MACROECONOMY & END-USE MARKETS
The number of new jobless claims declined by 24,000 to 400,000 during the week ending 24 July. Continuing claims rose by 7,000 to 3.269 million and the insured unemployment rate for the week ending 17 July was stable at 2.4%.
Real gross domestic product (GDP) increased at an annual rate of 6.5% in the 2nd quarter, a pace below expectations. In the first quarter, real GDP increased at a 6.3% pace. The increase in real GDP echoed increases in consumer spending, business fixed investment, exports, and state and local government spending that were partly offset by decreases in inventories, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. Consumer spending has switched to strength in services. The data release (along with revisions back to 1999) indicate that the economy has regained (and gone beyond) its pre-pandemic peak in 2019.
Following a small decline in May, consumer spending rose 1.0% in June, better than expected. The gain in June was driven by higher spending on services as the economy pivots away from spending on durable goods as reopening continues. Personal income edged higher by 0.1% as gains in employee compensation were partially offset by declining government social benefits. Compared to a year ago, real disposable personal income remained off 3.0% Y/Y while real consumer spending was up 9.2% Y/Y. The price index for personal consumption expenditures rose 0.5% and was ahead 4.0% Y/Y. The core PCE price index was up 3.5% Y/Y, running faster than the Fed’s target of near 2%. This inflation measure, preferred by the Fed, includes a different basket of goods and services than the consumer price index measured by the Bureau of Labor Statistics.
Conference Board reported that its index of consumer confidence was relatively unchanged in July, following gains in each of the prior five months. The index rose 0.2 points and now stands at 129.1 (1985=100). That said, it is its highest level since February 2020. Consumers expect business conditions, jobs, and personal financial prospects will improve while short-term inflation expectations eased slightly but remained elevated. Spending intentions picked up in July, with a larger share of consumers plan to purchase homes, automobiles, and major appliances in the coming months.
A sign that the housing market may be losing momentum amid surging home prices, new home sales unexpectedly fell for a third straight month in June, off by 6.6%. Compared to a year ago, new home sales were off 19.4% Y/Y. All regions posted declines, except the Midwest. Inventories of unsold homes rose 7.0% and were ahead 17.3% Y/Y. At the current sales pace, that represents a 6.3-month supply, up from 5.5 months in May and 4.3 months a year ago. The median sales price continued to move higher, up 6.1% to $361,800.
Durable goods orders rose by 0.8% in June, weaker than expected. There were gains across all categories except fabricated metal products, computers & related products (incl. semiconductors), and motor vehicles & parts. Core capital goods orders rose 0.5% and were ahead 17.8% Y/Y. Headline orders were up 31.7% Y/Y.
The Dallas Fed reported that Texas manufacturing activity continued its robust expansion in July. The production index, a key measure of state factory conditions, was largely unchanged at +31.0, a reading well above average and indicative of strong output growth. Other measures of activity also pointed to continued growth this month. Prices and wages continued to increase in July. Expectations regarding future activity remained optimistic in July. One chemical industry respondent noted that: “The uncertainty around the impact of demand related to the latest surge in the Delta variant of COVID-19 is cause for general business activity concern.” The Richmond Fed reported that Fifth District manufacturing activity strengthened in July, with the composite index inching up from +26 in June to +27 in July, buoyed by increases in the shipments and employment indexes, while new orders declined but remained in expansionary territory. Manufacturers were optimistic that business conditions would improve further in the coming months. The Chicago Business Barometer (formerly PMI) indicates that manufacturing continues to expand, with the PMI rising 7.3 points to 73.4, well above expectations and the second-highest pandemic-era reading. Production posted the biggest gain in July, as some firms benefited from supply-chain issues. Order backlogs reached a two-month high, and companies note a shortage of raw materials and warehouse personnel. Demand for labor rose as staff availability remained subdued. This is an important proxy for underlying plastics demand as the Midwest is a center of plastics processing.
ENERGY
The rig count rose by seven to 491 rigs during the week ending 23 July. Signs of a strong global economy overcame concerns about the Delta variant, pushing oil prices back up.
CHEMICALS
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 3.2% to 31,738 railcars the week ending 24 July (week 29). Loadings were up 5.6% Y/Y and up 5.9% YTD/YTD. The 13-week moving average, which is used to smooth out volatility, was up 14.4%.
The U.S. Geological Survey reported that monthly production of soda ash in May was 938 thousand tons, up 1.7% compared to the previous month and up 8.9% Y/Y, on a year-to-date basis. Stocks fell 2.9% over April to 268 thousand tons at the end of the month, a 9-day supply. Ending stocks were down 30.0% compared to May 2020.
After three soft months, with rising activity across many nations and regions, global chemicals production rebounded 1.9% in June. During June, chemical output increased in North America, Europe, the Commonwealth of Independent States (CIS), Africa & the Middle East, and in Asia-Pacific. Output was weak in Latin America. Headline global production was up 17.2% year-over-year (Y/Y) on a 3MMA basis. Keep in mind that output a year ago was off due to the Covid-19 pandemic. Global production stood at 132.5% of its average 2012 levels and continues to reach new levels. Among chemical industry segments, June results were positive across segments. Considering year-earlier comparisons, production gains occurred in all segments.
During June, global capacity rose 0.2% and was up 2.3% Y/Y. As a result, with rising output, capacity utilization in the global chemical industry turned up 1.5 percentage points to 88.6%. This is well above 77.4% last June and above the long-term (1987-2019) average of 86.4%.
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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Upcoming Events of Interest
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“Americas Chemicals and Polymers Conference” Virtual Event
14-15 September 2021
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