MACROECONOMY & END-USE MARKETS
Running tab of macro indicators: 12 out of 20
The number of new jobless claims was up by 29,000 to 219,000 during the week ending 1 October. Continued claims increased by 15,000 to 1.36 million for the week ending September 24 and the insured unemployment rate was 1.0%, up 0.1 percentage point from the previous week's revised rate.
While it was the smallest monthly gain since April 2021, the 263,000 gain in September nonfarm payrolls came in slightly better-than-expected. There were broad gains across sectors, except for retail trade, transportation, and government that saw lower employment. The decline in transportation and warehousing employment was the first monthly decline since April 2020 and was led by steep declines in truck transportation and warehousing, potentially a sign of weakening demand. Manufacturing employment continued to expand, up by 22,000. Average hourly wages were up 5.0% Y/Y, the slowest gain since last December. The unemploymentrate fell from 3.7% in August to 3.5% in September, in part because of a decline in labor force participation. As a share of the working age population, 62.3% are employed or looking for work, slightly lower than last month, but still higher than earlier in the year. The participation rate fell sharply during the pandemic and has only partially recovered.
As the labor market started cooling, job openings declined sharply in August, down 10.0% to 10.1 million. The number of job openings per unemployed person fell from 2.0 in July to 1.7 in August, the lowest since the beginning of the year and a sign that Fed actions to slow the economy may be starting to have an impact.
U.S. exports of goods and services dropped 0.3% in August to $67.4 billion. Imports were also down (by 1.1% to $326.3 billion). As a result, the U.S. trade deficit narrowed 4.3% to $67.4 billion. The goods deficit narrowed in August to $87.6 billion as the decline in imported goods outpaced the decline in exports. Exports of natural gas increased as did exports of pharmaceuticals preparations. Exports of crude oil and cars fell. Imports of crude oil, fuel oil, semiconductors, civilian aircraft, computer accessories all fell. Imports of cars increased.
Light vehicle sales edged higher from a 13.1 million seasonally adjusted annual pace to 13.5 million in September. There were increases in sales of both cars and light trucks. Vehicle sales were 9% above year-ago levels.
Construction spending fell 0.7% in August from July’s upwardly revised figure. Residential construction spending fell 1.0%, driven entirely by a sharp decline in the single-family home segment. Spending on multi-family home construction remained resilient. Non-residential spending fell by a modest 0.4% in August and was broad-based. Public spending on construction fell 1%, but with many infrastructure projects awaiting start and many local and state governments well-funded, the sector should remain resilient going forward.
Following a decline in July, sales at the wholesale level edged higher by 0.1% in August. Within segments, sales were mixed with the largest gains in furniture apparel, hardware and computer equipment offsetting losses in petroleum products, metals and miscellaneous durable goods. Wholesale inventories continued to build and were up by 1.3% in August. Compared to a year ago, sales were up 16.1% Y/Y while inventories were up by 25.0% Y/Y. The inventories-to-sales ratio moved higher from 1.29 in July to 1.31 in August. This was up from 1.21 a year ago and a sign that inventories are accumulating at this node of the supply chain.
According to the Institute for Supply Management (ISM), the Services PMI® for September 2022 registered 56.7%, 0.2 percentage points down from August but above expectations. Most (15 out of 18) U.S. non-manufacturing industries reported growth, but softness in business activity and new orders resulted in slower growth despite improved employment and supplier deliveries. The composite index showed growth for the last 28 months since the COVID recession. Based on comments from Business Survey Committee respondents, there have been improvements regarding supply chain efficiency, operating capacity, and materials availability; however, performance remains less than ideal. Employment continued to improve despite the restricted labor market.
ISM’s Manufacturing PMI® dropped 1.9 points to 50.9 in September, the 28th month in a row for U.S. industrial sector expansion. September’s reading was the lowest since the industry began to pull out of the pandemic in June 2020. Only nine of 18 industries reported growth. The ISM reports demand is easing as indicated by new orders and new export orders contracting, backlog of orders has moved toward contraction and customers say their inventory levels are roughly stable but, nearing levels of “about right”. Employment levels contracted with companies indicating they’re using hiring freezes and allowing attrition for the time-being (rather than headcount decreasing due to mass layoffs, etc.). Supplier deliveries are slowing at a slower rate.
Factory orders were flat in August, following a 1.0% decline in July. While orders for consumer goods were flat, orders for capital goods declined in August, led by lower orders for civilian aircraft. Orders for core business goods rose 1.4% while there were smaller gains in motor vehicles, and construction materials. Unfilled orders (a measure of the manufacturing pipeline) rose 0.5%, a smaller gain than in recent months. Manufacturing shipments rose 0.5% following a decline in July. Inventories of manufactured goods edged slightly lower, by 0.1%, following flat growth in July. The inventories-to-shipments ratio for manufacturing ticked down to 1.46 in August from 1.47 in July and was lower than 1.51 a year ago.
