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Blog Home   |   Economic Trends

 

Blog Home   |   Economic Trends

Weekly Chemistry and Economic Trends (October 2, 2020)


661,00055.40.7%
Non-Farm Payrolls ISM PMICAB Leading Indicator

MACROECONOMY & END-USE MARKETS

Running tab of macro indicators: 16 out of 20

Macro Table

The number of new jobless claims fell by 36,000 to 837,000 during the week ending 26 September, heading in the right direction and apparently breaking out of a four week range. Continuing claims fell by 980,000 to 11.77 million and the unemployment rate for the week decreased 0.6 percentage points to 8.1%.

Non-farm payrolls rose by less-than-expected 661,000 in September, with notable job gains occurred in leisure and hospitality, retail trade, health care and social assistance, and professional and business services, as well as in manufacturing and transportation and warehousing. Employment in government declined over the month, mainly in state and local government education. Although the headline was disappointing, the July and August figures were revised upwards. Average hourly wages rose slightly to $24.79 and were up 4.6% Y/Y. The unemployment rate declined by 0.5 percentage point to 7.9%, and the number of unemployed persons fell by 1.0 million to 12.6 million. The labor force participation rate decreased by 0.3 percentage point to 61.4% in September and is 2.0 percentage points lower than in February (pre-COVID). The employment-population ratio, at 56.6%, changed little over the month but is 4.5 percentage points lower than in February.

Unemployment Rate

Consumer confidence rebounded 15.5 points from a four-month low to 101.8 in September, the highest level since March. An impressive gain considering uncertainty surrounding coronavirus, the economy, and the election. There was a large jump in consumers’ current sentiments but a very large rise in expectations. Plans to purchase homes, new autos and appliances all improved. Consumer spending rose by 1.0% in August, slightly ahead of expectations, with spending on services outpacing a small gain in spending on goods. Personal income, however, fell by 2.7%, as the extra $600 in CARES Act unemployment benefits expired at the end of July. Compared to a year ago, spending remained off by 3.2% while income was up 4.0% Y/Y. The headline personal consumption expenditure (PCE) price index was up 1.4% Y/Y and the core PCE price index was up 1.6% Y/Y, both measures posting their highest annual gain since February. Despite the gain, the report suggests that price pressures remain muted.

Real gross domestic product (GDP) decreased at an annual rate of 31.4% in the second quarter according to the “third” estimate. In the first quarter, real GDP decreased at a 5.0% pace. In the second estimate, the decrease in real GDP was a 31.7% annual pace. The upward revision with the third estimate primarily reflected an upward revision to consumer spending that was partly offset by downward revisions to exports and to business fixed investment.

Construction spending rose by 1.4% in August, the third consecutive gain. Spending gains were led by higher spending on residential construction, especially in new single family and residential improvements. Spending on privately-funded nonresidential projects continued to ease, off 0.3%. Publicly-funded construction spending edged higher by 0.1%. Compared to a year ago, overall construction spending was up 2.5%.

ISM Manufacturing PMI and JP Morgan Global PMI

The ISM PMI for September eased 0.6 points to 55.4, a level below expectations but still expanding. New orders, order backlogs, production, exports and imports were all growing but employment contracted, as did inventories. Supplier deliveries were slowing at a faster pace and customer inventories were deemed too low. Of the 18 manufacturing industries, 14 reported growth in September. The JP Morgan Global Manufacturing PMI rose 0.5 points to 52.3 in September, the highest level in more than two years, suggesting that global manufacturing expanded at a faster rate. Output, new orders, and new export orders expanded, while employment declined at a slower pace.

Factory orders rose by 0.7% in August, the fourth consecutive (though smaller) gain. Performance was mixed across industries, with gains in metals, machinery, and electronics offsetting declines in fabricated metal products, electrical equipment, motor vehicles, and furniture. Core business orders were up 1.9%. Orders for nondurable goods also rose. Unfilled orders continued to move lower, down 0.6% in August. Shipments, however rose, by 0.3% and inventories were flat, following a decline in July. The inventories-to-sales ratio remained stable at 1.43, still higher than a year ago when it was 1.39, but considerably lower than the 1.70 ratio in April.

The Dallas Fed reported that Texas manufacturing activity picked up steam in September with the general business activity index rising 5.6 points to 13.6, its highest reading in two years. New orders and other key measures of the current status improved as well. Firms were also more optimistic about business conditions in the next six months. The Chicago PMI surged 11.2 points to 62.4 in September, the highest level since December 2018, as business activity recovered across the board. All five main indicators saw monthly gains in September, with production and new orders leading the way.

