|Specialty Chemical Volumes||U.S. CPRI||Leading Economic Indicator|
Running tab of macro indicators: 1 out of 20
The number of new jobless claims fell to 2.98 million in the week ending 16 May, the seventh week of falling claims. Some 38.4 million people have filed for unemployment since mid-March but keep in mind that more than one-third have since found new jobs, been called back, etc. and continuing claims are 25.1 million. This suggests an insured unemployment rate of 17.2% for the week.
With lockdowns keeping potential buyers and sellers on the sidelines, existing home sales fell 17.8% to 4.33 million units in April, the slowest pace in nearly a decade. The data represent closings that were largely transacted during February and March, meaning that further declines are likely. The inventory of unsold homes continued to fall, pushing prices up 7.4% Y/Y to a new record high of $286,800. Record-low mortgage rates will provide some support to home sales, but the severe disruptions to the labor market and confidence may hold consumers back
Despite being designated an essential industry in many states, homebuilding activity collapsed in April. Housing starts fell 30.2% to an 891,000 pace, more than expected and the slowest pace in five years. Chemistry-intensive single family starts fell 25.4% with double digit declines across all regions. Forward-looking building permits similarly fell, down 20.8% for the month. Compared to a year ago, permits were down 19.2% Y/Y while housing starts were off by 29.7% Y/Y. Before Covid-19, housing was expected to be a bright spot on an otherwise lackluster outlook. Following a record decline in April, homebuilder confidence bounced back in May. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose by 7 points to 37. This suggests that while homebuilders remain pessimistic, they are less so compared to last month. Housing demand is expected to strengthen as stay-at-home orders are removed.
The Business Outlook Survey prepared by the Philadelphia Federal Reserve indicated that activity in the region’s manufacturing sector continued to be weak, with the measure of current activity at -43.1, a better reading than the -56.6 reading in April but still negative. Despite remaining well below zero, the survey’s current indicators for general activity, new orders, shipments, and employment rose this month after reaching long-term low readings in April. Firms surveyed expect the current slump in manufacturing activity to last less than six months, as the broadest indicator of future activity strengthened further from last month’s reading; furthermore, the firms continue to expect overall growth in new orders, shipments, and employment over the next six months.
The index of leading economic indicators (LEI) fell 4.4% in April and follows a 7.4% decline in March and a 0.2% decrease in February. The continued erosion in the index was broad-based (except for stock prices) and follows the largest decline in its 60-year history. The drop in the LEI does not suggest a fast rebound for the U.S. economy. That said, the diffusion index (% of components rising) improved from 10% to 40%. Next week, our CAB leading economic indicator will provide an early look at May.
SURVEY OF ECONOMIC FORECASTERS
The rig count continued to collapse during the week ending 15 May, falling by another 35 rigs to 337. For the second week, U.S. crude oil inventories declined, evidence that demand is picking up. Mobility and related high-frequency data confirm steadying demand. As a result, oil prices rose during the week, pushing up the oil-to-gas ratio, thus indicating renewed Gulf Coast competitiveness.
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 385 to 28,377 railcars during the week ending 16 May (week 20). Loadings were down 1.3% compared to the same week in 2019 and down 2.6% YTD/YTD. Loadings have been on the rise for 5 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 4.6% compared to last year, the third consecutive decline, and the largest negative comparison in more than a decade.
The Chlorine Institute (CI) reported that production of chlorine was 26,282 in February, down 24.0% over the previous month; YTD production was 8.3% Y/Y. The output of co-produced caustic soda rose to 27,709, down 24.6% over January and YTD production was down 6.8% Y/Y.
With the effects of the coronavirus pandemic and mandated government lockdowns further showing up in the U.S. economy, U.S. specialty chemicals market volumes fell 11.3% in April, accelerating from a 4.0% decline in March, and a 0.5% decline in February. As recently as January, activity improved. Of the 28 specialty chemical segments we monitor, none expanded in April. Thus, on a sequential (one-month change) basis diffusion was 0%, the same as in March, and off from 48% in February and 63% in January.
During April, overall specialty chemicals volumes were off 14.5% on a year-over-year (Y/Y) basis. Volumes stood at 95.6% of their average 2012 levels in April. This is equivalent to 6.51 billion pounds (2.95 million metric tons). On a Y/Y basis, there was a gain in only one market and functional specialty chemical segment – electronic chemicals. On a year-earlier basis, diffusion was 4%, much worse than earlier in the year.
The U.S. Chemical Production Regional Index (U.S. CPRI) tumbled by 3.1% in April following a 1.0% decline in March and a 0.4% decline in February. During April, chemical output declined across all regions, with the steepest decline in the Gulf Coast. The lower level of activity is directly related to supply chain disruptions and the lockdown of much of the U.S. economy during April. Compared with April 2019, U.S. chemical production was off by 5.3% on a 3MMA Y/Y basis, the eleventh and highest consecutive month of Y/Y declines. Chemical production was lower than a year ago in all regions, with the largest year ago declines in the Northeast, Mid-Atlantic, and West Coast regions.
Despite being designated an essential industry by the Department of Homeland Security production fell across all chemical segments. Within several major segments, however, production of some chemical materials was up including supply chains tied to PPE and disinfection products. As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. With many factories shut down during the month, however, overall manufacturing activity fell by 6.3% (on a 3MMA basis) with declines (in some cases quite steep) across all industry sectors.
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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.