The global pandemic has impacted our state, nation, and the world in extraordinary ways. Illinois is on the road to recovery, led by our state’s manufacturing sector that has helped meet every challenge in our nation’s history. The IMA is now focused on assisting members vaccinate their employees, and rebuilding and restoring our economy.
The Illinois Manufacturers’ Association is a trusted partner, working side-by-side with our state’s manufacturers and businesses during the crisis to provide accurate and timely information to ensure your business can continue operating safely and efficiently. This dashboard spotlights key indicators to help guide business investment and policy decisions by our elected officials.
The Illinois Department of Employment Security publishes monthly Unemployment Rates, comparing Illinois’ rate to the United States’ national rate.
The Illinois Department of Employment Security publishes Unemployment Insurance (UI) data. UI statistics are derived from administrative data collected on individuals currently applying for and those receiving Unemployment Insurance. Current and historical data is also available monthly, quarterly, semiannually and annually.
The State of Illinois Department of Employment Security (IDES) publishes monthly Current Employment Statistics (CES). CES are available in aggregate (Total Nofarm) and by industry/sector.
The State of Illinois Department of Employment Security (IDES) publishes monthly Current Employment Statistics (CES). CES are available in aggregate (Total Nofarm) and by industry/sector.
The Job Openings and Labor Turnover Survey (JOLTS) program produces experimental estimates for all 50 States and the District of Columbia at the total nonfarm level on job openings, hires, and separations.
The State of Illinois Department of Employment Security publishes Local Area Unemployment Statistics (LAUS), monthly and annual estimates of the labor force, employed, unemployed and the unemployment rate for the State, metropolitan areas, counties and municipalities that have a population of at least 25,000.
Mapped below is the current unemployment rate for each County in Illinois.
An indicator of the economic health of the manufacturing sector, the Purchasing Managers Index (PMI) is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The PMI is a measure of the prevailing direction of economic trends in manufacturing. The index is based on a survey of manufacturing supply executives conducted by the Institute of Supply Management. Participants are asked to gauge activity in a number of categories like new orders, inventories, and production and these sub-indices are then combined to create the PMI. A PMI above 50 would designates an overall expansion of the manufacturing economy whereas a PMI below 50 signifies a shrinking of the manufacturing economy.
The US Census Bureau collects and publishes data to provide broad and timely measures of combined changes in domestic retail trade, wholesale trade and manufacturers’ activities. The estimates in this report are based on data from three surveys: the Monthly Retail Trade Survey, the Monthly Wholesale Trade Survey, and the Manufacturers’ Shipments, Inventories, and Orders Survey.
Monthly Retail Trade: Companies with one or more establishments that sell merchandise and related services to final consumers.
Monthly Wholesale Trade: Companies with employment that are primarily engaged in merchant wholesale trade in the U.S. These include merchant wholesalers that take title to the goods they sell, and jobbers, industrial distributors, exporters, and importers. Excluded are non-merchant wholesalers such as manufacturers sales branches and offices; agents, merchandise or commodity brokers, and commission merchants; and other businesses whose primary activity is other than wholesale trade.
Manufacturers: Companies that have employees and are classified in Manufacturing. Participating companies include most with 1,000 or more employees and a sample of smaller companies; changes in their performance are assumed to represent all employers.
Note from the Census Bureau: Due to recent events surrounding COVID-19, many businesses are operating on a limited capacity or have ceased operations completely. The Census Bureau has monitored response and data quality and determined estimates in this release meet publication standards.
Published by the Chicago brand of the United State Federal Reserve Bank (Chicago Fed), this series represents the contributions of the manufacturing sector to the Midwest Economy Index (MEI). This series is a weighted average of state and regional indicators encompassing the entirety of the five states in the Seventh Federal Reserve District (Illinois, Iowa, Iowa, Michigan, and Wisconsin). The series measures the growth in nonfarm business activity in the Midwest Region based on the manufacturing sector. A zero value represents an average contribution to the MEI by the manufacturing, whereas a positive value indicates that an above-average contribution to MEI; and negative values indicate below-average contribution to MEI.
The Illinois Department of Revenue publishes monthly data on tax collections by source. Below is corporate (business) income tax collections, and individual income tax collections since January 2019.
The Illinois Department of Revenue publishes monthly data on tax collections by source. Below is retail sales tax collections, and motor fuel (gasoline) tax collections since January 2019.
The Illinois Commission on Government Forecasting & Accountability (COGFA) publishes monthly data that includes the previous month’s number of construction permits issued for new single family homes.
The Illinois Commission on Government Forecasting & Accountability (COGFA) publishes monthly data that includes the previous month’s number of new car and truck registrations.
The Illinois Commission on Government Forecasting & Accountability (COGFA) publishes monthly data that includes the previous month’s total exports from the state of Illinois.
