Economists See End To Recession | July 6, 2009 Issue - Vol. 87 Issue 27 | Chemical & Engineering News
Volume 87 Issue 27 | p. 9 | News of The Week
Issue Date: July 6, 2009

Economists See End To Recession

ACC predicts U.S. chemical output will rise 1.6% in 2010
Department: Business | Collection: Economy
Keywords: U.S. economy, economic recovery, Recession

The economic free fall is over, and the end of the recession is within sight, say economists at the American Chemistry Council, the U.S. chemical industry’s main trade association.

Expect the U.S. economy to have hit bottom in the second quarter and then move into positive territory in the second half of the year, write T. Kevin Swift, chief economist, and Martha G. Moore, senior economic consultant, in ACC’s midyear outlook. And although a weak first half still means that U.S. chemical production will fall 8.1% this year compared with 2008, Swift and Moore are predicting a 1.6% rise in 2010 and a 2.2% increase in 2011.

On the positive side this year, Swift and Moore point out, U.S. personal spending, consumer spending, existing home sales, and orders for durable goods were all up year-over-year in May. Globally, emerging Asian economies appear to be stabilizing, with production gains resuming.

But slowing down the economic recovery are depressed U.S. automobile and new home markets, which are major users of chemicals and plastics. The ACC economists project that overall U.S. industrial production will drop 11.2% this year before rebounding by 1.9% in 2010. By contrast, they project world industrial production to fall 8.5% this year before recovering by 2.3% in 2010.

For U.S. chemical producers, “margins will be challenged for a couple of years mostly because of industry overcapacity,” notes Frederick M. Peterson, president of business consultants Probe Economics. However, he sees some strong quarters ahead for chemical makers as their customers restock depleted inventories.

Dennis Cassidy Jr., a principal at management consulting firm Booz & Co., also sees some rays of hope, but he notes that government stimulus spending still hasn’t had a measurable impact on the industrial economy. “No one is building inventory today in anticipation of stimulus spending,” Cassidy points out. “Right now, most are still drawing down inventories to maximize their cash position.”

Even less optimistic is chemical stock analyst John Roberts of Buckingham Research Group, who says most companies would characterize improvements so far “as less than a normal seasonal pickup.” And although Roberts acknowledges some economic bright spots, he observes that oil prices are rising. Should that trend continue, he questions whether the U.S. chemical industry will see a sustained recovery.

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