Industry Outlook: Chemical Production Slows as Recession and Regulatory Challenges Loom

The American Chemistry Council (ACC) reports that U.S. chemical production is slowing in the second half of 2023 as demand softens and the risk of recession remains high. Following a strong post-pandemic rebound, chemical output is expected to fall by 1.6% this year, impacting employment and capital spending across the sector. This shift highlights the industry's vulnerability to broader economic trends, including high interest rates and regulatory uncertainty, which are currently tempering growth in key end-use markets.

According to the ACC’s Economic Mid-Year Chemical Industry Situation and Outlook for 2023, the industry is entering a period of tremendous uncertainty characterized by a soft economy. Martha Moore, ACC chief economist, indicates that companies are now focused on careful inventory management as consumer spending slows. While output is projected to decline by 1.6% in 2023, a modest recovery of 1.2% is forecasted for 2024. This downturn follows a robust 2022 where the industry added 18,000 workers; however, employment is now expected to contract by 3,000 positions this year and another 1,000 in 2024.

Performance in key consumer sectors like housing and automotive is providing a mixed outlook for chemical demand. Each light vehicle contains over $4,000 worth of chemistry, and while sales are expected to reach 15 million units in 2023, high borrowing costs remain a hurdle. Similarly, the housing market—a major consumer of chemicals—is struggling with high mortgage rates, leading to a projected drop in housing starts to 1.32 million in 2023. These factors, combined with a global shift away from goods spending, have slowed global industrial production growth to just 0.7% for the year.

Despite these immediate challenges, the ACC highlights long-term strengths such as competitive energy fundamentals and a resurgence in U.S. manufacturing driven by clean energy and infrastructure legislation. Capital spending is still expected to grow by 2.4% in 2023, with sustainability-focused investments taking a larger share of portfolios through 2026. To bolster this domestic growth, the ACC is calling for smart regulations, including reforms to the EPA’s chemical management and the national permitting program. The organization argues that resolving supply chain issues in freight rail and shipping is critical for the U.S. to compete globally in technologies like semiconductors and electric vehicle batteries.