Weekly Chemistry and Economic Trends (May 7, 2021)

Running tab of macro indicators: 18 out of 20

The number of new jobless claims fell by 92,000 to 498,000 during the week ending 1 May, its lowest level since before the national emergency declared for the pandemic. Continuing claims rose by 37,000 to 3.69 million and the unemployment rate for the previous week remained at 2.6%.

Non-farm payrolls increased by 266,000 in April, a pace well below expectations. Notable job gains in leisure and hospitality, other services, and local government education were partially offset by employment declines in temporary help services and in couriers and messengers. Manufacturing employment fell and construction employment was stable. Average hourly wages for production and non-supervisory employees rose to $25.45 per hour, a level up only 1.2% Y/Y. Because workers are working longer hours (often due to inability to find talent), weekly wages are up 3.9% Y/Y. The household survey indicated that the unemployment rate ticked up by 0.1 points to 6.1% as people returned to the labor force and participation rose. The median duration of unemployment continued to trend upwards.

Surprising to the upside, light vehicle sales rose to an 18.51 million unit pace in April, the highest level since mid-2005 and 10.3% above pre-pandemic levels. Sales rose across all segments but with a preference for foreign brands. Sales were supported by transfer payments and improving mobility and will be aided by rising employment in the months to come.

The U.S. trade in goods and services deficit grew by $3.9 billion to $74.4 billion in March. Both exports and imports had strong growth in the month but imports grew faster. Imports were up 6.3% to $274.5 billion, a historic high, in March and were up 18.1% Y/Y. There was strong growth in imports of consumer goods, industrial supplies and materials, autos and parts and capital goods (including a $1.3 billion gain in semiconductors). U.S. exports also grew in March and were up 6.6% to $200.0 billion in the month, a level 8.1% higher Y/Y. Export growth was driven by increases in industrial supplies and materials, capital goods and consumer goods.

Led by continued gains in residential construction which offset declines in private nonresidential and publicly funded projects, overall construction spending edged higher by 0.2% in March. Compared to a year ago, spending was up 5.3% Y/Y. Over the past year, spending on residential projects has surged (up 23.3% Y/Y) as remote work and learning have boosted demand.

With gains across every major sector, wholesale sales rose 4.6% in March following flat growth in February. The largest gains in sales were in metals, lumber, furniture, apparel, petroleum products, chemicals, and furniture. Wholesale inventories rose by 1.3%, with the largest gains in inventories of furniture, lumber, computer equipment, metals, paper, apparel, and petroleum products. Compared to last March when the pandemic lockdown began, sales were up 19.0% Y/Y while inventories were up by 4.5% Y/Y. The inventories-to-sales ratio moved lower from 1.26 in February to 1.22 in March. A year ago, the ratio was 1.39.

Global semiconductor sales rose 3.7% to $41.0 billion in March. Sales increased in all major regions and demand grew across a range of product categories. Global sales were up 17.8% Y/Y, with gains across all regions.

Despite a large decline in aircraft orders, factory orders rose by 1.1% in March with gains across many sectors. It was the tenth monthly increase in the past 11 months. The strongest gains were in industrial machinery, ferrous metal foundries, HVAC equipment, fabricated metal products, and civilian communications equipment. Compared to a year ago, when pandemic lockdowns began, orders were up 17.6% Y/Y. Factory shipments rose 2.1% and inventories were up 0.7%, resulting in a downward adjustment to the inventories-to-shipments ratio from 1.40 in February to 1.38 in March. Shipments were up 11.0% Y/Y while inventories were ahead by 3.1% Y/Y.

The ISM Services PMI eased 1.0 point to 62.7, still a solid pace of expansion and marking the 11^th month of improvement. Production gains moderated sharply as did new orders. Order backlogs expanded even more, indicative of the supply chain disruptions. Supplier deliveries slowed even more, and inventories contracted. Seventeen of 18 industries expanded. The ISM Manufacturing PMI for April at first glance disappointed, pulling back 4.0 points to 60.7. The pullback was across most components of the PMI. That said, this is still a good reading (as a reading above 50 indicates expansion) and new orders, production, employment, order backlogs, exports and imports are all still growing. Moreover, inventories contracted, setting the stage for further production gains. All 18 manufacturing industries reported growth. The JP Morgan Global Manufacturing PMI rose 0.8 points to 55.8. Production rose at its quickest pace in more than a decade and order backlogs reached a 17-year high. Twenty-one of 24 nations improved with solid expansion in the US, UK and Euro Area. Japan and China also expanded.

