TL/DR –
The U.S. economy stands on a solid foundation with gains in growth largely driven by demand for services, even as a broad recovery in manufacturing is yet to materialize. The American Chemistry Council suggests a mixture of challenges and opportunities for U.S. chemical producers looking ahead to 2025 with natural gas feedstock advantage and new investments in the chemistry sector offering a positive long-term outlook. However, risks remain, including potential dampening of demand due to a “higher for longer” interest rate policy by the Federal Reserve, policies that create broad trade barriers potentially harming U.S. chemical manufacturing, and new or escalating geopolitical conflicts or external shocks such as weather events or cyberattacks.
Topline:
- The U.S. economy remains steady, with growth driven by service demand.
- Manufacturing recovery in the U.S. and globally is still elusive.
- The long-term U.S. outlook is positive, buoyed by natural gas advantage and new chemistry investments.
Economic Outlook
As the Federal Reserve initiates interest rate cuts, the U.S. economy remains stable heading into the end of 2024. The U.S. GDP is expected to rise 2.7% in 2024 before slowing to a 2.0% gain in 2025. Despite this, a tight labor market has kept pressure on wage growth, supporting consumer spending.
Whilst inflation decreased in 2024, progress is slow. Price pressures from tariffs and wage growth could pose challenges to the Fed’s rate cuts. Despite this, consumer spending remained resilient in 2024, expected to rise by 2.6% before slowing to a 2.1% pace in 2025.
Business investment slowed in 2024 (to 3.8%), with equipment spending being particularly strong. However, it’s expected to slow further in 2025 to 2.9%.
Global GDP is forecasted to increase at a steady 2.6%-2.8% through to 2032. With a slight recovery in 2024, global industrial production is expected to increase by 1.3% in 2024 before accelerating to 2.6% in 2025.
Chemical Demand Remained Weak – Modest Recovery in 2025
With over 80% of basic and specialty chemicals consumed by the industrial sector, industrial production remained stagnant in 2024. An improvement is expected in 2025 (up 1.1%). The 20 key chemistry end-use industries had uneven performance in 2023, but improved in 2024 with 12 of the 20 expanding.
The average automobile has over $4,400 of chemistry products, and vehicle sales are expected to increase slightly to 15.7 million in 2024 and 16.2 million in 2025.
Housing, another significant end-use market for chemistry, struggled in 2024. Housing starts fell in 2024 but are expected to rise slightly in 2025.
Chemical Production Eased Again in 2024
Weak demand for manufactured products in the U.S. and abroad continues to challenge the U.S. chemical industry. We expect chemical output volumes to fall 0.4% in 2024 with expected growth of 1.9% in 2025. ACC’s Economic Sentiment Index found that business activity improved slightly in Q3 and is expected to increase over the next six months.
Global chemical production is expected to expand by 3.5% in 2024, with gains across most regions, and to continue into 2025 with volumes up by 3.1%.
Chemical Trade on the Rise
Trade is vital to the U.S. chemical industry, which has maintained a trade surplus for decades. Nearly 200,000 chemical industry jobs depend on exports of chemicals and other U.S. manufactured goods. U.S. chemicals exports are projected to rise 2.1% this year (2024).
Capital Spending Grows
Despite higher borrowing costs, growth in capital spending remained strong in 2024, with spending on capital projects rising 4.1% to $34 billion.
Employment Stays Flat
In 2024, chemical industry employment was mostly flat. However, employment is expected to expand slowly in 2025 (by 0.2%) with slow gains through 2027.
The longer-term outlook for U.S. chemistry remains positive with natural gas advantage continuing to favor U.S. production. Recent legislation and new investments in specialty chemicals will create demand for U.S. chemistry. For example, semiconductor manufacturing requires 500 different process chemicals and electric vehicles have a higher polymer content than ICE vehicles.
However, external factors such as new or escalating geopolitical conflicts, unexpected financial volatility, and external shocks could disrupt this outlook. The full data set with historic trends and forecasts through 2027 is available to ACC members on ACCExchange and to others on the ACC Store.
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