|Retail Sales||Chemical Production||SCI|
Running tab of macro indicators: 15 out of 20
Retail sales fell 0.5% in February, with weaker sales across most sectors. The reading was worse than expected with the largest declines in gas station sales (from lower gasoline prices); motor vehicles & parts; electronics & appliances; and building materials & garden centers. Compared to a year ago, retail sales were up 4.3% Y/Y.
Existing home sales jumped in February, by 6.5%, to the strongest level since April 2007. Inventories were up 5.0% from January, but were 9.8% below year ago levels. Low inventories have constrained existing home sales in recent months. Inventories now represent a 3.1-month supply, the same as January, but below the 3.6-month supply a year ago. Compared to a year ago, existing home sales were up 7.2% Y/Y. The median sales price was up 8.0% Y/Y to $270,100.
Headline housing starts edged lower in February, off 1.5% from an upwardly revised January figure. Single-family starts, however, rose 6.7% while multifamily starts fell. Regionally, starts were stronger in the South and Midwest and weaker in the Northeast and West. Forward-looking building permits also fell, by 5.5%, again with a decline in multifamily offsetting a gain in single-family permits. Compared to a year ago, housing starts were up 39.2% Y/Y and housing starts were up 13.8% Y/Y.
Business inventories eased 0.1% to $2,035.3 billion at the end of January, a level up 1.1% Y/Y. During January, the combined value of distributive trade sales and manufacturers’ shipments rose 0.6% to $1,471.2 billion, a level up 2.1% Y/Y. This pushed the inventory-to-sales ratio down slightly to 1.39. The January 2019 ratio was 1.40. Going into the pandemic, the supply chain was in fairly good shape.
Despite initial significant supply chain disruptions in China, industrial production rose 0.6% in February. A decline in mining output was offset by a large gain in utility output and a very modest increase in manufacturing production. Within manufacturing, the largest gains were in motor vehicles, fabricated metal products, electrical equipment, and electronics. There were declines in aerospace, textiles, machinery, refining and chemicals. Compared to a year ago, overall industrial production was flat while manufacturing output was off 0.4% Y/Y. Capacity utilization rose 0.4 points to 77.0% in February which was lower than the 78.5% rate a year ago. Industrial capacity was 2.0% Y/Y higher than in February 2019.
The headline general business conditions index in the Empire State Manufacturing Survey fell 34.4 points to -21.5 this month, its lowest level since 2009 and with widespread weakness among the components. The new orders index dropped to -9.3, pointing to a decline in orders, and the shipments index fell to -1.7. Delivery times lengthened slightly, and inventories increased. Employment levelled off, and the average workweek declined. Optimism about the six-month outlook fell sharply (by 21.7 points), with firms less optimistic than they have been since 2009. The Philadelphia Fed’s Manufacturing Business Outlook Survey signaled a significant weakening in regional manufacturing activity this month. The survey’s current indicators for general activity fell 49.4 points to -12.7, a contracting level. The measures for new orders, and shipments fell precipitously this month, coinciding with developments related to the coronavirus pandemic. The firms reported a slight overall increase in employment, however, and a near-steady workweek. The broadest indicator of future activity weakened by 10.2 points to +35.2 but firms still expect overall growth in new orders, shipments, and employment over the next six months.
The Conference Board’s index of leading economic indicators (LEI) edged up 0.1% in February (in line with expectations) to 112.1 (2016 = 100), and follows a 0.7% increase in January, and a 0.3% decline in December. The slight gain in February came only from four of the 10 LEI components. The report doesn’t reflect the effects of the coronavirus pandemic which began to hit the U.S. economy in full in early March. Next week, our Chemical Activity Barometer (CAB) will provide an early (and provisional) look at March. The current month’s data are based on limited high-frequency data and the full month’s data available for February that month’s reading was revised down significantly.
The oil and gas rig count fell by one to 790 rigs. Crude oil inventories rose for the eighth week but less than expectations. Amid weak global demand and higher production in Russia and Saudi Arabia, oil prices slumped to an 18-year low earlier in the week, but rebounded recently. With mild weather across much of the nation, natural gas inventories were drawn down by only 9 BCF, a fraction of the typical 71 BCF for this week.
For the business of chemistry, the indicators bring to mind a yellow 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 407 to 33,012 railcars during the week ending 14 March (week 11). Loadings were up 3.6% Y/Y, up 2.9% YTD/YTD and have been on the rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was up 1.8% compared to last year, the highest it has been since February of last year.
The Chlorine Institute (CI) reported that production of chlorine was 33,125 in February, down 4.7% over the previous month; YTD production was up 0.2% Y/Y. The output of co-produced caustic soda fell 5.2% to 35,391; YTD production was up 4.3% Y/Y.
Chemical industry production fell 1.3% in February and follows a 0.6% gain in January and left production off 2.3% Y/Y. February weakness occurred in bulk petrochemicals and organics, plastic resins, synthetic rubber, manufactured fibers, other specialties, and consumer chemistry. Some strength was found in inorganic chemicals, coatings, and agricultural chemicals. The decline in output pushed chemical industry capacity utilization down 1.2 points to 81.3%.
With the first effects of the coronavirus showing up in the U.S. economy, U.S. specialty chemicals market volumes declined, with a 0.5% headline decline in February offsetting a 0.5% gain in January. Of the 28 specialty chemical segments we monitor, 17 expanded in February, the same as in January. Ten markets declined in February and one was flat. During February, large market volume gains (1.0% and over) occurred in antioxidants, foundry chemicals, printing ink, rubber processing chemicals, and water management chemicals. On a sequential (one-month change) basis, diffusion was 63%, the same as in January.
During February, the overall specialty chemicals volume index was up 0.6% on a year-over-year (Y/Y) 3MMA basis. Year-earlier comparisons eased since 3rd quarter 2018 and were negative through December. The index stood at 113.2% of its average 2012 levels in February. This is equivalent to 7.71 billion pounds (3.50 million metric tons). On a Y/Y basis, there were gains in 14 market and functional specialty chemical segments. Compared to last year, volumes were down in 13 segments and one was flat compared to a year ago. On a year-earlier basis, diffusion was 52%, an improving comparison.
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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.