Weekly Chemistry and Economic Trends (01-30-26)

Consumer confidence fell sharply in January, down 9.7 points to 84.5. Concerns about both the present situation and expectations deepened at the beginning of the new year. It was the lowest reading since May 2014 (even lower than during the Covid-19 pandemic) as all five components of the index deteriorated. Confidence fell across all generational groups. Within generations, Gen X reported the lowest confidence in January while Gen Z reported the highest. Consumers' plans for buying big-ticket items waned. Buying plans for autos were flat while expectations for buying refrigerators, dishwashers, furniture and TVs declined. Homebuying expectations also fell.

Advance durable goods orders surged 5.3% in November, following a revised 2.1% decline in October. The large gain reflected a near doubling of orders for civilian aircraft. Orders were also higher for communications equipment, machinery, fabricated metal products, and electrical equipment. New orders for motor vehicles and parts were off for a second month by 0.5%. Core durable orders (nondefense capital goods excluding aircraft) rose 0.7%, the fifth consecutive gain. Compared to last November, headline orders were up 10.5% while core orders were ahead 4.1% Y/Y.

Factory orders rose 2.7% in November, driven by a gain in durable orders; nondurable orders were flat. Orders were higher for civilian aircraft and other nondefense capital goods; construction materials and supplies; computers; and IT equipment. Orders were lower for motor vehicles and parts; defense capital goods; and consumer goods. Unfilled orders (a measure of the manufacturing pipeline) rose 1.4%, the highest monthly gain since May. Both factory shipments and inventories ticked slightly higher (up 0.1%). As a result the inventories-to-sales ratio was unchanged at 1.56.

The General Business Activity index in the Dallas Fed's Texas Manufacturing Outlook Survey rose 10.1 points to -1.2 in January, suggesting overall manufacturing activity in the state declined at a slower pace. The indices for production, orders, employment and shipments switched from contraction to expansion, while several other indicators became less negative, suggesting a slowing pace of contraction. Looking ahead six months, expectations were slightly more optimistic.

The Federal Open Market Committee (FOMC) held interest rates unchanged at the 3.5%-3.75% range, having cut rates three times between September and December of last year. Two Fed governors dissented, favoring a 25 basis-point cut. The committee said solid economic growth, elevated inflation, and a stabilizing labor market justified the decision. It also stated that it will assess the effects of the previous rate cuts to determine future actions as uncertainty about the economic outlook remains elevated.

Producer prices rose 0.5% in December, led by higher prices for final demand services (in particular, trade margins). Final demand goods prices were unchanged, following a 0.8% gain in November. Higher prices for nonferrous metals, natural gas, motor vehicles, soft drinks and aircraft equipment were offset by lower prices for diesel fuel, gasoline, jet fuel, beef, and iron & steel scrap. Compared to a year ago, headline producer prices were up 3.0% Y/Y while core producer prices (excluding food and energy) were up 3.5% Y/Y. Both measures were steady compared to November.

Wholesale inventories rose 0.2% in November, the same increase registered in October. The largest gains were in electrical equipment, miscellaneous durable goods, and pharmaceuticals. On the flip side, furniture, paper products, and lumber saw the biggest declines. Wholesale sales leaped 1.3%, propelled the most by apparel, petroleum products, and computer and electrical equipment. Only sales of groceries, lumber, and miscellaneous durable goods declined. Compared to a year ago, sales were up 5.2% Y/Y while inventories gained 1.8% Y/Y. The inventories-to-sales ratio slid to 1.28 from a revised 1.30 in October.

U.S. trade deficit rose by $27.6 billion in November to $56.8 billion. The increase in the trade deficit reflected growth of 5.0% in imports versus a 3.6% drop in exports. Exports of industrial supplies & materials such as nonmonetary gold & other precious metals and crude oil declined, as did exports of consumer goods, including pharmaceuticals. On the other hand, imports of consumer goods, including pharmaceuticals, as well as capital goods such as computers and semiconductors rose, while imports of industrial supplies & materials declined.

U.S. chemical manufacturers' overall level of activity contracted in the fourth quarter, according to companies participating in ACC's quarterly Chemical Manufacturing Economic Sentiment Index Survey. ACC's index, based on companies' assessment of their activity level overall (e.g., sales, production, output), was negative in Q4. However, many of the key economic sentiment indexes registered relative improvements by increasing over the quarter, albeit remaining in negative territory. These include new orders (both foreign and domestic), production levels, companies' major customer demand, order backlogs, and U.S. and global economic conditions. Moreover, the capital spending index shifted from contraction to a slight expansion. On the other hand, the overall company activity index indicated a slight acceleration in worsening conditions. Costs of raw materials and energy accelerated notably. The number of employees and contractors declined sharply, with the availability of skilled labor dropping modestly. The rate of destocking decelerated, while the current regulatory burden declined. Looking six months ahead, there were sharp increases in the indexes of new orders, production levels, inventories, overall company activity, and major customer demand. At the same time, companies expect costs to keep increasing, particularly for labor.

According to data released by the Association of American Railroads, chemical railcar loadings were up to 33,773 for the week ending January 24th. Loadings were flat on a 13-week moving average basis and up 7.0% YTD.

Within the comments of the Texas Manufacturing Outlook Survey, one chemical industry respondent noted, "End markets are still highly uncertain in durable goods, building and construction, and automotive. As interest rates continue to fall, we are hopeful for increasing activity. China's economic policies and influence on the global market are still driving significant uncertainty for large exporters from the U.S."

Chemical shipments rose for a second consecutive month in November, up by 0.5%. Gains in shipments of agricultural chemicals and all other chemicals offset a slight decline in coatings & adhesives. Chemical inventories, however, fell for a third straight month, down 0.5%. The inventories-to-sales ratio moved lower from 1.24 in October to 1.22 in November, the lowest that ratio has been since March 2022. Compared to a year ago, chemical shipments were up 1.1% Y/Y while inventories were off 0.6% Y/Y.

Chemical wholesale sales rose 0.4% in November following a 1.3% drop the prior month. Wholesale inventories of chemicals lost 1.0% after inching up 0.2% in October. Compared to a year ago, chemical inventories were down by 2.6% while sales were up 6.8%. The inventories-to-sales ratio fell from 1.11 in October to 1.09. A year ago, the ratio was 1.20.

Chemical producer prices slipped for a third month in December, down 0.6%. Prices declined for agricultural chemicals, bulk petrochemicals & organics, plastic resins, synthetic rubber, and manufactured fibers. Those declines were partially offset by gains in prices for inorganic chemicals, agricultural chemicals, consumer products, and slight increase in coatings. Prices for other specialty chemicals were flat. Chemical prices remained ahead compared to a year ago, up by 1.1%.

Energy Wrap-Up
• Oil prices jumped on concerns about a potential U.S. strike on Iran.
• U.S. natural gas futures fell sharply as the front-month contract rolled over to March, but remain elevated.
• Amid sharply colder weather across the U.S., natural gas inventories fell by 242 BCF last week, the largest withdrawal since last February. Gas inventories remain at the upper end of their five-year historical range.
• The combined oil & gas rig count rose by one to 533.

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