The U.S. chemicals industry posted strong results this year, but will be challenged to do the same in 2023.
Chemicals, including many plastics feedstocks, had U.S. volume growth of 3.9 percent this year, with value of shipments up 4.9 percent, according to a yearend report from the Washington-based American Chemistry Council.
ACC officials described 2022 as "one of [the chemicals industry's] best years in a decade." Growth was strong in motor vehicles, aircraft and petroleum refining, the report said. Looking to 2023, sales are expected to grow best in oil and gas and semiconductors, while demand from appliances and apparel is expected to be down.
"Recession risk is rising in the U.S. and Europe," ACC Chief Economist Martha Moore said on a Dec. 7 video conference call. "We expect a shallow recession to emerge in the U.S. in early 2023, but a recovery should be in full swing in 2024."
Inflation and higher interest rates have slowed consumer spending in recent months and are likely to do the same in 2023.
"A soft landing for the economy is possible but challenging for the [Federal Reserve]," Moore said. "But inflation appears to have peaked and should be going down."
The U.S. gross domestic product (GDP) is expected to grow 1.8 percent this year after growing 5.9 percent in 2021 as the economy recovered from the pandemic. Moore said she expects GDP growth to be flat in 2023 with consumers spending less as a result of reduced fiscal stimulus and higher inflation.
Global GDP growth of 2.9 percent is expected for 2022, falling to 2.1 percent in 2023 before recovering to around 3 percent in 2024 and beyond. Global inflation rates of 8.3 percent are expected to decline to 6 percent in 2023.
Growth rates for global industrial production and for U.S. business investment also are expected to decline from 2022 to 2023. Global industrial production should slip from 2.9 percent growth to 0.2 percent, with U.S. business investment growth down from 4.2 percent to 0.4 percent.
Supply chain challenges for U.S. chemical producers and their customers "are easing," Moore said, as a drop in demand has played a role in improved conditions for transportation.
In the labor market, 4.3 million workers were needed in the U.S. in October, but labor demand should slow in 2023, causing a slight increase in the unemployment rate.
In transportation, U.S. light vehicle sales should increase from 13.8 million in 2022 to 14.9 million in 2023 as that market returns to pre-COVID levels. "There's pent-up demand there, but it's being tempered by higher interest rates," Moore said.
U.S. housing starts are on pace to fall 2.5 percent to 1.56 million homes in 2022 and are expected to slide to 1.34 million in 2023. Single-family starts are being restrained by interest rates, but multi-family starts are expected to increase.
Energy fundamentals "continue to favor U.S. production," Moore said. Natural gas based petrochemicals remain competitive, favoring the U.S., which has boosted natural gas production in the last decade. Recent energy production expansions have lagged expectations, Moore said, due in part to challenges in finding workers and some materials.
Chemical industry employment surpassed pre-COVID levels in January and the industry added more than 15,000 workers in 2022. Chemical workers continue to be among the highest-paid in the manufacturing sector, ACC officials said, averaging more than $90,000 per year.
The industry's capital spending grew 9 percent in 2022, with higher spending on capacity expansions, upgrades and sustainability projects. Those projects included investments in lower emissions technologies and advanced recycling. Growth in capital spending is expected to slow to less than 4 percent next year.
U.S. chemical exports reached a record $184 billion in 2022, but are expected to fall more than 9 percent in 2023 because of slowing global demand.
Going into 2023, ACC officials said policymakers can support the industry by providing support for U.S. energy development — including infrastructure investment. Policymakers also can do so by updating transportation policies to promote reliable and competitive freight rail service and by improving truck capacity on interstate highways, officials added.
