|Housing Starts||US CPRI||Specialty Chemical Market Volumes|
Running tab of macro indicators: 16 out of 20
The number of new jobless claims fell by 34,000 to 444,000 during the week ending 15 May, the lowest level since before the national emergency declared for the COVID-19 pandemic. Continuing claims rose by 111,000 to 3.751 million and the unemployment rate for the week ending 8 May rose 0.1 points to 2.7%.
With many construction materials in tight supply and a shortage of workers, the momentum in the homebuilding fell back in April with housing starts off 9.5%, well below expectations. The decline was especially pronounced in new family construction which fell 13.4%. The largest declines were in the Midwest and South. Compared to a year ago (at the nadir of the pandemic lockdowns), starts were ahead by 67.3%. Forward-looking building permits edged higher by 0.3% with declines in single-family offset by gains in permits for large multi-family projects. Builder confidence (NAHB/ Wells Fargo) held stable in May, despite growing concerns over the price and availability of most building materials, including lumber.
The NAHB/Wells Fargo Housing Market Index (HMI) at 83 in May shows that builder confidence in the market for newly built single-family homes is unchanged from April and remains strong due to a lack of inventory, low mortgage interest rates, and favorable demographics. Scarce material availability and cost hikes were a major concern as was labor availability.
Reflecting continued tight inventories, existing home sales fell for a third month in April, down 2.7% compared to March. Expectations were for a gain. Compared to last year (during the height of the lockdowns), sales were up 33.9%. Compared to March, inventories of unsold homes were up at the end of April, but down 20% compared to a year ago. At the current sales rate, that represents a 2.4-month supply, higher than the 2.1-month supply in March, but still historically low. Reflecting the tight market, 88% of homes sold in April had been on the market for less than a month. Compared to a year ago, the median sales price was up 19.1%.
In its latest Empire State Manufacturing Survey, the New York Fed reported that the headline general business conditions index eased 2.0 points to 24.3, a reading showing manufacturing activity continued to grow at a solid pace. New orders and shipments continued to expand strongly, and unfilled orders increased. Delivery times lengthened significantly, and inventories moved somewhat higher. Employment levels grew modestly, and the average workweek increased. Looking ahead, firms remained optimistic that conditions would improve over the next six months and expected significant increases in employment and prices. The Philly Fed reported in its Manufacturing Business Outlook Survey that manufacturing activity in the region continued to grow, with the headline current index for general activity easing 18.7 points to +31.5, still a very solid level. The easing was led by orders and shipments but readings but remained elevated. Additionally, employment increases were less widespread this month, while both price indexes reached long-term highs. Most future indexes moderated this month but continue to indicate that the firms expect growth over the next six months.
The Conference Board reported that its index of leading economic indicators (LEI) increased by 1.6% in April to 113.3 (2016 = 100), above pre-pandemic levels and a new high. This follows a 1.3% increase in March and a 0.1% decline in February. Eight of the 10 indicators that make up the LEI expanded in April. The LEI suggests the economy’s upward trend should continue and growth may even accelerate in the near term. The Conference Board now forecasts real GDP growing 6.4% in 2021. Our CAB leading indicator will provide insight into May’s readings and will be released on Tuesday.
SURVEY OF ECONOMIC FORECASTERS
The rig count rose by five to 452 rigs during the week ending 15 May. The prospect of sanctions relief for Iran weighed on oil markets this week.
For the business of chemistry, the indicators still bring to mind a green 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 3.4% to 33,694 railcars the week ending 15 May (week 19). Loadings were up 18.7% Y/Y, up 2.1% YTD/YTD and the 13-week moving average, which is used to smooth out volatility, was up 1.3%.
The Chlorine Institute (CI) reported that production of chlorine was 31,324 in April, up 12.3% over the previous month; YTD production was down 11.6% Y/Y. The output of co-produced caustic soda rose to 33,116, up 14.0% over March and YTD production was down 12.5% Y/Y.
The U.S. Chemical Production Regional Index (U.S. CPRI), which is measured as a three-month moving average (3MMA), fell by 1.7% in April following a 3.7% decline in March and a 4.6% fall in February. During April, chemical output fell in all regions as capacity restoration and related supply disruptions continued. Compared with April 2020, production remained off by 6.8%, the twenty-third consecutive month of Y/Y declines, reflecting the lingering impact of February’s freeze damage. Chemical production was lower than a year ago in all regions.
Chemical production (3MMA) was mixed in April with an improving trend in the production of adhesives, coatings, fertilizers, crop protection chemicals and miscellaneous inorganic chemicals. These gains were offset, however, by continued weakness in organic chemicals, plastic resins industrial gases, chlor-alkali, synthetic dyes & pigments, other specialty chemicals and consumer products.
As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. Following a small increase in March, manufacturing output edged lower in April, by 0.2%. The 3MMA trend in manufacturing production was mixed with gains in the output of aerospace, machinery, fabricated metal products, computers & electronics, semiconductors, refining, iron & steel products, foundries, rubber products, paper, and printing.
The recovery from the February winter storms continues. U.S. specialty chemicals market volumes rose 0.8% in April, but activity is still off from the start of the year. Of the 28 specialty chemical segments we monitor, 14 expanded in April, off from 22 in March, but better than only three in February. Eleven segments fell back in April. Thus, on a sequential (one-month change) basis, diffusion was 55%, off from 80% in March but up from 11% in February. During April three segments—catalysts, industrial & institutional cleaners, and plastics compounding—featured gains of 1.0% or more.
During April, overall specialty chemicals volumes were up 13.3% Y/Y from the depressed levels of last year when lockdowns were widespread. Readers should note that there are base level effects at play, hence the high Y/Y comparisons. Rubber processing chemicals were adversely affected by April 2020 shutdowns in tire manufacturing. Volumes stood at 107.1% of their average 2012 levels in April. This is equivalent to 7.31 billion pounds (3.32 million metric tons). On a year-earlier basis, there were gains in 27 chemical segments.
Chemistry: A Numismatic Journey Many of you may know Robert Bauman, a long-time consultant to the chemical and plastics industries. Taking advantage of his international travels, he collected paper money as a hobby for the past five decades. During his years of collecting, he discovered that many chemical companies and, to a lesser extent, petroleum companies issued their own coins, currency, and related items. He built quite a large collection which he recently donated to the Science History Institute (formerly the Chemical Heritage Foundation) in Philadelphia. The collection can be accessed at their website (www.sciencehistory.org). Once on the website, scroll down on Research to Othmer Library. Type Bauman in the box, and then click on Search. On the Robert J Bauman collection, click on Digital Image, and the collection with explanatory text will appear. It can be downloaded via the download icon. Bob, thank you for your generosity.
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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.