You Say Aluminum, I Say Aluminum, Let’s Call The Whole Market Tight
For many the thought of aluminum will conjure the image of a simple packaging material which helped deliver a small bit of joy in the form of an adult beverage through the drudgery of Covid-19 lockdowns. While the aluminum can market does indeed represent a sizable portion of demand (~7%), the metal’s properties of light weight, recyclability, corrosion resistance, electric conductivity, durability, and strength have enabled and opened applications in a breadth of end markets. The Transportation, Construction, Electrical Equipment, and Machinery sectors have all become reliant on the unique attributes of aluminum. This fact has helped aluminum earn the title “everywhere metal.” Global economic recovery has significantly boosted the demand for aluminum, leading to drawdowns of worldwide inventories. Looking out to the future, aluminum is poised to play an important role in decarbonization and energy transition, which should help support continued demand growth. Supply-side reform in China is set to remove a two-decades-old source of deflationary pressure on aluminum prices. Consequently, aluminum markets are tight today, and the situation may not significantly change for the foreseeable future.
Demand for aluminum has surged as the global economy and manufacturing activity recover from pandemic depths. During the second quarter, global aluminum consumption rose 12% year-over-year and this rapid demand recovery outpaced supply growth and led to a draw on inventories. U.S. Geological Survey (USGS) Aluminum Commodities Specialist, Lee Bray, said of current London Metals Exchange (LME) inventories, “there is nothing left on the shelf.” These dynamics have led to a significant increase in the price of aluminum with LME 3-month forward prices up over 32% year-to-date and approaching highs last seen in 2011.
London Metal Exchange (LME) price sets the base price for aluminum while trade balances, transportation costs, and government policies combine to set regional premiums. No matter on which side of the pond a manufacturer sits, skyrocketing regional aluminum price premiums have only furthered the cost inflation pain. Logistics bottlenecks, rising transportation costs, and US trade policy have inflamed the situation, sending price premiums paid by manufacturers in the United States to record levels. In March of 2018 the Trump Administration introduced a 10% Section 232 tariff (Trade Expansion Act of 1962, national security threat) on aluminum imports, and the Biden Administration has yet to reverse this policy. While sanctions exemptions have been granted to many allied nations, it is the marginal tons demanded by the market which set the premium paid vs. benchmark LME. In May, over 300 business leaders, including 37 from Illinois, signed a letter to President Biden which called for removing the tariff, saying it is manufacturers, employees, and consumers who suffer the burden of higher costs. A report from The Congressional Research Service in the same month concurs with this assessment. Many brewing and recycling publications cite a Harbor Aluminum study which calculated that between March 2018 and December 2020, America’s beverage industry bore an additional $848.6M in costs due to the Section 232 tariff. According to Alcoa, the Midwest regional premium today is ~$750 per ton. Of this total, $300 can be attributed to Section 232 tariffs, while the remainder is associated with transportation costs and scarcity. Alcoa believes the Midwest premium will moderate at some point, because the price arbitrage is just too wide, but notes that getting metal to the US right now is costly and difficult. Over the longer term, Alcoa estimates regional premiums will be elevated vs. historic levels.
Both Presidents Trump & Biden have viewed Section 232 tariffs as a tool to aid the domestic aluminum industry which has been decimated over the last two decades by rapid growth of subsidized production in China. USGS figures show that back in 2000 the United States was the world’s largest producer of primary aluminum with 16% of global capacity. At that time China ranked 3rd with 11% of total capacity. 20 years later, China’s market share of primary aluminum production has soared to 57%, while the United States now ranks 9th with 1.5% of global primary aluminum production capacity. Century Aluminum, an advocate of Section 232 tariffs, says that consumers of aluminum in the United States have enjoyed low prices for over a decade as China has exported deflation while US producers have been forced to shutter operations. According to the company, the US market has seen an annual supply deficit of at least four million tons per annum for the last 5 years, while the European Union has faced a three-million-ton deficit over the same period. Alcoa notes that the rest of the world just stopped building new capacity due to an inability to compete with subsidized production from China. Higher prices have induced Century Aluminum to expand production capacity with new tons hitting the market in 2022. Alcoa will add some incremental volume but remains on the sidelines for larger increases. Regulatory risks, efforts to advance greener technologies, and the always looming shadow of China keeps Alcoa and many global peers on the sidelines even in the current high-price environment. Production growth ex-China therefore looks relatively stable with a 3- to 4-year timetable to build new capacity providing visibility into potential greenfield growth. The seismic shift aluminum markets face is supply-side reform in China.
