MACROECONOMY & END-USE MARKETS
Running tab of macro indicators: 15 out of 20
Nonfarm payrolls expanded by 678,000 in February with gains across all major segments. The robust gain follows upward revisions to employment growth in January and December. Manufacturing employment grew by 36,000. Average hourly wages for production and non-supervisory workers were up 7.0% Y/Y compared to a 5.1% Y/Y gain for all workers. Higher wages are enticing more entrants into the labor force. The participation rate rose to 62.3%, the highest since the start of the pandemic two years ago. The unemployment rate fell from 4.0% to 3.8%.
The number of new jobless claims was down 18,000 to 215,000 during the week ending 26 February. For the week ending 19 February, continuing claims increased by 2,000 to 1.476 million, and the insured unemployment rate remained unchanged at 1.1%.
Construction spending continued to expand, up by 1.3% in January. Spending on private residential projects was up 1.3%, led by single-family homes. Spending increased in most areas of public construction area compared to the previous month. Compared to a year ago, the value of overall construction spending was up 8.2%.
Light vehicle sales fell by 1.0 million to a 14.0 million seasonally adjusted annual pace (SAAR). Vehicle sales are expected to improve this year but remain constrained by the persistent chip shortage and other supply chain disruptions. Demand for new vehicles remains strong with the average time a new car sits on a dealer’s lot falling to 20 days in February (compared to 54 days a year ago) according to J.D. Power.
The ISM Services PMI fell 3.4 points to 56.5 in February, signaling that the services sector expanded at a slower pace. Fourteen of 18 industries reported growth. Among the four industries reporting contraction were two Covid-sensitive sectors (entertainment and accommodation & food services). Supplier deliveries slowed at a slightly faster pace. Prices continued to rise at a faster rate. Average lead times for production materials continued to lengthen, up to 97 days in February.
The ISM Manufacturing PMI rose by 1.0 points to 58.6, suggesting that manufacturing expanded at a slightly faster clip in February. Sixteen of 17 industries reported growth, including chemical products. New orders, production, inventories, and order backlogs rose at a faster pace. The closely watched supplier deliveries component which measures how much slack exists in the supply chain suggested that delivery times were increasingly delayed. Customers’ inventories were deemed to be “too low”. Prices continued to rise, but at a slightly slower pace than in January. Globally, manufacturing also expanded at a slightly faster pace, according to the JP Morgan Global Manufacturing PMI which rose 0.4 points to 56.3. The report noted that 22 of 25 national manufacturing sectors saw expansion in February, with Europe leading the way, followed by the U.S. The report noted that new export business also posted a mild improvement, following a slight decrease in January, as gains at intermediate and investment goods producers offset a reduction in the consumer goods sector.
Factory orders expanded in January for a ninth consecutive month, up by 1.4% (up 15.1% Y/Y). The largest gains were in industrial machinery, oil & material handling equipment, computers, electrical equipment and civilian aircraft. Core business orders also continued to increase, up by 1.0% (up 10.4% Y/Y). A measure of the manufacturing supply chain, unfilled orders also continued to increase by 0.9%. Manufacturers shipments were up by 1.2% (up 11.6% Y/Y) while inventories rose 0.7% (up 9.9% Y/Y). The inventories-to-shipments ratio edged lower to 1.45, down from 1.46 in December and down from 1.47 a year ago.
ENERGY
The combined oil and gas rig count rose by 5 to 650 during the week ending 25 February. Oil prices continued to climb well above the $100 mark. OPEC signaled it was not prepared to increase output beyond the previously announced 400,000 bbl/day increase set for April. Western sanctions are making it more difficult for Russia to export its oil (~2.3 million bbls/day). Russia is the world’s 2nd largest oil exporter.
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 were down 3.9% to 33,914 for the week ending 26 February (week 8). On a Y/Y basis, loadings were up 22.1%, still reflecting weather-related production impacts this time last year. Loadings were up 7.2% Y/Y (13-week MA), up 8.0% YTD/YTD and have been on the rise for 7 of the last 13 weeks.
Within the details of the ISM Manufacturing PMI report, chemical products was listed as one of the industries reporting growth in February. Chemical industry respondents reported higher production, new orders, order backlogs, and export orders. Employment was reported to be lower, however. The chemical industry reported slower supplier deliveries. The chemical industry was the only industry to report contracting inventories in February. Commodities listed as being in short supply in February included plastic resins-other; rubber compounds; and specialty chemicals. One chemical product respondent provided a comment: “Strong sales growth as retail continues to return.” A respondent in the plastics & rubber products industry noted “Business is still strong. Facing logistics and raw material supply chain issues with some products.”
Chemical industry construction spending rose by 4.1% in January to $29.7 billion. Compared to a year ago, spending was up 0.7%.
Chemical shipments declined for a second month during January, off by 0.5%. There were declines in agricultural chemicals, coatings & adhesives and all other chemicals. Inventories were also lower for a second month, down 0.6%, with declining inventories across major categories. Compared to a year ago shipments were up 7.3% Y/Y while inventories were up by 10.5% Y/Y. The inventories-to-shipments ratio remained steady at 1.24 compared to December, but up from 1.21 last January.
Chemical employment (including pharmaceuticals) was lower by 1,600 (0.2%) in February. Production workers rose by 4,200, while the number of supervisory and non-production workers was lower by 5,800. Compared to a year ago, chemical employment was up by 15,200 (1.8%). Average wages for production workers ticked higher to $26.84. The total labor input was higher for the month, consistent with the ISM report that suggested the chemical industry expanded in February.
The benchmark S&P 500 index tumbled by 1.3% in February. Chemical equity prices, as measured by the S&P index for chemical companies also ended lower, off 4.7% 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 12.2% while the S&P 500 index was off by 8.2% year-to-date.
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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