|Chemical production||Plastic resins production||LEI|
Running tab of macro indicators: 10 out of 20
Retail sales fell back 0.3% in September following an upwardly revised gain during August. Notable weaknesses were centered in motor vehicles, building material and garden centers, gasoline stations, and general merchandise stores. Rising trade tensions may be weighing on consumer confidence and spending.
Business inventories were flat in August, following a 0.3% gain in July. A small gain in wholesale inventories was offset by small decline in retail inventories; manufacturing inventories were flat. Combined business sales rose 0.2%, following a similar gain in July. Higher retail sales were partially offset by lower manufacturing shipments, while wholesale sales were flat. The inventories-to-sales ratio remained steady at 1.40, up from 1.35 a year ago. Inventories were 4.2% higher Y/Y compared to a 1.1% Y/Y gain in sales. Both measures are slipping, and the gap continues to suggest an imbalance.
Housing starts fell 9.4% from the high level in August to a 1.26 million unit pace in September. The weakness was centered in the volatile multiple-family housing segment. Starts in the larger single-family segment actually improved. Regional weakness was widespread with strong gains in single-family starts in the South. Building permits fell 2.7% to a 1.39 million unit pace. Again, single-family building permits expanded during the month. That permits are above starts is healthy for the outlook.
Confirming the sentiment in latest ISM reading, industrial production fell 0.4% in September. Manufacturing output fell 0.5%, following a 0.6% gain in August. Declines were broad based with most durable industries seeing lower output for the month. Compared to a year ago, manufacturing output was off 0.9% while overall industrial output was off 0.1% Y/Y. Capacity utilization fell 0.4 points to 77.5%. This was lower than 79.3% a year ago. Overall industrial capacity was 2.2% higher than last September.
Manufacturing business conditions improved slightly in New York State in October. The Empire State Manufacturing Survey’s headline general business conditions index edged up two points to 4.0. There was only a small increase in new orders, but shipments picked up. Delivery times decreased slightly, while inventories were little changed. Employment levels and hours worked both increased modestly. Input prices and selling prices increased at a slower pace than last month. Looking ahead six months, optimism improved somewhat, but remains subdued. Although coming in below expectations, the Philadelphia Fed’s Manufacturing Business Outlook Survey indicates that business in the region continued to grow in October. Current indicators of conditions were mixed with shipments easing while new orders and employment increased. Expectations jumped and firms expect remain generally optimistic and will increase capital spending next year.
The Conference Board reported that its index of leading economic indicators (LEI) fell 0.1% in September to 111.9 (2016 = 100), following a 0.2% decline in August, and a 0.4% increase in July. The decline was driven by weakness in the manufacturing sector and the interest rate spread which were only partially offset by rising stock prices and a positive contribution from a leading credit measure. The LEI reflects uncertainty and declining business expectations, fostered by the downturn in the industrial sector and trade tensions. Looking ahead, the LEI is consistent with an economy that is still growing but more slowly into 2020.
The oil and gas rig count rose by one to 855 rigs. Amid a year of a falling rig count, this is the first gain since August. A year ago, the rig count was 1,062 rigs. Oil prices continue to fluctuate over concerns about global economic growth and oil demand. U.S.-China trade tensions are playing a role. Abundant supplies of natural gas have dampened natural gas prices but we are entering the winter heating season with weather forecasts pointing to cooler temperatures across sections of the nation.
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 5.4% to 30,855 railcars during the week ending 12 October (week 41). Loadings were up 1.4% Y/Y, down 0.1% YTD/YTD and have been on the rise for 6 of the last 13 weeks. The 13-week moving average, which is used to smooth out irregularities, was up 0.1% a Y/Y basis.
The Chlorine Institute (CI) reported that production of chlorine was 38,833 in September, up 9.8% over the previous month; YTD production was down 2.6% Y/Y. The output of co-produced caustic soda fell 9.1% to 33,972 and YTD production was down 2.2% Y/Y.
From the Fed’s industrial production report, chemical industry production fell 0.3% in September, partially offsetting the large gain in August. Weakness in bulk petrochemicals & organics, synthetic rubber, manufactured fibers, and consumer products more than offset gains in inorganic chemicals, plastic resins, coatings and other specialties, and agricultural chemicals. Easing production pushed the capacity utilization rate down 0.4 points to 81.8%.
According to statistics released by the ACC, U.S. production of major plastic resins totaled 7.7 billion pounds during August 2019, up 2.0% compared to the same month last year. Year-to-date production was 58.7 billion pounds, a 2.6% increase as compared to the same period in 2018. Sales and captive use of major plastic resins totaled 7.7 billion pounds, up 1.1% compared to the same month in 2018. Year-to-date sales and captive use was 59.0 billion pounds, a 3.8% increase Y/Y.
The U.S. Geological Survey reported that monthly production of soda ash in July was 972 thousand tons, up 2.7% compared to the previous month and down 9.2% Y/Y. Stocks fell 12.9% over June to 250 thousand tons at the end of the month, an 8-day supply. Ending stocks were down 11.3% Y/Y.
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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.