US economy expected to continue modest growth

By Joe Kamalick

WASHINGTON (ICIS news)--Continuing business confidence, moderating energy prices and positive economic indicators suggest ongoing demand for chemical products, although the US mortgage loan credit crisis still worries, industry economists said on Friday.

The American Chemistry Council (ACC) said in its weekly economic outlook that the US got good news this week with a surge in orders for durable goods in July, which increased nearly 6% over June to some $231bn (€169bn), the fifth increase in the last six months.

Durable goods - industrial and consumer items meant to last three years or more - are an important downstream consuming sector for chemicals, resins and related products.

The jump in durable goods orders “far exceeded expectations and suggests that business leaders remain positive about the economy and are willing to invest”, said Kevin Swift, chief economist at the council.

He also noted that US energy prices drifted lower this week as fears of a US mainland strike by Hurricane Dean eased.

Swift also pointed to a July increase in leading economic indicators as compiled by the Conference Board, the respected business research group. The indicators that measure production, sales, payrolls, personal income and other economic fundamentals rose 0.4% in July, offsetting a June decline and marking the third increase in six months.

Swift took particular note of the board’s industrial production index, which improved in July.  “Industrial production is an important indicator for underlying demand for basic and specialty chemicals,” he said.

Overall, he said, the Conference Board leading indicators “suggest that economic growth will continue at a modest pace during the next six months”.

Chemicals producers continue to watch the US housing market for signs of an end to a decline. A slump in the US housing market has caused domestic demand to drop for a wide range of products, such as polyvinyl chloride (PVC), sealants, adhesives, wood treatment products, paints and coatings.

New house sales reached a seasonally adjusted annual rate of 870,000, up 2.8% above the revised June rate of 846,000, the US census bureau said on Friday.

However, July’s figure was 10.2% below the rate in July of the previous year, the bureau said. July's increase in house sales will likely be temporary, as the US housing industry still has a substantial oversupply, the ACC said.

In other economic news this week, the number of people claiming jobless benefits in the US was 322,000, during the week ending on 18 August, according to the US Department of Labor. That is down 2,000 from the previous week, the department said.

Swift cautioned that the economic indicators for July were compiled before the full extent of the US home mortgage credit crisis was known, noting that the home building sector - another key downstream consuming market for chemicals - might see still more downward pressure.

It will take a few months of data before it is clear what effects credit tightening will have on the US economy, the ACC said.

($1.00 = €0.74)