Growth was fleeting in 2012, especially in China and in other emerging markets. In Europe, a crisis turned into an outright recession, which at the close of the year still showed no signs of abating. In the United States, a typical business cycle recovery has yet to emerge in many sectors. Although U.S. gross domestic product (GDP) surpassed its pre-recession peak, growth was painfully slow in 2011 and 2012.
The atmosphere in Washington about issues such as the "fiscal cliff" has undermined business confidence, impacting investments and hiring. Recent regional surveys and other indicators suggest the strong manufacturing recovery in the United States has lost momentum and factory activity has peaked, hopefully temporarily. Moreover, the recession in Europe and weakness in Asia is hindering export sales, a pillar of growth during 2009–2011.
At this point, the consumer — bolstered by lower debt and the apparently sustainable recovery in housing — is taking over from the business sector in providing foundational support for the U.S. economy.
One short-term indicator to watch is the Chemical Activity Barometer (CAB), which is a composite index of economic indicators that track the activity of the U.S. chemical industry (see: "How Will The U.S. Economy Fare?"). This activity generally occurs early in the supply chain, so the CAB provides a leading indicator for the overall economy and can reveal potential turning points. The CAB is signaling slow, tentative economic growth in early 2013.
The consensus forecast (our base case scenario) for U.S. GDP is for continued but anemic growth in 2013 — about 2.0%, which is well below the long-term trend (Table 1). This presumes Washington avoided going over the fiscal cliff, which it hadn't done at press time. If so, economic growth should return to long-term trend levels in 2014. If not, the economy could shrink nearly 0.5% this year.
Many major end-use markets — especially those tied to exports and business investment — have recovered in the United States. However, others remain below their 2007 peaks. Growth in the manufacturing sector, which is the largest consumer of chemicals, abated in 2012 after gains from mid-2009 to 2011.
The two-speed manufacturing sector that emerged in 2011 ("What Will 2012 Bring?") continues. Oil and gas, light vehicles and aircraft, as well as iron and steel remain strong.
Light vehicles represent an important market for chemicals (nearly $3,650 per vehicle), and production continues to increase. U.S. light vehicle sales are expected to rise in 2013 and in 2014 as pent-up demand, improving employment (and income) prospects, and better availability of credit foster growth. Housing, another large consumer of chemicals (over $15,000 per start), shows very encouraging signs, and was perhaps the major economic news of 2012. Housing activity will start to stir in 2013 and 2014. Shortages have emerged in some local markets and prices have begun to rise nationwide. Moreover, demographic factors are re-emerging as a driving force. Activity will remain well below the previous peak of 2.07 million units in 2005 but by mid-decade will approach the long-term underlying demand of 1.5 million units per year as suggested by demographics and replacement needs.
Overall, the spotty manufacturing recovery has dampened domestic chemical demand while the recession in Europe and weakness elsewhere have hindered exports. In general, inventories along the supply chain have become only slightly imbalanced and, barring a major recession, a large correction isn't expected.
The weakness in exports to Europe and China has been partially offset by gains in other regions. Meanwhile, imports declined, as industrial demand weakened. In 2012, exports rose 1.8% to $190.2 billion while imports slipped 0.8% to $189.5 billion. Thus, the U.S. chemical industry enjoyed a modest trade surplus, a welcome reversal from 2011 when it suffered a deficit.
This year the American Chemistry Council (ACC) expects trade in chemicals to continue to expand at moderate rates as global manufacturing activity remains fragile (Table 2). Exports will grow 4.7% to $199.7 billion in 2013 and then 6.6% to $212.8 billion in 2014. Imports will rise by 4.1% to $197.3 in 2013 and then 6.2% to $209.6 billion in 2014. As a result, the trade surplus in chemicals will expand to $2.4 billion in 2013 and $3.3 billion in 2014. (All totals in the table, including the 2014 surplus, reflect import and export values before they were rounded.)
Renewed competitiveness due to shale gas (and the resulting disconnect between U.S. natural gas prices and global oil prices) is prompting new investments — we count over 50 projects announced in the last two years, representing aggregate capital spending exceeding $40 billion — that will boost exports in the years ahead. The large surpluses in basic chemicals will continue to expand, as will surpluses in specialties and consumer products. These gains will more than offset continuing trade deficits in pharmaceuticals and agricultural chemicals, and result in growing trade surpluses.