What Pulled Chemicals Off the Bottom of the ISM List?

One industry turns up on both halves of Monday's ISM report.

Chemical Products is tenth of the twelve industries that reported growth in October. It is also on the list of industries whose employment fell, the list whose backlogs fell, and the list whose inventories fell.

Two months ago this desk counted the same industry seventeenth of seventeen, last in the entire survey. It has climbed seven places since (chart below).

"Where does an industry find new orders while it is shedding people?"

Overseas.

Seven Places in Two Months

The headline reading was 55.5% in October, a full point above September's 54.5 and the tenth straight month of manufacturing expansion.

Chemicals got carried along with it, and then some.

ISM ranks the industries it names, most growth to least on the growth list and worst to least bad on the contraction list, which is what makes a monthly position worth tracking at all. Stack the two lists and you get a place out of everything named.

July and August put chemicals below the line: 16th of 16, then 17th of 17. September put it exactly on the line, 12th of the 12 industries still growing and the last of them.

October has it 10th of 15, two clear places inside the growth block.

Worth keeping in view while you read the rest: on the BEA estimates ISM uses to rank the six largest manufacturing industries, Chemical Products is the largest of them. This is not a corner of the survey.

The One List Where Chemicals Came First

Here is the part that moved.

Of the 18 manufacturing industries ISM tracks, exactly two reported growth in new export orders in October. Chemical Products is named first of the two, ahead of Transportation Equipment, and the report orders its growth lists most growth to least.

Nine industries reported export orders falling. Seven reported no change at all.

In September chemicals was on neither list, growing nor falling. One month later it is the strongest export-order story in American manufacturing.

And the all-manufacturing export index barely budged, 51.2% against September's 50.9. Underneath that three-tenths of a point, the composition moved a long way.

Note also where chemicals is absent. Seven industries reported higher imports in October and chemicals is not among them, even with the Imports Index up 1.9 points to 52.9%.

The Plant Side Went the Other Way

Now, the other half of the report.

Chemical Products appears on three decrease lists in October, and it appeared on all three in September as well:

Employment. Five industries reported employment falling in October and chemicals is one. In September six did, and chemicals was one of those too. The sector Employment Index slipped to 52.4%.
Backlogs. Three industries reported lower backlogs, chemicals among them, for the second month running. The Backlog Index gave up 1.8 points to 54.6.
Inventories. Six industries reported lower inventories, chemicals again among them, while the sector index went the other way and returned to expansion at 51.4%.

Meanwhile the output is running hard. The Production Index hit 59%, its highest reading since November 2021, and chemicals is eighth of the eleven industries reporting production growth.

Put those together and you get a plant running flat out with a thinning order book, a falling stock position, and fewer people on site.

For a buyer that converts into three things to check before the next negotiation:

Lead times have no reason to improve. Supplier deliveries have been slowing for 11 straight months, and chemicals sits 10th of the 12 industries reporting slower deliveries in October.
There is no cushion downstream either. Customers' Inventories read 41.6%, unchanged from September and firmly in the too-low band, with chemicals 6th of the 11 industries reporting it.
Price relief is a 2027 conversation. Raw materials prices rose for the 25th consecutive month, chemicals is 13th of the 16 industries paying more, and no industry anywhere reported paying less.

One of ISM's chemical panelists put the year plainly. Costs "are up more than 6 percent, and we are not doing much to keep any of the spend categories under the target," and on the result of that: "It's hard to get excited about OK or just getting by."

Final Thoughts

A diffusion index counts direction and says nothing about tonnes. ISM's Chemical Products panel does not separate a commodity cracker from a specialty reactor, so none of this tells you which grade went tight in October.

What it does tell you is who is bidding for the next tonne. The one place American chemicals is clearly winning is the export book, and it is winning there while cutting headcount, drawing down inventory and working off backlog.

If you are setting first-quarter volumes, that is the table you are sitting at.

Thanks for reading.