|Non-Farm Payrolls||Light Vehicle Sales||Global CPRI|
Running tab of macro indicators: 15 out of 20
Non-farm payrolls rose by 273,000 in February, well above expectations and continuing a string of solid gains. Notable job gains occurred in health care, food services, government, construction, business services, and finance. Manufacturing also posted a gain in payrolls. Average hourly wages of $23.96 for non-supervisory production workers were up 3.3% Y/Y, a solid gain. With stable labor participation, the unemployment rate eased slightly to 3.5%. The unemployment rate has been either 3.5% or 3.6% for the past six months.
Light vehicle sales eased to a 16.83 million unit pace in February, but were up from a year earlier. With the exception of foreign light-duty trucks, sales eased across vehicles types. Despite coronavirus angst, sales held up fairly well and were supported by rising incomes, job gains, and low interest rates.
The U.S. goods and services trade deficit fell $3.3 billion (or 6.7%) in January to $45.3 billion as imports (down 1.6%) fell faster than exports (down 0.4%). The goods deficit deepened by $0.9 billion to $68.4 billion in January as goods exports fell $6.9 billion (5%) and imports fell $6.0 billion (3%). Goods exports rose in auto and auto parts but were down in capital goods, industrial supplies and materials. Goods imports were down in industrial supplies and materials and other goods. The U.S. trade deficit with China decreased as U.S. imports from China fell faster than the decline in exports to China.
Construction spending rose by a better-than-expected 1.8% in January. Spending rose along all three major segments, with the largest gain in publicly-funded projects. Compared to a year ago, overall construction spending was up 6.8%, the best annual comparison in nearly three years.
Following a 1.9% gain in December, factory orders fell by 0.5% in January. Large gains in orders for primary metals, machinery, electronic components, motor vehicles, and civilian aircraft were offset by lower orders for defense equipment, appliances, other electrical equipment, furniture, and nondurable goods. As reported last week, orders for core capital equipment rose 1.1%. Orders for construction materials was also higher. Manufacturing shipments fell 0.5%, reversing December’s gain. Inventories edged lower by 0.1% following a small gain in December. The inventories-to-shipments ratio remained stable at 1.40 which was up from 1.36 a year ago. Compared to January 2019, inventories were up 2.3% while shipments were ahead by only 0.1% Y/Y. The gap persists, but has narrowed in recent months.
Wholesale trade rose 1.6% to $504.6 billion in January, a level up 2.2% Y/Y. Gains were across the board with the only weakness in farm products, chemicals and alcohol. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, fell 0.4% to $671.6 billion at the end of January, a level up 0.4% Y/Y. As a result, the inventory-to-sales ratio fell 3 points to 1.33.
Global semiconductor sales fell 2.2% to $35.4 billion in January, a level off 0.3% Y/Y. Sales increased in Europe but declined elsewhere. Compared to a year ago, sales were up in China and the Americas but down elsewhere. The global market faces significant headwinds, including the COVID-19 outbreak.
The ISM PMI fell a larger-than-expected 0.8 points to 50.1 in February, a level at stalling speed. Of the 18 manufacturing industries covered, 14 reported growth. Looking at the details, production gained, but new orders and employment measures contracted. Supplier deliveries are lengthening at a faster pace, but order backlogs are growing. Raw material inventories are contracting and customer inventories are deemed too low. Prices are decreasing while exports increased and imports decreased. Comments from respondents centered on the theme of COVID-19 affecting supply chains and provide insight into these weak numbers.
With the effects of coronavirus shutdowns in China and beyond, the JPMorgan Global Manufacturing PMI fell sharply by 3.2 points to 47.2. The fallout from China and its trading partners weighed heavily on the global reading. China’s PMI fell to 40.2, the lowest level on record. Trade volumes weakened considerably and average vendor lead times lengthened to their highest level in almost nine years. There was significant deterioration in output, new orders, new export orders and employment. The decline suggests a contraction in global industrial production of around 5% (on an annual basis).
