OUTLOOK ’14: US economy to build on new energy, global recovery

WASHINGTON (ICIS)–Driven by abundant new energy supplies, a strengthening global recovery and increasing domestic consumer demand, the US economy is widely expected to reach or come very close to normal growth rates in 2014.

“Looking ahead to 2014, we anticipate a sustained global expansion that will result in growing trade,” said American Chemistry Council (ACC) chief economist Kevin Swift.

“We also anticipate positive supply chain impacts from unconventional oil and gas development in the US, through increased demand for equipment, chemicals and services required for energy production,” he said.

The US energy boom, led chiefly by a flood of exploration and development in shale deposits of both natural gas and oil, also will lower energy prices for consumers, Swift said.

He noted that there were only moderate gains in chemicals production output in 2013, “but inventories remain balanced, so growing demand in 2014 will drive demand for basic chemicals, especially those segments in which the US enjoys renewed competitive advantage”.

That growth in domestic chemicals productive capacity is most clearly illustrated in what ACC has measured in new projects development.   The council says that just since 2011, it has identified some 136 new chemical production projects in the US, representing investments of about $90bn (€66bn), with easily half of those capital projects being advanced by non-US companies.

These investments, said Swift, “will capitalise on the profound and sustainable competitive advantage enabled by shale gas development”.

“Following a decade of lost competitiveness, American chemistry is re-emerging as a growth industry,” he said, and the process industries are adding jobs after years of trimming payrolls.

“Globally, growth fundamentals in Europe and many emerging markets will be stronger in 2014 and the fragile recovery will gain traction,” Swift said.

“World GDP growth and trade, which are closely linked, will accelerate,” and “Chemical production will continue to outpace global GDP growth to enable higher living standards for the world’s growing population.”

The broader US manufacturing sector shares the ACC outlook, with the Manufacturers Alliance for Productivity and Innovation (MAPI) expecting US economic and manufacturing growth continuing in 2014 and on through to 2015.

“Inflation-adjusted gross domestic product will expand at 2.6% in 2014 and at 3.2% in 2015,” MAPI said in its most recent long-term outlook.

In the decades since the end of World War II, US economic growth has been in the 3% to 3.5% range, except of course for recessions.  Consequently, economists have come to describe that 3-3.5% growth range as the US standard trend.

In the MAPI forecast, the US should come close to trend growth in 2014 and climb well into the trend range in 2015.

“The worst is over and we’ll accelerate from here through 2016,” said MAPI chief economist Daniel Meckstroth.

“The main drivers will be on the consumer side, especially in durable goods,” he said.

In addition, “Housing will grow as a result of pent-up demand” as all those 20-something and even 30-something young adults finally move out of their parents homes or multi-partner rental warrens into their own homes.

“And an increase in housing activity means an increase for appliances and a ramp-up throughout the housing supply chain,” Meckstroth said

The Institute for Supply Management (ISM), source of the widely respected monthly purchasing managers index (PMI) that measures manufacturing strength, also sees stronger US economic expansion ahead, especially in production industries.

“The manufacturing sector is optimistic about growth in 2014, with revenues expected to increase in 16 manufacturing industries” out of the 18 major production sectors that ISM tracks.

“Capital expenditures, a major driver in the US economy, are expected to increase by 8% in the manufacturing sector and by 4.6% in the non-manufacturing sector,” ISM said in its forecast.

Those capital outlays and the new chemicals projects identified by ACC mean that the US manufacturing employment base likely will grow by 2.4% next year, the forecast said.

But 2014 will not be clear sailing all the time, according to some analysts.

In their last survey of members in December 2013, the National Association for Business Economics (NABE) said that “the US economy is likely to experience some headwinds in 2014”.

Most business economists surveyed by NABE expect that the Federal Reserve Board, the US central bank, will accelerate its phase-down of financial stimulus measures, known as quantitative easing.

That could tighten the money supply just a bit and perhaps begin to increase long-term interest rates, which together could dampen some business expansion plans but by no means all.

And, said NABE, if some in Congress have their way, additional cuts in federal spending could negatively afffect the nation’s economic growth in 2014.

Even so, NABE still sees growth ahead for the US, including greater gains in employment.

“Consistent with a solid pace of output growth, payrolls are expected to increase by nearly 200,000 per month next year,” the forecast said.

That rate of jobs growth is important because the US should generate about 150,000 new jobs each month just to accommodate young people entering the workforce for the first time.

($1 = €0.73)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy