Corrected: INSIGHT: US stimulus plan slow to the rescue

11 August 2009 16:20  [Source: ICIS news]

Correction: In the ICIS news story headlined “INSIGHT: US stimulus plan slow to the rescue” dated 11 August 2009, please read in the sixth paragraph … American Chemistry Council … instead of … American Chemical Council …. A corrected story follows.

By Brian Ford

Stimulus plan to the rescueHOUSTON (ICIS news)--Airgas chief executive Peter McCausland remarked during the industrial gas distributor’s recent quarterly earnings conference that he had yet to see a substantial impact from the US stimulus package.

“There is absolutely nothing convincing that we’ve seen to show that there’s an economic recovery underway,” he said. “We haven’t seen any real improvement in sales.”

Likewise, US-based coatings and sealants firm RPM International has not seen any major improvement resulting from the $787bn (€551m) stimulus plan, CEO Frank Sullivan said on 27 July.

“Despite the fact that we are a major player in highway bridge coatings in North America and a major player in high performance coatings for steel and concrete serving wastewater treatment [facilities] in a lot of municipal areas, we do not see any meaningful signs of stimulus,” Sullivan said.

“As far as we can tell, it’s mostly being utilised by state governments to fill budget holes,” he continued, adding he was “hopeful that those stimulus dollars, ultimately over the next six to nine months ... will start to show up in bricks and mortar and in public and private infrastructure”.

American Chemistry Council (ACC) chief executive Cal Dooley told Business Week last month that the stimulus “has not had a significant impact” and the Obama Administration was “realising that the economic challenges they face are much more difficult than they anticipated six months ago”.

So much for instant relief.

US Federal Reserve Board chairman Ben Bernanke said in March the stimulus plan should boost consumer demand and production over the next two years. The comments of the heads of the ACC, Airgas and RPM would seem to bear out that timeline.

ACC chief economist Kevin Swift said the eventual impact of the stimulus plan on the chemical industry was hard to measure.

An analysis found that “the actual programmes on the ground from the stimulus package would generate at least $2.2bn in additional direct chemistry sales [e.g., resins, adhesives, sealants, additives, etc]. Of course there are secondary and other effects that we weren’t able to measure confidently”.

The Associated General Contractors of America on 30 July released the results of an analysis report indicating that stimulus plan has gotten off to a slow start, with little impact on to date on construction companies’ ability to hire new employees.

The contractor report cited a slow pace of construction spending (a key end market for chemicals and plastics) outside of the transportation sector.

“While the construction portion of the stimulus is having an impact, it is far from delivering its full promise and potential,” said Stephen Sandherr, the chief executive officer of the contractors association.

Sandherr said that five months into a federal stimulus programme with $135bn dedicated for construction projects, there was little difference in hiring and purchasing patterns between companies doing stimulus-funded work and companies that were not.

Little of the stimulus’ construction dollars has resulted in actual construction work, Sandherr said. For example, he said, the Army Corps of Engineers was responsible for $4.6bn in stimulus construction funds, but the agency has only obligated $715m and paid out $84m, he said.

And he urged everyone involved with the stimulus to have proper expectations for what the stimulus will, and will not, be able to do for the economy.

“Unsustainably high expectations can bring down good policy and great programmes,” Sandherr said. “The stimulus will keep our industry alive, but it will not turn around a trillion dollar construction industry overnight.”

Not all of the stimulus package results are that slow in the making, however. The US Commerce Department reported that new home construction bounced sharply upward in May, with housing starts rising by 17.2% to 532,000, compared with April, apparently on the strength of federal stimulus efforts.

However, the department noted that the accelerated home building activity in May was still 45.2% below the level of home construction in May 2008.

Likewise, the US federal government's "cash for clunkers" vehicle rebate programmewhich received a $2bn infusion on 7 August, has been widely praised as the catalyst for stronger auto sales, which in turn could boost domestic auto production and demand for chemicals as a result.

Also, President Obama announced on 5 August $2.4bn in grants to speed up the development of batteries and electric vehicles. Dow Chemical and BASF were among the recipients.

($1 = €0.70)

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By: Brian Ford
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