The ISM NMI rose 1.8% to 57.3, indicating that the nonmanufacturing segment of the U.S. economy expanded at a faster pace in February. Sixteen of the 18 industries covered reported growth. The impact of coronavirus was only starting to be felt with respondents in construction noting that lead times had lengthened for some materials. One respondent from the health care sector noted back orders for masks and gloves that are manufactured in China.
The oil and gas rig count rose by one to 789 rigs. The 109 BCF draw on natural gas inventories last week was a little larger than the typical draw for the week, but the mild winter weather in much of the nation this week suggests a moderated draw on stocks. Natural gas prices remain low and crude oil prices have declined in wake of falling demand, the result of COVID-19. In response, OPEC members initially agreed to a cut in output but this fell apart this morning.
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, rose by 637 to 33,921 railcars during the week ending 29 February (week 9). Loadings were up 1.2% Y/Y, up 2.4% YTD/YTD and have been on the rise for 7 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was up 0.6% compared to last year, the first positive Y/Y comparison since November 2019.
With last week’s coronavirus-induced turmoil in equity markets, the benchmark S&P 500 index fell by 8.4% in February. Chemical equity prices, as measured by the S&P index for chemical companies also tumbled, by 8.5%. 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 down 14.8% while the S&P 500 index was off by 8.6% year-to-date.
The ISM report indicated that the chemical industry expanded. New orders gained, as did employment. Slower supplier deliveries were noted. Production was fairly stable as inventories, order backlogs, imports, and exports declined. One chemical industry respondent noted, “January started out strong, but the effects of the virus in China [and] the continued grounding of the 737 Max have suppressed new orders. We are still expected to be flat to slightly up [year-over-year] for 2020 sales, based on those issues.”
Chemical industry employment (including pharmaceuticals) rose by 2,000 (0.2%) to 850,900 in February, a level off from last year. The gain was entirely in non-production workers. Hours worked eased and average hourly wages of $25.57 per hour were up 0.4% Y/Y.
According to the ACC Plastics Industry Producers’ Statistics Group, U.S. production of major plastic resins totaled 7.9 billion pounds during January, up 5.4% Y/Y. Sales and captive (internal) use of major plastic resins totaled 7.8 billion pounds, a 6.3% Y/Y increase.
Following a 0.8% gain in December, chemical shipments were essentially flat in January. As the same time, inventories fell by 0.5% following a similar decline in December. As a result, the inventories-to-shipments ratio eased to 1.19 months’ supply which was off from 1.22 a year ago. Compared to January 2019, inventories were off 1.8% Y/Y while shipments were off by 0.4% Y/Y. The gap persists.
Wholesale trade in chemicals fell 2.2% to $11.04 billion in January, a level off 1.1% Y/Y. Inventories fell 2.3% to $12.05 billion at the end of January, a level off 7.5% Y/Y. As a result, the inventory-to-sales ratio was stable at 1.09.
Chemical industry construction spending rose by 1.0% to $33.0 billion and accounted for 43.2% of overall manufacturing sector construction. Compared to a year ago, chemical industry construction spending was up 8.1%.
Led by a large decline in China due to COVID-19, ACC’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production fell by 1.0% in January, a reversal of the gains in November and December. During January, chemical production increased in Latin America, the Former Soviet Union (FSU), and Africa & the Middle East. Production fell in North America, Europe, and Asia-Pacific. Headline global production was up only 0.9% Y/Y on a 3MMA basis and stood at 117.6% of its average 2012 levels.
During January, global capacity rose by 0.3% and was up 3.4% Y/Y. As a result, capacity utilization in the global chemical industry fell 1.1 points to 81.3%. This is down from 83.2% last January and below the long-term (1987-2017) average of 86.5%.
Among chemical industry segments, January results were mixed with bulk petrochemicals & organics, plastic resins, synthetic rubber, and manufactured fibers showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in manufactured fibers, followed by synthetic rubber, plastic resins, coatings, and bulk petrochemicals & organics.
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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.