8.4% | 1.7% | 3.3% |
| Unemployment Rate | Chemical Shipments | Resin Production |
Running tab of macro indicators: 16 out of 20
The number of new jobless claims decreased by 130,000 to 881,000 during the week ending 29 August. Continuing claims fell by 1.24 million to 13.25 million and the unemployment rate for the week eased 0.8 percentage points to 9.1%. These figures bested expectations.
Non-farm payrolls rose by 1.37 million, a slower pace than in the previous three months; non-farm employment was below its February level by 11.5 million, or 7.6%. Government employment rose in August, largely reflecting temporary hiring for the 2020 Census. Notable job gains occurred in manufacturing, retail trade, professional and business services, leisure and hospitality, and education and health services. Average hourly wages for non-supervisory production workers rose to $24.81 per hour, a level up 4.9% Y/Y. In August, the unemployment rate declined by 1.8 percentage points to 8.4%, and the number of unemployed persons fell by 2.8 million to 13.6 million. Both measures have declined for four consecutive months but are higher than in February. Among the unemployed, the number of persons on temporary layoff decreased by 3.1 million in August to 6.2 million, down considerably from the series high of 18.1 million in April. Labor force participation improved.
The U.S. trade deficit in goods and services in July surged to the highest level observed since the Great Recession in 2008. The deficit deepened 18.9% to $63.6 billion as imports grew 10.9% to $231.7 billion and exports grew 8.1% to $168.1 billion. Growth in both imports and exports of goods was driven by autos and auto parts, consumer goods, industrial supplies, and materials and capital goods.
Light vehicle sales rose from a 14.63 million unit pace in July, to a 15.19 million unit pace in August. Both automobile and light truck (light duty trucks, SUVs, etc.) segments expanded but gains were centered in domestic builds as imported vehicle sales eased. Sales are still below pre-pandemic levels and were off 11.0% Y/Y. Light vehicle sales face challenges going ahead but this is a market that may surprise to the upside.
Construction spending edged higher by 0.1% in July with gains in residential activity offsetting lower spending in private non-residential and publically-funded projects. Compared to a year ago, construction spending was off 0.1%.
Factory orders continued to rebound in July, up another 6.4% with broad gains across most industries. New orders for core business goods rose 1.9% and orders for construction supplies were up 2.9%. Manufacturer shipments also continued to recover, up 4.6% in July, following a 10.0% gain in June. Unfilled orders, a measure of the manufacturing pipeline, continued to weaken (off 0.8%). Inventories, which had expanded in June, fell by 0.5% in July. As a result, the inventories-to-shipments ratio continued to improve, down from 1.51 in June to 1.43 in July. This is close to where the ratio stood in February at 1.40.
The ISM NMI (for non-manufacturing industries) eased by 1.2 points to 56.9% in August, suggesting continued expansion at a slower pace in the largely services sector. There were slower gains in new orders and business activity, but order backlogs and export orders rose at a faster pace. Employment continued to contract, however, but at a slower pace. Supplier deliveries were faster than a month ago. Fifteen of the 18 industries covered reported growth during the month. The ISM PMI report on manufacturing rose a larger-than-expected 1.8 points to 56.0, the highest level since November 2018 and indicating expanding activity. New orders, order backlogs and production are growing but employment contacted. Inventories contracted as well. Supplier deliveries are slowing at a faster pace and customer inventories are deemed too low. Of 18 industries, 15 expanded in August. Global manufacturing expanded again, as the JP Morgan Global Manufacturing PMI rose 1.2 points to 51.8% in August. Manufacturing production and new orders expanded while new export orders continued to decline, but at a slower rate. Expectations for future output growth strengthened. Of the 31 territories covered by the survey, 19 recorded growth.
