|Chemical Wholesale Sales||ISM Manufacturing PMI||Chemical Shipment|
Running tab of macro indicators: 14 out of 20
The number of new jobless claims fell by 7,000 to 751,000 during the week ending 31 October. Continuing claims fell by 538,000 to 7.285 million and the unemployment rate for the week decreased 0.3 percentage points to 5.0%.
Total nonfarm payroll employment rose by a better-than-expected 638,000 in October and follows a 672,000 job gain in September. Notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction; employment in government declined. Average hourly wages for production and non-supervisory workers rose five cents to $24.82 per hour, a level up 4.4% Y/Y. The unemployment rate declined 1.0 percentage points to 6.9% in October. This continues a trend of improvement but the number of long-term unemployed (those jobless for 27 weeks or more) increased by 1.2 million to 3.6 million, and now account for 32.5% of the total unemployed. The labor force participation rate increased by 0.3 percentage points to 61.7% but is still 1.7 percentage points below the February levels.
Light vehicle sales eased slightly, from a 16.29 million unit pace in September to a 16.21 million unit pace in October. Gains in automobiles were offset by weaker sales in light truck categories. This is still a level that was considered good pre-coronavirus. The pace of recovery in jobs and incomes will determine progress in this sector.
Construction spending rose for a fourth month in September, edging higher by 0.3%. Gains in privately-funded residential projects offset declines in non-residential and publicly-funded construction. Compared to a year ago, overall construction spending was up 1.5%.
The U.S. trade deficit in goods and services narrowed by 4.7% to $63.9 billion in September as exports grew faster than imports over the month. Exports were up 2.6% and imports were up 0.5% in September. Trade flows have strengthened since April-May lows but are off from levels at the beginning of 2020. Growth has been driven by recovery in goods trade. The gain in September goods exports reflects strength in soybeans and capital goods. A pickup in imported passenger cars partially offset declines in imported industrial supplies and materials and cell phones and other household goods.
Wholesale trade edged higher in September, by 0.1%, a third consecutive gain. Large gains in sales of lumber, vehicles & automotive parts, furniture, chemicals, apparel and paper were offset by declines in petroleum products, alcoholic beverages, computer equipment, and electrical equipment. Inventories continued to rise, up 0.4% in September, with the largest gains in farm products, lumber, and pharmaceuticals. Compared to a year ago, wholesale inventories were off 3.9% while sales were off 2.3% Y/Y. At 1.31, the inventories-to-sales ratio remained steady compared to August, but was down from 1.33 a year ago.
In line with expectations, factory orders rose for a fifth straight month, by 1.1%, in September. Results were mixed, however: the largest gains were in computers, iron & steel, power generating and transmission equipment, and civilian aircraft. Unfilled orders, a measure of the manufacturing pipeline, eased another 0.2%. Factory shipments, however, continued to expand, up 0.3%, with gains in construction materials & supplies, IT, motor vehicles, and consumer goods. Inventories were flat for a second straight month with declines in consumer goods, motor vehicles, and computers offsetting gains in other categories. The inventories-to-shipments ratio ticked lower from 1.43 in August to 1.42 in September. This is slightly higher than the ratio of 1.39 in September 2019. Compared to a year ago, headline factory orders remained down, off 2.6%.
The ISM Non-Manufacturing report indicated that the non-manufacturing sector grew for the fifth month in a row during October. The headline NMI eased 1.2 points to 56.6, still a healthy pace. Business activity/production, new orders, and employment all expanded. Inventories expanded while order backlogs grew at a faster pace. Sixteen of 18 industries expanded. The ISM PMI report indicated the manufacturing sector grew in October, with the headline PMI rising 3.9 points to 59.3. A large 7.7 point gain occurred in new orders (to 67.9) and production and employment grew as well. Supplier deliveries slowed at a faster pace and the order backlog grew. Raw material inventories grew and customer inventories are deemed too low. Prices are increasing and exports and imports are growing. Fifteen of 18 industries expanded. The JPMorgan Global PMI rose 0.6 points to 53.0 in October, a 29-month high. Global manufacturing output rose at the fastest pace in over 2-1/2 years, building on the return to growth seen during the 3rd quarter. New order intakes strengthened, assisted by a further upturn in international trade, while business optimism rose to its highest level since May 2018. Growth occurred across most nations and regions.
