chemicals industry growth

Make Your Move: Chemical Industry Outlook Lively for Inorganics

For IndustryWeek readers in the chemical industry, these trends in both consumer and business-to-business activity will determine much of the direction of the economy in 2013.

Finding your way past the screaming headlines and political skullduggery surrounding the economy today can be quite an undertaking. But a look at the facts can help bring a healthful measure of calm and reality back to the situation. Consider these facts.

Retail sales in the U.S. in January were up 6.2% year-over-year, surpassing the 3.7% average of the last 10 years. Light vehicle retail sales began the year strong, with sales in January gaining 14.2% over January 2012 and rising at a 13.6% rate, the fastest pace in nearly 23 years. 

See Also: Make Your Move Blog

Business-to-business activity stumbled as we entered the new year, falling victim in part to the uncertainty surrounding the unfortunately named fiscal cliff. Nondefense capital goods new orders during the final quarter of 2012 fell 3.4% behind the same three-month period in 2011, a sign that further weakness in the annual trend will appear early this year. While the current trend is less than favorable, we see tentative signs of improvement and expect a recovery trend to emerge around mid-2013. 

Chemicals vs. Overall Industrial Production
chemicals vs. overall industrial production chart
The annual trend in overall chemicals and products production index has remained relatively flat.

For IndustryWeek readers in the chemical industry, these trends in both consumer and business-to-business activity will determine much of the direction of the economy in 2013. Positive developments in end-use markets such as consumer goods, automobiles and housing will provide areas of opportunity. Weaker sectors such as capital investments in machinery and government defense expenditures will require caution and a more tepid outlook for this year. 

The annual trend in overall chemicals and products production index has remained relatively flat. Currently activity is a mere 0.3% above the same time last year. Activity within the chemicals sector is more varied though. Growth in inorganic chemicals production is moving upward in contrast to organic chemicals production, which has fallen below last year's level of activity. Industrial gas production is providing a healthy dose of momentum for the inorganic chemicals market, increasing 14.3% over the past 12 months. Expect global economic activity to revive by mid-2013, helping propel demand for gases used in industrial processes. 

U.S. Net Exporter of Fuels

Looking beyond the specific production sectors, there is good news for chemical companies in a recent report from the Bureau of Economic Analysis. In 2012, the top two exports from the United States were fuel oil (gasoline, diesel, kerosene and jet fuel) and petroleum products. It's hard to imagine, but we are now a net exporter of fuels for two years in a row, a situation that is very good for the long-term well-being of the U.S. economy. 

In addition to helping reduce our national trade balance and keeping inflationary pressures at bay, the trend in oil and natural gas discovery and production helps create jobs in the energy field and in all the support industries, and provide chemical producers with reliable feedstocks. Let's hope government regulation does not squelch the potential economic stimulus available in our burgeoning oil and natural gas industry.

But even with great potential in the field of energy and chemicals, we need to prepare for realistic growth expectations. The average U.S. economic growth rate over the last 20 years is 2.6% (adjusted for inflation). Waiting for a 4% growth rate that academic and government economists promise us is not a winning strategy. Business leaders who grasp the fact that a 2% to 3% growth rate is the new normal can plan accordingly and better prepare to thrive in today's challenging global economic environment.

Alan Beaulieu, President of ITR EconomicsContributing Editor Alan Beaulieu is an economist and president of ITR (itreconomics.com). He is co-author, with his brother Brian, of "Make Your Move," a book on spotting business-cycle trends.

 

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