The rig count rose by one to 438 rigs during the week ending 30 April. During the same week, working gas in underground storage rose by 60 BCF.

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 8.0% to 32,053 railcars the week ending 1 May (week 17). Loadings were up 7.8% Y/Y, up 0.2% YTD/YTD and the 13-week moving average, which is used to smooth out volatility, fell by 1.1%.

According to the ISM PMI report, the chemical industry expanded in April, with gains in new orders, production, and imports. Order backlogs and exports accelerated while supplier deliveries slowed. Inventories and employment stabilized. Customer inventories were deemed too low. One chemical industry respondent noted: “Upstream producers/suppliers are back online and working towards full rates. Demand is outpacing supply and will continue into the third quarter, when the supply chain is expected to be refilled. Supply/demand should be more balanced in Q3/Q4, but demand will continue as customers run hard to meet their demand and rebuild inventory.”

The benchmark S&P 500 index rose by 5.2% in April. Chemical equity prices, as measured by the S&P index for chemical companies also ended higher, up 4.3% for the month. 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 12.1% while the S&P 500 index was up 11.3% year-to-date.

The US surplus in chemicals trade was down by about $1.0 billion in March as imports grew faster than exports. Exports of chemicals were up 19% in March to $12.7 B and up 4% YTD/YTD. Export gains were across all sectors with inorganic chemicals, petrochemicals and derivatives including resins driving overall growth in March. Imports of chemicals were up 39% in March to $10.8 B and up 10% YTD/YTD. Gains were across all sectors with petrochemicals and derivatives and “other specialties” driving growth.

Following a 1.7% decline in February, chemical shipments were essentially flat in March at $45.3 billion. Gains in coatings and adhesives offset declines in agricultural and all other chemicals. Chemical inventories, however, rose for a second month, by 0.5%, with gains in all other chemicals offsetting declines in coatings & adhesives and agricultural chemicals. Compared to a year ago, chemical shipments were up 2.8% while chemical inventories were off by 2.1%. Compared to last month, the inventories-to-shipments ratio ticked higher to 1.16, a level just below the 1.17 ratio from one year ago.

Wholesale sales of chemicals rose by 7.0% in March, following a 1.8% gain in February. Chemical wholesale inventories rose by 2.0%, following a 0.9% increase in March. Compared to a year ago (when lockdowns were beginning), sales were up 8.5% Y/Y while inventories were up by 2.2% Y/Y. The inventories-to-shipments ratio fell from 1.16 in February to 1.11 in March. A year ago, the ratio stood at 1.17.

Chemical industry (including pharma) employment continued to grow, up by 4,300 (0.5%) in April, following a 1,400 gain in March. Compared to last April (during the height of the pandemic lockdowns), employment remained higher by 23,400 (2.8%). Following a rebound in March, production worker jobs eased by 0.4% in April, and supervisory and non-production employment rose by 2.0%. Average wages were up 0.5% Y/Y to $26.65. The average workweek edged up by 0.2 hours. This offset the decline in the number of production workers and the total labor input into the chemical industry edged higher by 0.1%, suggesting chemical production expanded slightly in April as parts of the industry continued to recover from winter storms.

Chemical industry construction spending eased by 0.6% in March to $30.4 billion, following a revised gain in February. Chemical industry construction spending was off by 0.9% Y/Y. As a share of overall spending on manufacturing construction, chemicals represented 43.9%.

Despite improving activity across many nations, global chemicals production eased 0.2% in March, a pause in the global recovery that started in June. During March, chemical production increased in Africa & the Middle East and Asia-Pacific regions. Output was weak elsewhere. Headline global production was up 14.4% year-over-year (Y/Y) on a 3MMA basis. Keep in mind that output a year ago was off due to Covid-19 pandemic. Global output stood at 131.8% of its average 2012 levels.

During March, global capacity rose 0.2% and was up 2.1% Y/Y. As a result, with easing output, capacity utilization in the global chemical industry slipped back 0.3 points to 88.8%. This is well above last March and above the long-term (1987-2019) average of 86.3%. 

Among chemical industry segments, March results were negative with gains only in other specialty chemicals. Considering year-earlier comparisons, production gains occurred in all segments.

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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