2 billion pounds, up 3.8% Y/Y.
After rising 13% in March, total U.S. chemicals trade fell 12% to $18.3 billion in April. U.S. chemical exports, which had risen by 10% in March, fell 17% in April to $10.0 billion. Sharp declines were observed in exports of petrochemicals, plastic resins and in all other sectors with the exception of agricultural chemicals which were flat month/month. U.S. chemical imports, which had risen by 17% in March, fell 6% in April to $8.3 billion. The decline reflects lower imports in all sectors except agricultural chemicals and synthetic fibers. Imports were down notably in petrochemicals, consumer products, inorganics, and plastic resins. As exports fell faster than imports in April, the U.S. chemicals trade surplus dropped to $1.8 billion.
Chemical industry (including pharma) employment rose, by 0.3% (1,400 jobs), in May. The number of production workers also rose, by 1.1% (4,900), implying a 1.2% (3,500) decline in supervisory and non-production workers. The average workweek rose by 0.5 hours, suggesting the total labor input rose 2.4%, which conflicts with the ISM report that suggested the chemical industry contracted. Compared to a year ago, total industry employment was down 1.7% (14,800). Average hourly earnings were off 1.0% Y/Y.
The benchmark S&P 500 Index rose by 4.5% in May. Chemical equity prices, as measured by the S&P, for chemical companies also rose sharply (by 8.8%). 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 off 9.8% while the S&P 500 Index was off 5.8% year-to-date.
The ISM report indicated that the chemical industry contracted in May. Production, new orders, and employment are contracting as are order backlogs, exports, imports and prices are falling as well. Supplier deliveries are slowing at a slower rate, raw materials inventories are slowing, and customer inventories are deemed too low. One respondent noted that “Current conditions in the automotive, construction, oil and gas, agriculture equipment, and tube/pipe markets are all adversely impacting our business results.”
Chemical shipments declined for a fourth straight month in April, by 7.2%, to $40.9 billion. It was the worst monthly decline since December 2008. Agricultural chemicals were one of the very few industries to report increasing sales in April. Sales of coatings & adhesives, and other chemicals tumbled by 5.9% and 8.0%, respectively. Inventories of chemicals continued to ease, down 0.5%. Inventories of agricultural chemicals and coatings & adhesives edged slightly higher, but were offset by lower inventories of all other chemicals. The inventories-to-sales ratio for chemicals rose from 1.41 in March to 1.25 in April, the highest ratio since December 2008. Shipments were off 9.5% Y/Y while inventories were down 3.3% Y/Y, a widening gap, but not as bad as for some other manufacturing industries.
Construction spending for chemical manufacturing projects fell by 0.2% in April to a $30.5 billion annual pace. Chemical construction spending accounted for 41.3% of spending in the broader manufacturing sector. Compared to a year ago, spending was up 4.2%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
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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.