President Xi Jinping recently used the phrase “common prosperity” as part of his vision of China moving into a period of “high-quality development.” The idea of “common prosperity,” as described by President Jinping Xi and detailed in the 14th 5-Year Plan, is much more comprehensive than just financial wealth. It expands to social, cultural, and environmental prosperity for all Chinese people. Clean air, water, and soil are now top agenda items for the Communist Party. This has induced a shift away from a strategy of maximizing volume output though all-out resource exploitation to a greater focus on efficiency and quality of output. Perhaps nowhere is this more apparent than in China’s aluminum markets. Regulatory policies around efficient use of energy and greenhouse gas emissions have continued to tighten leading to aluminum capacity curtailments for producers in northern China who rely on coal-fired power (80% of China’s production). At the same time, drought in southern China reduced clean hydroelectric power capacity available to aluminum smelters in the south. The power needs of individual citizens are being prioritized over energy-intensive industries. On August 27, China’s National Development & Reform Commission released a statement notifying all regional/local political leaders that providing preferential power pricing to the aluminum sector is “strictly prohibited.” The real coup de grâce comes in the form of a 45M ton cap on maximum permitted aluminum capacity imposed by the Central government. According to Jun Wang, the CFO of Aluminum Corporation of China (Chalco, world’s largest producer), 43 to 44M tons of permitted capacity has already been built, and his company holds the permits for remaining volumes which will come online in 2022. Mr. Wang does not believe the cap will be increased or even that the industry will ever operate as high as that 45M ton nameplate capacity. Last year China became a net importer of aluminum for the first time since 2009, and that trend has continued through to today. China’s supply-side reforms come at a time when trends in decarbonization and electrification are accelerating and boosting the demand for aluminum in the process.
Aluminum is almost infinitely recyclable. According to World Aluminum, ~75% of aluminum ever produced is still in use today. That gives aluminum an edge over plastics in the packaging markets. Ball Corp. sees demand for aluminum cans growing at 4% to 6% per annum through 2025, with substrate substitution becoming an ever-important driver. Transportation is the largest market for aluminum. In 2015 Ford transitioned from steel to aluminum for the body of its F-150, the most popular truck in America. The change cut the truck’s weight by 700 lbs, increasing fuel efficiency (less energy is required to move the lower weight). This practice, know as lightweighting, continues to gain ground in the transportation industry. On Howmet Aerospace’s Q2 earnings call, management noted that its aluminum wheels for big rig trucks (Class-8) were 5x stronger and 47% lighter than steel, offering a 1,400lbs retrofit weight savings per truck. Lightweighting will rise further as adoption rates for electric vehicles accelerate. In 2019 research consultant DruckerFrontier estimated that an average internal combustion engine (ICE) powered vehicle contained ~381 lbs of aluminum as compared to a battery electric vehicle (BEV) with just over 700 lbs. Goldman Sachs forecasts that a shift to BEVs will boost aluminum demand by 12M tons by 2030, while demand from solar markets will boost demand by another 3.8M tons over the same period. 85% of solar panel components (installed system) comprise of aluminum. High-voltage power lines needed to connect renewable power resources to demand centers are typically made from aluminum and passage of the bipartisan infrastructure bill would significantly boost grid spend. While a green future is dependent on aluminum, most of the world’s primary aluminum production is anything but green.
Aluminum has the highest carbon intensity of all metals, with industry contributing ~2% of total global CO2 emissions. Data from CRU Group states that on average each ton of aluminum produced globally generates 14-tons of CO2. Aluminum production is 80% fossil fuel based, but when produced using hydro or geothermal power the CO2 emissions profile falls to less than 4 tons for each ton of aluminum. This production is referred to as “green aluminum.” Alcoa, a largely “green” producer, and several other companies are working on inert anode technology which will further lower emissions. “Green” aluminum will see faster relative demand growth as total carbon footprint (Scope 3 emissions) becomes an increasingly important factor for manufacturers and their customers who have set climate targets. The greater carbon intensity of aluminum production, the greater the potential financial penalty from environmental regulations such as carbon credits or the European Union’s proposed Carbon Border Tax, while a premium will likely develop for “green aluminum products.” Regulatory uncertainty surrounding long-term climate policy has been a factor limiting the pace of new aluminum capacity additions outside of China.
The scales of supply and demand in the aluminum market have shifted. China’s new supply side policy objectives and limited aluminum capacity additions in the rest of the world are colliding with a recovery in global demand and environmental policies which will induce increased use of the metal. Goldman Sachs, Deutsche Bank, and Macquarie each forecast a growing primary aluminum supply deficit through 2025, which will support higher prices. Historically, aluminum producers, led by China, have responded to higher prices with increased capacity. There is reason to believe that things could be different this time. Both Alcoa and Century Aluminum see annual contracts rolling over to higher prices in 2022. Good news for them, but not so much for their customers. In response to the question, “Is there any potential source of price relief for manufacturers in the near term?” Lee Bray of the USGS paused for a while before saying, “no, not really.” The aluminum market is tight, and it looks like it will remain that way for some time.
For more information, please contact: BMO Wealth Management Michael D. Blanton, JD CPA CFA Managing Director, BMO Private Bank Email: michael.blanton@bmo.com (T): 630.420.3547 wealth.bmoharris.com
BMO Commercial Bank Ron Davidson, Vice President BMO Commercial Middle Market Banking Email: ron.davidson@bmo.com (T): 630.420.3514 www.bmoharris.com
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