Supply chains, shortages, inflation biggest risks to US economy – ACC

NEW YORK (ICIS)–Global supply chain constraints, shortages of materials and labour, and inflation are the biggest risks to the US economic outlook, the chief economist of the American Chemistry Council (ACC) said on Tuesday.

“Supply chain constraints are the biggest risk – it’s just pervasive,” said ACC chief economist Kevin Swift on a press briefing on the US chemical industry’s Mid-Year Situation and Outlook.

In a recent roundtable discussion among trade-association economists, “to a person, it’s all they talked about – they can’t get labour, they can’t get raw materials… You have CEOs telling their purchasing people to double order if they have to,” he added.

The double ordering is a big risk if conditions return to normal quickly and the value of high-priced inventory collapses, he noted, comparing the situation with that in the 1970s.

“A lot of these supply chain constraints… it’s been one thing after another. It’s amazing we just can’t catch a break,” said Swift, citing the US mid-February winter storm that knocked out petrochemicals and other materials capacity for months, and the blockage of the Suez Canal in March and overall shipping container dislocations.

The impact of these events continues to be long lasting, impacting many industries downstream.

“For example in Hickory, North Carolina, the center of the furniture industry, we still can’t get foam for upholstered furniture. Some of these constraints may ease fairly quickly but there are others that will take some time,” said Swift.

“More and more there are a lot of industries where it’s not going to be transitory. I think it’s going to be heightened for some time, at least until the fall, and then maybe ease then. But there’s just still too many constraints, including constraints on labour. Businesses just can’t find people, and they’re going to be in many ways bidding against the federal government to get talent,” he added.

The economist cited the JOLTS (Job Openings and Labor Turnover Summary) report by the US Bureau of Labor Statistics (BLS), which, when last published on 8 June showed a record high 9.3m job openings as of the last day of April, which outpaced the number of hires in April by a factor of over 1.5-1.

INVENTORIES TO REMAIN LEAN
On raw materials such as chemicals and plastics, inventories are unlikely to be rebuilt quickly amid continuing strong demand.

“The thing I hear when talking with people is there’s not going to be a quick return of inventories. They’re still going to be quite lean,” said Swift.

“If you went back to February, you may have heard… it’ll come back quickly, we’ll rebuild inventories by the summer. But from what I understand, it’s going to be a lot longer for plastic resins and [others],” he added.

“Some of it’s being met by imports but not as much as you might have anticipated looking at this early on. This is a problem that’s going to take a long time to unwind,” said Martha Moore, senior director – policy analysis and economics at the ACC.

The supply constraints from the US winter storm and other issues impacting downstream markets will curtail US chemicals volume growth in 2021.

“Certainly compared to our forecast when we were looking at this in December, we had much higher numbers [for US production and shipments]. So this has really knocked the legs out from our initial projections for 2021,” said Moore.

While the second half of 2021 should see much stronger production volume from the US chemicals industry, the whole year will be impacted by a weaker first half, she noted.

For 2021, the ACC economists expect US chemicals production volumes to rise 1.4% after a decline of 3.6% in 2020. However, because of higher prices, shipments are expected to jump 8.1% to $525.6bn in 2021 following a 13.5% decline in 2020.

OPTIMISTIC OUTLOOK FOR US ECONOMY
Even weighed down by supply chain constraints, the US economy is clearly on the upswing, with strong gains in consumer spending and business investment expected to lead to GDP growth of around 6.4% in 2021, followed by 4.3% growth in 2022, according to the ACC.

Key chemicals end markets of housing and automotive are expected to see V-shaped recoveries in 2021.

US housing starts are expected to rise from 1.40m in 2020 to 1.59m in 2021, a level that also outpaces the 1.30m in pre-pandemic 2019. This is even amid shortages of materials, appliances and labour. Rapidly rising home prices are also impacting affordability, he noted.

Light vehicle sales should rebound strongly from 14.4m in 2020 to 17.0m in 2021, which is about level with 16.9m in 2019. Auto production is being constrained by the semiconductor shortage, which could last two years, the economist said.

Focus article by Joseph Chang

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