The output of the American chemistry industry held its own in 2017 despite hurricane-caused disruptions. Now, both global and national developments are boosting the industry’s prospects for the next five years. For the first time in a decade, all the world’s major economies are on an upswing in concert. In the United States, manufacturing has turned a corner, business investment is on the rise, and domestic oil and gas production is on the rebound. Major end-use markets, supported by growth in trading partner economies, have improved, setting the stage for gains in U.S chemical production.
Hurricane Harvey halted some Gulf Coast production temporarily and took a bite out of volumes during the third quarter. In addition, inventories are rising, albeit from low levels. Nevertheless, U.S. chemical manufacturers retain advantages from access to cheaper and more abundant feedstock and energy. Reflecting this, significant capital spending is taking place. As the new and expanded facilities from these investments have been coming online, chemical production volumes, particularly in basic chemicals, continued to improve in 2017 — and significant gains are expected in 2018 and 2019.
During 2017, agricultural chemicals, coatings and other specialties as well as bulk petrochemicals — due to their renewed competitiveness arising from shale gas — led these output increases. Continued gains in manufacturing and exports during 2018 and beyond will drive demand for basic chemicals, especially those where the United States enjoys a competitive advantage. Improved business activity in domestic end-use markets and exports will support growth for most specialty segments.
In the United States, strengthened performance across a broad band of industrial sectors supported economic growth in 2017. Housing, business investment and their supply chains have momentum. The demand for light vehicles softened last year but remains solid. In 2018, investment and industrial activity should strengthen. With rising performance across the world, export markets should expand.
The U.S. chemical industry is undergoing a renaissance as new investments come online and further capital spending plans are announced. These investments will capitalize on the profound and sustainable competitive advantage enabled by shale gas development. In addition, the industry is boosting its employment. Moreover, chemical companies in the United States continue to innovate, focusing on improving efficiencies as well as on new leading-edge product development.
The Macro-Economic Picture
In the United States, gross domestic product (GDP) grew only 2.2% during 2017. Improving business investment combined with an end to the broad inventory imbalance have aided GDP growth. The pace should accelerate to 2.5% in 2018 but growth will remain moderate in the second half of the decade. Factors such as demographics and policy should restrain long-term growth in the economy. Tax and regulatory reform could go far to rejuvenate U.S. economic dynamism and performance, though.
The U.S. chemical industry will be a source of strength in the economic outlook as its customer industries and emerging markets improve and as the effects of enhanced feedstock competitiveness bolster growth.
The recovery in the oil and gas sector — and the concurrent improvement in related investments — is a leading factor behind the stronger economic growth figures. This gain in equity markets in 2017 occurred amid an environment of greater consumer and corporate confidence. This higher confidence and upbeat trends in new orders underpinned recovery in 2017. The need to enhance productivity and competitiveness will foster continued gains in business investment in 2018 and 2019. Ongoing strength in consumer spending also will spur growth. Since the end of the recession, U.S. economic growth remained below its potential as high taxes, debt, regulatory burdens and economic policy uncertainty took a toll on both business and consumer confidence. This appears to be changing for the better — although failure to reform policy could further hamper growth.