The Dallas Fed reported that Texas factory activity expanded in August for the third month in a row following a record contraction earlier in the year. The production index, a key measure of state manufacturing conditions, came in at 13.1, down slightly from July but still indicative of moderate growth. New orders, shipments and other measures of manufacturing activity also point to expansion this month. The general business activity index turned positive after five months in negative territory, coming in at 8.0.
Global semiconductor sales started the 3rd quarter on a with a 2.1% gain to $35.2 billion. The Americas gained, with sales rising 0.9% in July. Sales rose across all regions, with the largest gains in Asia (excl. China). Total sales were up 4.9% Y/Y with positive year-earlier comparisons in most regions; only Europe and Japan continue to lag.
The rig count rose for the first time since February, was steady at 252 rigs during the week ending 28 August. Recovery from Hurricane Laura continues and refineries operated at 76.7% of their operable capacity last week. That said, operations remain curtailed in the Lake Charles area.
For the business of chemistry, the indicators still bring to mind a yellow 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 1.5% to 30,935 railcars the week ending 29 August (week 35). Loadings were down 6.7% Y/Y and down 5.0% YTD/YTD, a level consistent for the past two months. Railcar loadings continue to show improvement, and have been on the rise for 8 of the last 13 weeks. The 13-week moving average, which is used to smooth out volatility, was down 7.6%, but continues to edge up slightly.
According to data from the ACC Plastics Industry Producers’ Statistics Group, U.S. production of major plastic resins totaled 7.7 billion pounds in July, up 3.3% compared to the prior month, and an increase of 0.8% Y/Y. Year-to-date production was 52.7 billion pounds, up 2.5% compared to the same period in 2019. Sales and captive (internal) use of major plastic resins totaled 7.8 billion pounds, down 1.9% over June and up 3.6% Y/Y. Year-to-date sales and captive use was up 3.8% at 53.5 billion pounds.
The ISM PMI report indicated that the chemical industry was one that expanded. New orders, order backlogs, production, export orders, and imports all increased; employment decreased. Inventories were stable and the industry reported slower supplier deliveries in August. Customer inventories were deemed too low. One chemical industry respondent noted, “Business is very good. Production cannot keep up with demand. Some upstream supply chains are starting to have issues with raw material and/or transportation availability.” One chemical industry respondent in the Texas Manufacturing Outlook Surveynoted, “Although orders and, thus, capacity utilization are increasing month over month, the pace is somewhat slower than hoped due to the continued COVID-19 impacts to the general economy and, thus, the basic materials sector.”
Chemical industry (including pharma) employment rose by 5,500 (0.7%) in August, following a 4,500 gain in July. The back-to-back gains represent nearly half of the jobs lost during April when the U.S. was under lockdown. Compared to last year, employment remained lower by 9,500 (1.1%). Average wages were up 1.6% Y/Y to $25.95. The average workweek rose by half an hour to 41.0 hours, the highest since January. Combined with the gain in the number of workers, the total labor input into the chemical industry rose 1.5% suggesting production increased. This is consistent with the ISM survey.
After rising 2.5% in June, chemical industry shipments rose 1.7% to $42.54 billion in July. This was the third such gain and gains were across all segments. Inventories eased 0.4% (to $50.80 billion) and follows a 0.4% gain in June. This pushed the inventory-to-sale ratio down from 1.22 in June to 1.19 in July. A year earlier it was 1.17. Shipments were off 6.3% Y/Y and inventories were off 4.4% Y/Y.
Construction spending for chemical manufacturing projects edged higher by 0.2% in July to a $29.24 billion annual pace. Chemical construction spending accounted for 40.4% of spending in the broader manufacturing sector. Compared to a year ago, spending was off 13.7%. Chemical industry construction spending has expanded rapidly since 2010 which reflects new building to take advantage of shale resources.
The benchmark S&P 500 Index continued to rebound, up 7.0% in August. Chemical equity prices, as measured by the S&P, for chemical companies also continued to recover, up 3.9%. 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 2.0% while the S&P 500 Index was up 8.3% YTD.
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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.
