|CAB||Consumer Spending||Global Chemical Production|
Running tab of macro indicators: 1 out of 20
The much-anticipated report on consumer spending showed that–as expected–consumers sharply pulled back spending in April when much of the country was under stay-at-home orders. Consumer spending plunged by a record 13.6% with double-digit declines in spending on goods (both durable and non-durable) and services. At the same time, however, personal income (the ability to spend) surged by 10.5% as transfer payments, in the form of stimulus checks and unemployment insurance, nearly doubled. The savings rate rose sharply to 33.0% as income gains outpaced spending. The price index for personal consumption expenditures (PCE) fell for a second month on weak demand. Core prices also fell during April. Compared to a year ago, the headline and core PCE price indices were up 0.5% and 1.0%, respectively. As states have begun to reopen through May, signs of recovery are emerging.
The number of new jobless claims fell to 2.12 million in the week ending 23 May, the eighth week of falling claims and in line with expectations. Although some 40.5 million people have filed for unemployment since mid-March, nearly half have since found new jobs, been called back, etc. and continuing claims were 21.1 million, off 3.9 million from the prior week and the first decline since February. This suggests an insured unemployment rate of 14.5% for the week, a level off 2.6 points from the prior week. That said, some people (i.e., discouraged workers) have left the labor market.
Real gross domestic product (GDP) decreased at an annual rate of 5.0% in the 1st quarter, a downward revisions (by 0.2 points) from the prior estimate of a 4.8% annualized rate of decline. In the 4th quarter the economy grew at a 2.1% annual pace. This “second” estimate is based on more complete source data than were available for the “advance” estimate issued last month. With the second estimate, a much larger drawdown of inventories occurred and was partly offset by upward revisions to consumer spending and business investment
The Conference Board’s index of consumer confidence held fairly steady in May, following a sharp decline in April. The Index rose 0.9 points and now stands at 86.6 (1985=100). Consumers were less optimistic about current business and labor market conditions but, given the gradual re-opening of the economy, their short-term outlook improved. Plans to purchase appliances and new autos improved while plans for homes eased.
New home sales unexpectedly edged higher in April, up 0.6% following a 13.7% decline in March. Sales were up in all regions except the West. Compared to a year ago, new home sales were off 6.2%. Inventories of new homes fell 1.8% and the months’ supply fell slightly to 6.3 months. The momentum may be short-lived as unemployment and consumer sentiment have deteriorated.
In line with expectations, new orders for durable goods fell 17.2% in April, following a 16.6% decline in March. Except for communications equipment, orders for all major categories declined. New orders for nondefense capital goods, excluding aircraft (core orders) fell 5.8%. Core orders were off 7.3% Y/Y while headline orders were off 29.4% Y/Y.
The Dallas Fed in its Texas Manufacturing Outlook Survey reported that business activity declined again in May although at slower pace than in April. Production, new orders, shipments, and employment all remained negative but less so this month. Expectations were mixed and remained negative. In its Fifth District Survey of Manufacturing Activity, the Richmond Fed reported that business remained soft in May. The composite index rose 26 points from a record low of -53 in April to -27 in May, remaining at its lowest level since 2009. All three components—shipments, new orders and employment—were above their April readings but still in contractionary territory. The index for local business conditions was also negative, but contacts expected conditions to improve in the next six months. The Kansas City Fed reported that Tenth District Manufacturing Activity continued to decline, but not as sharply compared to last month’s record low. The composite index—an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes—improved by 11 points from -30 in April to -19 in May. Expectations for future activity rose in May, but remained slightly negative. 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 3.1 points to 32.3 in May, its lowest level since March 1982, as business confidence cooled further amid the coronavirus pandemic. Among the main five indicators, order backlogs and supplier deliveries saw the largest declines, while employment edged marginally higher.
Our CAB leading economic indicator fell 0.3% in May following a 6.3% drop in April and an 8.9% decline in March. The diffusion index fell from 35% to 29% in May as production declines became more widespread. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. Production-related indicators declined in May. Trends in construction-related resins, pigments and related performance chemistry were negative, as were resins used in appliances, light vehicles, machinery and other durable goods. 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 and product and input prices are firming. Inventory and other supply chain indicators were negative. The April CAB reading was revised upward by 0.37 points and the March reading was revised downward by 0.08 points. The May CAB reading is consistent with a recession, but given the small decline, one that may bottom out.
FED BEIGE BOOK
The Fed Beige Book is a compilation of anecdotal information about the state of the economy across the 12 Federal Reserve districts.
Economic activity declined in all Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic. Consumer spending fell further as mandated closures of retail establishments remained largely in place during most of the survey period. Declines were especially severe in the leisure and hospitality sector, with very little activity at travel and tourism businesses. Auto sales were substantially lower than a year ago, although several Districts noted recent improvement. A majority of Districts reported sharp drops in manufacturing activity, and production was notably weak in auto, aerospace and energy-related plants. Residential home sales plunged due in part to fewer new listings and to restrictions on home showings in many areas. Construction activity also fell as new projects failed to materialize in many Districts. Commercial real estate contacts mentioned that a large number of retail tenants had deferred or missed rent payments. Bankers reported strong demand for Payroll Protection Program (PPP) loans. Agricultural conditions worsened, with several Districts reporting reduced production capacity at meat processing plants due to closures and social distancing measures. Energy activity plummeted as firms announced oil well closures, which led to historically low levels of active drilling rigs. Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.
The rig count continued to collapse during the week ending 22 May, falling by another 21 rigs to 316. After falling for the first time in months the week before, crude oil inventories rebounded. A larger than typical build in natural gas inventories occurred amid mild May weather, which limited domestic demand and along with lackluster demand abroad reducing exports and the flow from oil wells which hasn’t declined by as much as expected, natural gas prices have been soft lately. Oil prices have moved up slightly from last week.
Of note, EIA reported that in 2019, energy generation from renewables exceeded energy from coal for the first time since 1885.
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, rose slightly (by 154) to 28,531 railcars during the week ending 23 May (week 21), but Y/Y comparisons continue to decline. Loadings were down 14.4% compared to the same week in 2019 and down 3.0% 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 6.3% compared to last year.
Excerpts from the Fed Beige Book regarding chemicals
With stabilizing activity in China partially offsetting widespread weakness due to the COVID-19 coronavirus, the ACC’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production fell 1.3% in April, an improvement from the 3.3% decline in March, and a 2.1% decline in February; the last monthly gain was in December. During April, chemical production decreased in every major region. Headline global production was off 5.8% Y/Y on a 3MMA basis and stood at 110.2% of its average 2012 levels.
During April, global capacity rose by 0.2% and was up 3.3% Y/Y. As a result, with the decline in production, capacity utilization in the global chemical industry fell 1.2 points to 75.6%. This is down from 82.8% last April, below the long-term (1987-2017) average of 86.5%, and at its lowest level since April 2009.
Among chemical industry segments, April results were negative across most segments with some gains in plastic resins, synthetic rubber, and manufactured fibers (primarily in China) providing some support. Considering year-earlier comparisons, growth was found only in synthetic rubber.
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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.