|ISM Manufacturing PMI||Chemical Railcar Loadings (Y/Y)||Texas Manufacturing Outlook|
Running tab of macro indicators: 6 out of 20
In the week ending 25 April, initial claims for unemployment was 3.84 million, a decrease of 603,000 from the previous week’s revised level and a level slightly above expectations. Continuing claims reached 17.99 million, a record. Some 30 million American have filled for unemployment these last six weeks (equivalent to about 20% of nonfarm payrolls). The overall trend in new claims is easing since the record 6.62 million for the week ending 28 March.
The Conference Board reported that its measure of consumer confidence deteriorated further in April, following a sharp decline in March. The headline index fell 31.9 points and now stands at 86.9 (1985=100), down from 118.8 in March. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — declined considerably but the Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions — improved from 86.8 in March to 93.8 this month, possibly reflecting that stay-at-home restrictions will soon loosen. Weak consumer confidence was driven by a severe deterioration in current conditions, reflecting the sharp contraction in economic activity and surge in unemployment claims. Plans to purchase autos, appliances and homes all declined.
As the lockdowns spread through the latter part of March, consumer spending pulled back sharply. Total consumer spending fell by 7.5%, the steepest monthly decline on record. A gain in spending on nondurable goods (i.e., groceries) only partially offset steep declines in spending on durable goods and services. Reflecting massive layoffs, personal income also fell by 2.0%, with the wages and salaries component falling 3.1% and proprietor’s income (i.e., small business) falling 8.2%. Compared to a year ago, real consumer spending was off 5.0% Y/Y while real disposable income was slightly ahead by 0.1% Y/Y. Price indices for personal consumption expenditures eased in March. The headline PCE price index moved lower to a 1.3% Y/Y pace while the core PCE price index (ex. food & energy) eased to a 1.7% Y/Y pace. As the lockdowns were extended into April, layoffs accelerated, so it seems likely the data for April will show further sharp deterioration.
Considered an essential industry in many states, construction spending expanded in March, up 0.9%, after a decline in February. Spending on private residential and publically-funded projects increased, while spending on privately-funded nonresidential projects declined. Compared to a year ago, construction spending was up 4.7% Y/Y.
Real gross domestic product (GDP) decreased at an annual pace of 4.8% in the first quarter of 2020, slightly worse than expected and due to the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending. The decrease in reflected negative contributions from consumer spending, business investment, exports, and inventories that were partly offset by positive contributions from residential investment and government spending. GDP was up only 0.3% Y/Y.
The Dallas Fed’s latest Manufacturing Outlook Survey reported that business activity in Texas continued to plumb new depths in April. The general business conditions index fell another 3.7 points from its all-time low in March to -73.7. All subcomponents deteriorated, some at an accelerating rate, including production, new orders, shipments, and capital expenditures. Employment continued to contract, but at a slightly slower pace. Looking ahead six months, Texas manufacturers were increasingly less optimistic with the future business conditions index moving down by 2.6 to -42.1. In all, an ugly report. The Richmond Fed reported that Fifth District manufacturing activity declined sharply in April, with the composite index plummeting from +2 in March to −53 in April, its lowest reading and largest one-month drop on record. All three components — shipments, new orders, and employment – fell with shipments and new orders reaching record lows. Firms reported weakened local business conditions and expected conditions to remain soft in the next six months. Purchasing managers in the Midwest reported that the Chicago PMI (conducted by the ISM-Chicago and actually named the Business Barometer™) fell by 12.4 points to 35.4 in April, its lowest level since March 2009 as business confidence dipped sharply amid the current spread of COVID-19. Among the main five indicators, new orders and production registered the largest declines, while supplier deliveries surged.
The ISM PMI fell 7.6 points to a more contractionary 41.5 reading in April. Production, new orders (a leading indicator), and employment are all contracting at a faster pace as is the backlog of orders and exports. Raw material inventories and imports are contracting but at a slower pace. Customer inventories are still deemed too low. Supplier deliveries are slowing at a faster pace. Comments from the panel were strongly negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility. Of the 18 industries, only two reported growth.
Our CAB leading economic indicator for the U.S. business cyclefell 6.7% in April following an 8.9% decline in March and a 1.0% decline in February. The diffusion index slumped from 47% to 35% in April. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. Production-related indicators generally declined in April. Trends in construction-related resins, pigments and related performance chemistry were generally negative. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry was negative and U.S. exports were weak. Equity prices are improving. Product and input prices were negative. Inventory and other supply chain indicators were negative. This latest CAB reading is consistent with a recession as the declines of April and March are the most pronounced, pervasive and persistent in the post-World War II period.
The rig count continued to collapse during the week ending 24 April, down another 64 rigs to 463. Since the end of February, the rig count has fallen by 325 rigs (41.2%). The International Energy Agency (IEA) projected global energy demand will fall by 6% this year as a result of the coronavirus pandemic, a rate of decline seven times greater than after the 2008 financial crisis. Global oil demand is expected to fall by a record 9.3 million BPD year-on-year in 2020.
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 1,028 to 28,068 railcars during the week ending 25 April (week 17). Loadings were down 17.5% compared to the same week in 2019 and down 0.3% YTD/YTD, the first negative YTD comparison in 2020. Loadings have been on the rise for 5 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was down 1.0% compared to last year.
Looking at the details of the ISM PMI, the chemical industry was one that contracted. New orders, production, employment, inventories, order backlogs, and export orders all contracted. Supplier deliveries are slowing and customer inventories were deemed too low. One respondent noted, ““Production stopped, other than to make hand sanitizer for those in need.”
The U.S. Geological Survey reported that estimated monthly production of soda ash in February was 944 thousand tons, down 1.0% compared to the previous month and up 2.6% Y/Y. Stocks rose 11.3% over January to 306 thousand tons at the end of the month, a 9-day supply. Ending stocks were up 16.8% Y/Y.
Construction spending for chemical manufacturing projects rose by 1.4% in March to a $31.0 billion annual pace. Chemical construction spending accounted for 42.1% of spending in the broader manufacturing sector. Compared to a year ago, spending was up 3.6%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
After falling sharply in March, the benchmark S&P 500 Index rebounded by 12.7% in March. Chemical equity prices, as measured by the S&P, for chemical companies also recovered some lost ground (up 15.6% for the month). 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 17.1% while the S&P 500 Index was off 9.9% year-to-date.
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22 September 2020
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.