|LEI||U.S. CPRI||U.S. Specialty Chemical Volumes|
Running tab of macro indicators: 15 out of 20
The number of new jobless claims eased by 55,000 to 787,000 during the week ending 17 October. Continuing claims fell by 1.024 million to 8.373 million and the unemployment rate for the week decreased 0.7 percentage points to 5.7%.
With growth across all regions, existing home sales jumped in September, up 9.4% to 6.54 million, the highest level since 2006. Compared to a year ago, sales were up 20.9%. Strong demand has drained inventories, which are down 19.2% Y/Y and now represent a 2.7-month supply, down from 4.0 months last September. With tight supplies, the median sales price was up 13.8% Y/Y to $311,800. The surge in existing home sales reflects not only record-low mortgage rates, but also shifting patterns of work and learning that have been accelerated due to Covid.
Housing starts rose 1.9% to a 1.415 million pace in September, but from downwardly revised August figure. Starts were up in all regions except the Midwest. Chemistry-intensive single-family starts were up by 8.5% to the highest level since 2007. Forward-looking building permits were up 5.2% driven by gains in single-family. Compared to a year ago, housing starts were up 11.1% (22.3% Y/Y for single-family) while permits were up 8.1% Y/Y. The NAHB/Wells Fargo homebuilder confidence index continued to climb in October, up to a new record-high 85. All three components–current sales, sales expectations, and buyer traffic–either set or matched record highs.
The Conference Board’s Index of Leading Economic Indicators (LEI) rose 0.7% in September following a 1.4% increase in August and a 2.0% gain in July. The gain in the LEI was driven primarily by declining unemployment claims and rising housing permits. Compared to a year ago the LEI was off 3.9%. The decelerating pace of improvement suggests slowing momentum as the economy enters the final months of the year.
SURVEY OF ECONOMIC FORECASTERS
The global economy is experiencing the worst recession since the Great Depression. Global economic output is expected to contract by 4.6% this year and recover only partially in 2021. As projections continue to be released, they are generally offering slight improvements from previous estimates. Generally, assessments of global economic health over the short-term remain sobering. However, more analysts appear to be giving consideration to a potential upside scenario.
Global trade collapsed as economies across the world entered lockdown earlier this year. World trade volumes will be down significantly in 2020 with the contraction weighing heavily on export-oriented sectors. World trade volumes will be down 12.4% in 2020.The outlook for global manufacturing is for a 5.9% contraction in 2020.
The rig count rose by 13 to 279 rigs during the week ending 16 October. Oil prices strengthened during the week on a second consecutive inventory decline (-1.0 million barrels) and positive economic news. Natural gas inventories grew by 49 BCF, smaller than the typical build for this week of the year.
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 4.2% to 29,718 railcars the week ending 17 October (week 42). The declines were likely, in part, due to the impact of Hurricane Delta on the Gulf Coast region. Loadings were down 6.3% Y/Y. On a YTD basis, loadings were down 5.0% compared to 2019. 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 4.8%, a slight uptake compared to the previous week’s comparison.
The impacts of the coronavirus pandemic continue to show in the data on chlorine production. Chlorine is a key input into PVC (among others), the production of which is heavily impacted by the transportation and construction markets, two industries that been negatively affected by the pandemic. The Chlorine Institute (CI) reported that production of chlorine was 27,378 in September, down 6.1% compared to the previous month; YTD production was down 9.6% Y/Y. The output of co-produced caustic soda fell 5.4% to 29,208, and YTD production was also down 9.6% compared to the same month in 2019.
With the recovery in the U.S. economy slowing, headline U.S. specialty chemicals market volumes were stable in September, off from a revised (and stronger) 0.9% gain in August, and 2.8% gain in July. Of the 28 specialty chemical segments we monitor, 13 expanded in September, a reversal from 27 rising in August. Thus, on a sequential (one-month change) basis, diffusion was 46%, a setback from 96% in August. Of the 13 segments rising in September, eight featured gains of 1.0% or more: antioxidants, dyes, flame retardants, mining chemicals, oilfield chemicals, printing ink, rubber processing chemicals, and textile specialties.
During September, overall specialty chemicals volumes were off 8.1% Y/Y basis, a slightly better comparison than August. Volumes stood at 102.9% of their average 2012 levels in September. This is equivalent to 7.01 billion pounds (3.18 million metric tons). On a Y/Y basis, there was a gain in only three chemical segments: cosmetic additives, electronic chemicals, and flavors & fragrances. On a year-earlier basis, diffusion was 11% in September.
The U.S. Chemical Production Regional Index (U.S. CPRI), which is measured as a three-month moving average, rose by 0.8% in September following a 0.8% gain in August and a 1.0% increase in July. During September, chemical output expanded in all regions, with the largest gains in the Northeast region. Compared with September 2019, U.S. chemical production was off by 4.3% Y/Y, the sixteenth consecutive month of Y/Y declines, but an improvement over the past several months. Chemical production remained lower than a year ago in all regions, with the largest year ago declines in the Northeast, Mid-Atlantic, and West Coast regions.
As measured on a 3MMA basis, chemical production continued to improve in many segments including, chlor-alkali, organic chemicals, industrial gases, synthetic dyes & pigments, consumer products, synthetic rubber, manufactured fibers, other specialty chemicals and fertilizers. Production trends eased, however in plastic resins, coatings, adhesives, and crop protection chemicals.
As nearly all manufactured goods are produced using chemistry in some form, manufacturing activity is an important indicator for chemical demand. The recovery continued at a slower pace into September, with overall factory activity up by 1.6% (on a 3MMA basis). The trend in production rose in nearly all key chemistry end-use industries, with the strongest gains in motor vehicles, aerospace, iron & steel, tires, and structural panels.
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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.