|Payroll Employment||ISM Manufacturing PMI||Chemical Shipments|
Running tab of macro indicators: 13 out of 20
Payroll employment rose by 130,000 in August, less than anticipated and below the 2019 monthly average of 162,000 jobs. The August gains included temporary additions by the Federal Government to conduct the 2020 Census. Despite continued trade tensions and other signs of weakness, manufacturing employment continued to expand. The unemployment rate remained steady at 3.7%. Average hourly earnings rose by 3.2% Y/Y, which, given lower inflation, translates into real spending gains for workers.
The U.S. trade in goods and services deficit declined by $1.5 billion to $54 billion in July as exports rose 0.6% and imports fell 0.1%. Exports of goods rose in July driven by consumer goods (pharmaceutical preparations), capital goods, and autos and parts. Exports of industrial supplies and materials declined. Imports of goods fell in July reflecting lower imports of capital goods (computers). Imports of petroleum products increased. The Census data release shows a decline in the trade deficit with China as both imports and exports have fallen.
Light vehicle sales rose slightly to a 16.97 million unit pace in August. The gain was concentrated in SUVs and other light-duty vehicles, largely at the expense of automobiles. Domestic sales held steady. Although up from a year earlier, sales have clearly peaked as satiated pent-up demand, longer-lasting vehicles, growing global headwinds, trade tensions, and increasing financial market volatility offset good job growth and income growth, as well as still elevated consumer confidence.
Consumer spending accelerated in July, suggesting continued momentum through the 3rd quarter. Personal consumption expenditures (PCE) rose 0.6% in July, up from the previous two months. Growth in personal income slowed to a 0.1% gain, following gains of 0.4% and 0.5% the previous several months. One of the Fed’s preferred measures of inflation, the PCE price index, rose at a 1.4% Y/Y pace. Excluding the food and energy components, the PCE was ahead 1.6% Y/Y, in line with recent gains.
Construction spending edged higher by 0.1% on gains in single family and publicly-funded projects. Spending on private nonresidential and new multifamily projects was lower. Compared to a year ago, construction spending was off 2.7%.
Factory orders rose a better-than-expected 1.4% to $500.3 billion in July. Orders for aircraft and ships and boats drove the gain; excluding transportation goods, the gain was only 0.2%. Orders for non-defense capital goods excluding aircraft (a proxy for business investment) also rose 0.2% and were up a moderated 0.5% Y/Y. Strength was in mining and oilfield machinery, industrial machinery and machine tools as well as in computers and electronics, electrical equipment, and components. Year-earlier comparisons are moderating, the result of trade tensions and uncertainty weighing on business investment.
The ISM PMI® fell 2.1 points to 49.1% in August, a level now in contractionary territory for the first time since January 2019. Looking at the details, new orders, production, backlogs and employment are now all contracting as are inventories, exports and imports. That said, supplier deliveries are still slowing and customers’ inventories are deemed too low. On the 18 manufacturing industries, only nine reported growth. The ISM NMI® rose a better-than-expected 2.7 points to 56.4%. Business activity/production and new orders accelerated and the other measures expanded as well. Of the 18 industries, 16 reported growth. The report indicates that the downturn in manufacturing has not spread to other sectors.
The global manufacturing sector was its fourth month of weakness in August with the J.P.Morgan Global Manufacturing PMI™ at 49.5. Over half the nations are in contraction. The headline production measure rose to a slight 50.1 positive reading but new orders, exports, and employment are contracting. Trade tensions and geopolitical uncertainty are weighing on business capital investment. This is the main drag on global industry.
With gains across most regions (sans Europe), global semiconductor sales rose 1.7% to $33.4 billion in July. The strongest gains were in Asia-Pacific and the Americas. Sales, however, were off 15.5% Y/Y with weakness in every region.
The oil and gas rig count fell for a second straight week by 12 to 904 rigs. Hurricane Dorian pounded the Southeast seaboard this week but the effects on energy markets were nominal as its path kept it from disrupting production in the Gulf of Mexico. There was a larger than typical build in natural gas inventories and crude oil inventories fell again. Volatility continues to rile oil markets, with signs of easing tension in Hong Kong and on-again, off-again trade tensions factors this week.
For the business of chemistry, the indicators bring to mind a green banner for basic and specialty chemicals
According to data released by AAR, chemical railcar loadings, the best ‘real time’ indicator of chemical industry activity, rose by 357 to 33,146 railcars during the week ending 31 August (week 35). Loadings were down 0.8% compared to this week last year, down 0.2% YTD/YTD, but 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 down 0.2% Y/Y
The details in the ISM PMI report indicated that the chemical industry was one of the industries reporting growth in August. Looking at the details, new orders, production, expanded. Inventories and order backlogs contracted and customer inventories were deemed too low. Employment, imports, and export orders were apparently flat and the pace of supplier deliveries was stable. A chemical industry respondent noted, “While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession” and a plastics and rubber products respondent noted that “Current business is OK, nothing to brag about. Under projections and slightly below last year, [but] margins are hanging in there.”
Chemical industry employment (including pharmaceuticals) fell by 1,200 to 857,000 in August. This is up 16,900 from a year earlier. The weakness was centered in production and non-supervisory workers but with a longer 42.0 hour workweek, weekly hours worked rose slightly. Add in likely productivity gains and it appears that production rose, which confirms the ISM report. Average hourly wages rose to $25.58 per hour.
Chemical industry shipments fell 0.3% in July to $44.0 billion. Shipments of agricultural chemicals and coatings & adhesives were lower, but shipments of other chemicals edged higher. Chemical inventories were off 0.2% during July with gains in agricultural chemicals and coatings & adhesives; inventories of other chemicals were lower. Compared to a year ago, inventories were off 1.5% Y/Y while shipments were slightly higher by 0.2%. The inventories-to-shipments ratio was the same as last month at 1.22 and higher than last July when it was 1.20.
On a year-over-year basis, total chemical industry trade has contracted every month from February to July. The drop in two-way trade comparisons reflects Y/Y declines in both exports and imports of chemicals. In July, chemical exports fell 3.6% to $11.3 billion. Exports were down in every category except coatings and consumer products. During the same month, chemical imports rose 10.4% to $8.9 billion. The gain was driven by increased imports in every category except plastic resins. The US continues to hold a net exporter position and has posted an $18 billion surplus YTD (Jan-July). The surplus is driven by petrochemicals but supported by net exports across all other chemicals categories except agricultural chemicals.
The benchmark S&P 500 index fell by 1.8% in August. Chemical equity prices, as measured by the S&P index, for chemical companies also fell (by 5.0%). 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 9.6% while the S&P 500 index was up by 16.7% year-to-date.
Construction spending for chemical manufacturing projects fell by 0.1% in July to a $27.98 billion annual pace. Chemical construction spending accounted for 38.7% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 4.1% Y/Y. 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.