INSIGHT: US producers face test of export strength

04 September 2008 16:29  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--Chemical producers and a broad array of other manufacturers have thrived over the past year on strong export sales despite US economic woes, but as the global economy begins to slow that foreign market growth may be threatened.

 

Indeed, export sales of chemicals and other manufactured goods are fairly credited with saving the US economy from a serious dip into recession territory.

 

“Exports are vital to the US economy, especially during a time when domestic demand is stuck in low gear due to the ongoing housing recession and the effect high energy prices are having on consumers,” said David Huether, chief economist at the National Association of Manufacturers (NAM).

 

“Over the past year - second quarter 2007 to second quarter 2008 - the US economy increased by 2.2%,” Huether said. He pointed out, however, that the lion’s share of that modest gain was due to exports.

 

“Nearly two-thirds of that growth, 61%, came from exports, which increased by 11.2% during that period,” he said.

 

“Strong growth abroad, which has averaged 3.9% over the past three years (on a trade-weighted basis) and a more competitive dollar have made US manufactured exports more competitive globally,” Huether added.

 

That strong global growth has helped sustain the US chemicals industry, too, according to American Chemistry Council (ACC) chief economist Kevin Swift.

 

“Exports are very important to American chemistry, accounting for 23% of shipments for overall chemistry - and 25% of chemicals excluding pharmaceuticals,” Swift said.

 

“According to the Bureau of the Census, exports support 16% of the chemical industry’s jobs, with an additional 8% of industry jobs supported by the exports of other industries that depend on the domestic availability and quality of American chemistry,” Swift said.

 

That is 207,000 chemical industry jobs tied directly or indirectly to export trade, said Swift.

 

“Looking at the details of some of the resins,” said Swift, “exports have been very supportive at a time when domestic demand has been soft.”

 

“The July HDPE [high density polyethylene] figures just came out and indicated that while domestic sales thus far this year were down 6.2% for the first seven months compared with the same period in 2007, exports were up 59.6% during the same time,” he said.

 

“Similarly, domestic sales of polystyrene [PS] were down 3.7% for the first seven months this year compared with the same period in 2007, with exports up 2.1%.”

 

“The question is,” Swift said, “how long can this go on?”

 

The International Monetary Fund (IMF) said that “the slowdown in global growth, which started in mid-2007, is expected to continue through the second half of 2008, with only a gradual recovery during 2009”.

 

“Global growth decelerated to 4.5% in the first quarter of 2008, measured over four quarters earlier,” the IMF said in its recent world economic outlook, “down from 5% in the third quarter of 2007, with activity slowing in both advanced and emerging economies.”

 

In addition, “recent indicators suggest a further deceleration of activity in the second half of 2008,” the IMF said.

 

“Accordingly, global growth is projected to moderate from 5% in 2007 to 4.1% in 2008 and 3.9% in 2009,” according to the fund’s forecast.

 

“Expansions in emerging and developing economies are expected to lose steam,” the IMF said. “Growth in these economies is projected to ease to around 7% in 2008-2009 from 8% in 2007.”

 

“In China, growth is now projected to moderate from near 12% in 2007 to around 10% in 2008-2009,” the fund said. 

 

Growth projections for the euro area and Japan also anticipate a slowdown in activity in the second half of this year, the IMF said.

 

Consequently, at least some of the strong foreign growth that has sustained US chemical and other manufacturing over the past year and more can be expected to wane this year and into 2009.

 

As the export market begins to cool, will the US economy be in any sort of shape to help take up the slack?

 

The IMF said that US growth is expected to moderate to 1.3% for 2008 as a whole, with consumption dampened by high energy and food prices and tight credit conditions.

 

But the fund also expected the US to begin a gradual recovery in 2009. That recovery might come sooner than many expect. 

 

As August drew to a close, the US Commerce Department revised its estimate of the nation’s GDP in the second quarter to a 3.3% rate of growth, up sharply from the department’s earlier estimate of 1.9% GDP expansion in the quarter.

 

The question is whether the hoped-for US recovery will develop in time to offset projected cooling in export markets.

 

Joe Acker, president of the Synthetic Organic Chemical Manufacturers Association (SOCMA), said that there is another factor in the balance between domestic and foreign markets - the quality and dependability of US production.

 

“While there is no question that the weaker US dollar has helped our exports, there are other factors,” Acker said.

 

“As those developing economies begin to cool and as costs are coming up in China and India, questions are being raised in people’s minds about the quality and continuity of supply from those regions.”

 

In other words, even if the domestic US economy does not rekindle fast enough to offset somewhat slower economic growth overseas, there will still be sufficient international demand for dependable US products to keep export traffic high, according to Acker.

 

“US chemical firms are pretty well positioned,” Acker added. “In general, chemical folks are doing pretty good, and I expect to see that continue.”

  

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By: Joe Kamalick
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