Global semiconductor sales rose 4.5% to $37.9 billion during September, a level up 5.8% Y/Y. Regionally, sales increased on a M/M basis in China (7.9%), Asia Pacific/All Other (3.3%), Europe (3.3%), the Americas (2.2%), and Japan (1.5%). On a Y/Y basis, sales increased in the Americas (20.1%), China (6.5%), and Asia Pacific/All Other (2.9%), but decreased in Japan (-1.8% Y/Y) and Europe (-9.8% Y/Y).
The rig count rose by nine to 293 rigs during the week ending 30 October. As colder weather has emerged, natural gas inventories posted their first withdrawal of the heating season, down 36 BCF. With uncertainty surrounding the U.S. election, oil prices rose compared to last Thursday. Natural gas prices eased with warmer weather moving in across the country.
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 1.3% to 30,535 railcars the week ending 31 October (week 44). Loadings were down 3.8% Y/Y, and down 4.8% on a YTD basis compared to 2019. Loadings have been on the rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 4.2%.
The U.S. Geological Survey estimated that monthly production of soda ash in August was 816 thousand tons, up 13.6% compared to the previous month and down 11.9% Y/Y. Stocks rose 33.9% over July to 320 thousand tons at the end of the month, a 12-day supply. Ending stocks were up 39.7% Y/Y.
The details in the ISM PMI report indicate that the chemical industry registered a strong gain in October. New orders expanded, as did production, employment, inventories, order backlog, exports, and imports; supplier deliveries slowed. Customer inventories were deemed too low. One industry respondent noted, “Business continues to be robust. Sales are greater than expectations, and cost pressures are modest. There is posturing by suppliers on market price increases for corrugated and polypropylene, yet no firm price increases at this time. We expect a strong finish to 2020 and a solid start in 2021.”
Chemical industry (including pharma) employment was essentially flat, down by 100 (0.2%) in October, following a 2,000 decline in September. The industry is still off by 13,300 jobs compared to pre-Covid levels. Compared to last year, employment remained lower by 15,300 (1.8%). In October, a 0.1% gain in production workers was largely offset by a decline in supervisory and non-production workers. Average wages were up 0.6% Y/Y to $26.00. The average workweek rose to 41.4 hours, the third monthly gain. Combined with the gain in the number of workers, the total labor input into the chemical industry rose by 0.6%, suggesting production expanded consistent with the ISM survey (which suggested that chemicals expanded in October).
Chemical shipments continued to expand, up 0.2%, with gains centered in coasting & adhesives and other chemistry; agricultural chemical shipments eased. Inventories rose 0.4% with declines in coating & adhesives but gains in agricultural chemicals and other chemistry. The inventories-to-shipments ratio was stable at 1.19, up only slightly from 1.17 in September 2019. Compared to a year ago, shipments were off 5.1% and inventories off 2.9% Y/Y.
U.S. chemical exports rose by 1.0% in September to $10.1 billion. This was a deceleration from a 6% gain in August and reflects some moderation in petrochemicals including plastic resins that was offset by growth in other chemical sectors including a 4% gain in specialties. Chemical exports were down 7.0% Y/Y and 9.9% YTD/YTD. Chemical imports fell by 2.1% in September to $7.6 billion; this follows a 4.4% decline in August. Chemical imports were down 6.3% Y/Y and 8.0% YTD/YTD in September. The U.S. chemicals trade surplus increased by $266 million to $2.6 billion.
Chemical wholesale trade rose 3.3% to $9.73 billion in September and partially offsets a 3.9% decline in August. At the same time, chemical wholesale inventories fell 1.8% (to $11.91 billion) and more than offsets the 0.4% gain in August. As a result, the inventory-to-sales ratio fell from 1.29 to 1.22. A year ago the ratio was 1.21, suggesting that imbalances are repairing. Sales were off 9.8% Y/Y and inventories off 9.0% Y/Y.
The benchmark S&P 500 Index fell by 2.8% in October. Chemical equity prices, as measured by the S&P, also fell, by 3.2%. 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 off 0.9% while the S&P 500 Index was up 1.2% YTD.
Following a strong gain in August, construction spending for chemical manufacturing projects fell by 1.1% in September to a $31.1 billion annual pace. Chemical construction spending accounted for 43.3% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 6.4%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
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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.