Weakening global economy threatens US exports

15 August 2008 20:23  [Source: ICIS news]

WASHINGTON (ICIS news)--Declining oil prices may signal a weakening global economy and that could spell trouble for US chemicals and other industries that have relied on strong export sales in the last year, an industry analysis said on Friday.

 

The American Chemistry Council (ACC) said in its weekly outlook on economic trends that “the recent decline in oil and other commodity prices may indicate a deterioration of the global economy”.

 

As the US economy has struggled over the past two years - lead by a freefall in the housing market, declines in auto sales and consumers pressed by high energy costs - US manufacturing in general has enjoyed especially strong export sales that thus far have kept the country bouncing along just above recession.

 

However, those strong export sales now may be in jeopardy, according to the ACC analysis.

 

“Indeed, the news emanating from overseas indicates that economic activity in the eurozone, Japan and several emerging markets ground to a halt in the second quarter,” council economist Emily Sanchez said.

 

“The gloomier economic outlook and potential for a recession in Europe and Japan is one reason the US dollar has strengthened lately,” she noted.

 

“Growth overseas is slowing and so will exports, which to date have been very supportive of US economic activity,” the analysis said.

 

However, there may be a silver lining amid foreign trade clouds.

 

“The US typically leads the global business cycle,” Sanchez said, “and this recent strength in the dollar may suggest that the current US downturn may be mild, with a recovery in the near term preceding that of other economies.”

 

A decline in export volumes could come as the domestic US economy is showing some signs of improvement but also is plagued by continuing pressure on consumer spending, the principal driving force of the country’s commerce.

 

Sanchez noted that business inventories and sales recently showed positive numbers along with improvements in industrial production. General industrial activity is a key consuming sector for the chemicals industry, she noted, so gains there are “always good for the business of chemistry”.

 

“On the other hand, [July] retail sales were weak when the effects of inflation are taken into account,” she said.  “Consumers are facing a number of headwinds.”

 

Consumer spending accounts for as much as 70% of US economic activity.

 

In chemicals, the council analysis noted that “the industry continues to post a trade surplus, buoyed by strong exports”.

 

“Production during July was rather strong, reflecting strength in basic chemicals and pharmaceuticals which offset softness in other segments,” Sanchez said.

 

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By: Joe Kamalick
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