The JP Morgan Global Manufacturing PMI has been steadily losing steam and slipped into contractionary territory in September when the index fell by 0.5 to 49.8. That is the lowest reading since manufacturing expanded out of the pandemic-induced drop early 2020. Output, new orders and new export orders all declined and at a faster rate. Employment grew but the index is close to the 50-mark. Both input and output prices grew. Output expanded in just 10 of 30 economies. Together, the signs from this release point to a weakening industrial sector.
Global semiconductor sales fell 3.4% in August with declines across all major regions, except Europe which posted a small gain. The largest declines were in China and other Asia/Pacific (except Japan). Compared to a year ago, semiconductor sales were nearly stable, with just a 0.1% Y/Y gain. Semiconductor sales in China were off 10.0% Y/Y.
ENERGY
Oil prices rose as OPEC+ announced plans to cut oil production by 2 million bpd (~2% per day) to support prices as the global downturn curbs oil demand. As OPEC is already struggling to produce their production quotas, it’s not clear that this action will actually remove a full 2 million bpd from the global oil market. Natural gas prices edged higher as cooler temperatures are starting to move in and some heating demand kicks in. As of last week, inventories were still building, but remain nearly 8% below average. Typically, natural gas inventories switch from builds to withdrawals at the end of October/early-November.
According to the recent Dallas Fed Energy Survey, activity in the oil and gas sector expanded at a strong pace in Q3. The business activity index remained elevated at 46.0, but below the 57.7 record-breaking reading last quarter, suggesting that the pace of expansion decelerated but remains solid. The combined oil and rig count rose by one to 763 during the week ending 9/30.
CHEMICALS
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 were up 1.6% to 30,754 during the week ending 1 October. Loadings were down 0.4% Y/Y (13-week MA), up 3.1% YTD/YTD and have been on the rise for six of the last 13 weeks.
Within the details of the ISM report, the chemical industry was reported to have contracted in September. Chemical producers report as new orders and new export orders slowed, production and employment contracted, and inventories increased. Chemical producers reported the delivery performance of suppliers was slower. The chemical industry was one of 11 industries that reported that customer inventories were “too low”. One chemical industry respondent noted: “Concerns of global economic slowdown are growing, and (we are) experiencing some customers pulling back orders.”
Chemical shipments rose 1.2% in August following declines in June and July. There were gains in shipments of coatings & adhesives and other chemicals. Shipments of agricultural chemicals were lower. Chemical inventories continued to expand, up 0.4%, the smallest gain since January. As with shipments, gains in inventories of coatings & adhesives and other chemicals offset declines in agricultural chemicals. Compared to a year ago, shipments were up 4.5% Y/Y while inventories were up 11.8% Y/Y. The inventories to shipments ratio which had increased every month since January, moved lower in August to 1.38. A year ago, the inventories-to-shipments ratio was 1.29.
Sales of chemicals at the wholesale level fell 0.9% in August, giving back gains made in July. Wholesale inventories of chemicals continued to build, up 3.8% on top of a 2.1% gain in August. Compared to a year ago, sales were up 18.1% Y/Y while inventories were ahead 29.1% Y/Y. The inventories-to-sales ratio which had been stuck between 1.07-1.11 since the lockdowns shot up to 1.17, suggesting a growing imbalance.
Chemical industry employment (including pharmaceuticals) grew by 3,400 (0.4%) with gains in both production workers and supervisory/non-production jobs. Compared to a year ago, chemical industry employment was higher by 40,300 (4.6%). Average hourly wages for production workers were up 3.0% Y/Y. With the gain in employment and longer average workweek, the total labor input into the chemical industry was up 1.2% in September, in contrast with the ISM report that suggested that the chemical industry output contracted in September.
Chemicals trade expanded 3% in August to $29.0 billion as exports grew 3% and imports grew 5% over the month. Chemicals exports represent about 10% of all US goods exports and have grown to $122 billion YTD. More than half, 59% of chemical exports are petrochemicals. Nearly a quarter, 24% of chemicals exports are plastic resins. Compared to the same period last year (Jan-Aug), exports are up 21% YTD/YTD. Chemicals imports have grown to $104 billion YTD and are up 27% YTD/YTD. About half of chemicals imports (48%) are petrochemicals. In August, the chemicals trade surplus narrowed slightly to $2.7 billion.
The chemical industry construction spending edged down (-1.2%) in August relative to the month prior. On a year-to-year basis, spending was down 13.4%.
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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