ACC CAB

Our CAB leading indicator of the U.S. business cycle rose 0.7% in September following a 2.2% gain in August and a 1.9% gain in July. The diffusion index rose from 35% to 65% in September. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for August was revised upward by 0.89 points and July was revised upward by 0.42 points. The CAB has four main components, each consisting of a variety of indicators: production; equity prices; product prices; and inventories and other indicators. In September, production-related indicators were mixed. Trends in construction-related resins, pigments and related performance chemistry were positive and suggest further gains. Resins and chemistry used in light vehicles and other durable goods were positive. Gain in plastic resins used in packaging and for consumer and institutional applications were mixed as economic recovery in the service sector slows. Performance chemistry improved, while U.S. exports were mixed. Equity prices flattened, while product and input prices were fairly stable. Inventory and other supply chain indicators were positive. With five consecutive months of gains, the September CAB reading is consistent with recovery in the U.S. economy.

ENERGY

Energy

The rig count fell by rose by six rose by six to 258 rigs during the week ending 25 September. Oil prices continued to ease as the President announced he tested positive for Covid-19. Natural gas prices, however, rose sharply as the cooler weather moved into much of the country. Natural gas inventories are ample going into the shoulder season, at their highest level for this week of the year since at least 1994.

CHEMICALS

For the business of chemistry, the indicators still bring to mind a green banner for basic and specialty chemicals.

Chemical Table

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 0.5%) to 30,078 railcars the week ending 26 September (week 39). Loadings were down 8.9% Y/Y and down 5.1% YTD/YTD. Loadings have been on the rise for 7 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 5.4%, though it was the 13th consecutive week of improving comparisons, indicating a slow recovery to railcar loadings.

The ISM PMI for September indicated that the chemical industry was one of the best performing industries.

New orders, order backlogs, production, employment, exports and imports were all growing. Inventories contracted. Supplier deliveries were slowing and customer inventories were deemed too low. One respondent noted that: “Volume remains lower than one year ago but has steadily improved over the past two periods.”

Chemical industry (including pharma) employment fell by 2,000 (0.2%) in September, following a 5,300 gain in August. The industry is still off by 13,900 jobs compared to pre-Covid levels. Compared to last year, employment remained lower by 14,500 (1.7%). In September, a 1.2% decline in production workers was partially offset by a gain in supervisory and non-production workers. Average wages were up 3.3% Y/Y to $26.24. The average workweek rose remained steady at 41.0 hours, following a jump in August. Combined with the gain in the number of workers, the total labor input into the chemical industry fell 1.2% suggesting production declined. This is in contrast to the ISM survey which suggested that chemicals expanded in September.

The benchmark S&P 500 Index fell by 3.9% in September. Chemical equity prices, as measured by the S&P, continued to move higher, however, up 0.3%. 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 up 2.3% while the S&P 500 Index was up 4.1% YTD.

Construction spending for chemical manufacturing projects rose sharply by 6.3% in August to a $31.4 billion annual pace. Chemical construction spending accounted for 41.0% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 6.2%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.

Major Resins Production

According to the ACC Plastics Industry Producers’ Statistics Group, U.S. production of major plastic resins totaled 7.5 billion pounds during August 2020, down 1.9% compared to the prior month, and down 1.8% Y/Y. Year-to-date production was 60.1 billion pounds, a 1.8% increase Y/Y. Sales and captive (internal) use of major plastic resins was down 3.5% compared to last month, at 7.6 billion pounds. On a Y/Y basis, sales were down 2.0%; year-to-date sales and captive use was 61.0 billion pounds, up 3.0% compared to 2019.

Chemical Shipments

After rising 1.8% in July and 2.5% in June, chemical industry shipments rose 0.4% to $42.77 billion in August with gains across most segments. Inventories rose 0.2% (to $50.89 billion) and follows a 0.4% decline in July. This kept the inventory-to-sales ratio at 1.19 in August; a year earlier it was 1.17. Shipments were off 5.7% Y/Y and inventories were off 3.8% Y/Y.


For More Information

ACC members can access additional data, economic analyses, presentations, outlooks, and weekly economic updates through MemberExchange.

In addition to this weekly report, ACC offers numerous other economic data that cover worldwide production, trade, shipments, inventories, price indices, energy, employment, investment, R&D, EH&S, financial performance measures, macroeconomic data, plus much more. To order, visit http://store.americanchemistry.com/.

Every effort has been made in the preparation of this weekly report to provide the best available information and analysis. However, neither the American Chemistry Council, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.

Contact us at ACC_EconomicsDepartment@americanchemistry.com

Upcoming Events of Interest

Tableau Training (online)
10 October (8:00 am – 5:00 pm CDT)
The Association of Industry Analytics (AIA)
www.aia-global.org

PowerBI (online)
17 October (8:00 am – 5:00 pm CDT)
The Association of Industry Analytics (AIA)
www.aia-global.org

“The Role of Private Equity and the Chemical Industry” Webinar
Scott Wolff – Managing Director, American Securities
21 October (1:00 – 2:00 pm)
Société de Chimie Industrielle
www.societe.org

Excel Business Analysis with Power Query (online)
24 October (9:00 am CDT)
The Association of Industry Analytics (AIA)
www.aia-global.org

Intro to Python Workshop (online)
12 December (9:00 am CDT)
The Association of Industry Analytics (AIA)
www.aia-global.org


Note On the Color Codes

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.

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