|Global CPRI||CAB||Payroll employment|
Running tab of macro indicators: 9 out of 20
All eyes were on today’s employment report and non-farm payrolls rose by 128,000 during October, down from an upwardly revised 180,000 gain in the prior month, but above expectations. The UAW strike played a role as strikers are classified as unemployed, and with 46,000 on strike and ripple effects across the supply chain, it’s likely that 75,000 jobs would be a good estimate of how much higher the gain in payrolls would have been in absence of the strike despite the reduction in workers for the Census. Notable job gains occurred in leisure and hospitality, social assistance, finance, and professional and business services. Manufacturing payrolls declined but was largely centered in motor vehicles. Average hourly wages at $23.70 per hour were up 3.6% Y/Y, a solid comparison and supporting income gains necessary for consumer spending. The unemployment rate edged slightly higher to 3.6% and labor force participation improved.
The preliminary data for the economy indicate that real GDP grew at a 1.9% annual pace in the 3rd quarter. This is off slightly from the 2.0% pace in the 2nd quarter but came in better than expected. As evidenced by the strong gain in consumer spending, the household sector is doing fine. It is the corporate sector where the weakness was manifested, with business investment falling for the second quarter and some inventory accumulation.
Consumer confidence decreased marginally — down 0.4 points to 125.9 (1985=100) — in October following a decline in September. Consumers’ assessment of current situation actually improved and it was their assessment of future prospects (jobs and business conditions) that was weak. Confidence is still at elevated levels so Christmas holiday spending unlikely to be curtailed. Plans to purchase homes gained while plans to purchase new autos and appliances eased.
Personal income rose 0.3% in September, a gain in line with expectations but slowing from the 0.5% gain in August. Wages and salaries were flat, as the UAW strike had an effect, but were offset by strong gains in receipts on assets. Led by additional strong spending for durable goods, consumer spending rose 0.2% in September, also largely in line with expectations and same as the August gain. The savings rate improved to 8.3%. Prices excluding food and energy were essentially stable in September, and up 1.7% Y/Y, well within the Fed’s target for this inflation measure.
Construction spending rose by 0.5% in September, following a 0.3% decline in August. Spending on private single-family residential structures rose more than offsetting a decline in spending on multifamily projects. Private nonresidential continued to slide for a third month, however, spending on manufacturing structures gained. Spending on publically funded projects posted a strong gain. Compared to a year ago, however, construction spending was off 2.0% Y/Y.
After conflicting signs from the Chicago PMI and the Dallas Fed Manufacturing Survey, today’s ISM PMI report indicated that manufacturing was still contracting although there was a 0.5 upward movement in the index to 48.3, suggesting slower contraction. New orders, production employment, and inventories were all in contraction but these sub-components gained as well, also suggesting slower contraction. The contraction in order backlogs worsened. Global trade remains a significant inter-industry issue and only five of the 18 industries reported expansion.
Signaling a pronounced slowdown in U.S. commerce through Q2 2020, the ACC Chemical Activity Barometer (CAB) fell 0.4% in October on a three-month moving average (3MMA) basis following stable activity during the third quarter. On a year-over-year (Y/Y) basis, the barometer was off 0.5% (3MMA). The unadjusted measure of the CAB for October showed a 0.7% decline. The diffusion index fell to 47% in October – the first time since May 2016 that it was below 50%. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for September was revised downward by 0.44 points and that for August by 0.25 points. 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 in October were mixed. Trends in construction-related resins, pigments and related performance chemistry were slightly positive and suggest slow gains in housing activity. Plastic resins used in packaging and for consumer and institutional applications were mixed, suggesting headwinds for the consumer. Performance chemistry eased, reflecting the global manufacturing slowdown. U.S. exports were mixed, equity prices slumped and product and input prices fell. Inventory and other indicators were positive.
The oil and gas rig count fell by 21 to 829 rigs. Crude oil inventories grew during the past week. After years of rapidly expanding production, the low natural gas prices this summer are resulting in reduced drilling activity, and combined with recent cold weather across much of the nation, natural gas prices rose during the past week. With a larger-than-expected gain in natural gas inventories (to 3,695 BCF), prices eased yesterday as it became apparent we are in a better position this year for the start of the heating season.
For the business of chemistry, the indicators 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 5.1% to 30,118 railcars during the week ending 26 October (week 43). Loadings were down 5.0% Y/Y, down 0.1% 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 0.4% a Y/Y basis.
The U.S. Geological Survey reported that monthly production of soda ash in August was 926,000 tons, down 4.7% compared to the previous month and down 0.4% Y/Y. Stocks fell 7.2% over July to 232,000 tons at the end of the month, an 8-day supply. Ending stocks were down 20.8% Y/Y.
Chemical industry employment (including pharmaceuticals) rose by 800 to 861,000 in October. Production and non-supervisory workers rose by 900, which offset a small decline in the number of supervisory workers. Hours worked edged higher, but with a higher number of workers, hours worked rose and, allowing for productivity gains, it’s likely that productive activity gained, in contrast to the ISM report. Average hourly wages rose 1.9% Y/Y to $25.74 per hour in October. Overall employment was up by 18,100 jobs (2.1% Y/Y) since last year.
Construction spending for chemical manufacturing projects rose by 2.8% in September to a $30.3 billion annual pace. Chemical construction spending accounted for 41.9% of spending in the broader manufacturing sector. Compared to a year ago, spending was down 2.2%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
The details in the ISM PMI report indicate that the chemical industry was one of the contracting industries. New orders, production, inventories, export orders, and imports all declined. That said, customer inventories were deemed too low. One chemical industry respondent noted: “The chemical manufacturing industry is depressed; demand across many markets globally is down, and pricing is as a result” and respondent in plastics and rubber products noted: “Business for thermoplastic resins is very strong, but margins continue to be under pressure due to tariffs and global economy uncertainty.”
The benchmark S&P 500 index rose by 4.4% in October. Chemical equity prices, as measured by the S&P index for chemical companies also rose (by 3.6%). 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 ahead 13.2% while the S&P 500 index was up by 21.2% year-to-date.
The American Chemistry Council’s Global Chemical Production Regional Index (Global CPRI) shows that global chemicals production fell by 0.5% in September, accelerating from the 0.3% decline in August. During September, chemical production increased in North America, Latin America, and Africa & the Middle East. Production fell elsewhere. Headline global production was up only 1.3% year-over-year (Y/Y) on a 3MMA basis and stood at 117.5% of its average 2012 levels.
During September, global capacity rose by 0.2% and was up 3.5% Y/Y. As a result, capacity utilization in the global chemical industry fell 0.6 points to 81.9%. This is down from 83.8% last September and below the long-term (1987-2017) average of 86.4%.
Among chemical industry segments September results were mixed with consumer products and manufactured fibers showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in synthetic rubber, followed by manufactured fibers, plastic resins, other specialties, and coatings.
ACC’s Global CPRI measures the production volume of the chemical industry for 33 key nations, sub-regions, and regions, all aggregated to the world total. This monthly update and the data are available for ACC members on MemberExchange or by email distribution
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“Semiconductor Industry Perspectives and Cabot Microelectronics’ Role”
David Li -President and CEO, Cabot Microelectronics
Société de Chimie Industrielle
20 November 2019
The Yale Club
New York, NY
7th ICIS US Butadiene and Derivatives Conference
11 December 2019
Park Central Hotel
New York, NY
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.