Recovery underway, but previous peak in chemicals might not be recaptured until 2013

Recent economic data make it "clear" that the U.S. recession that officially began in December 2007 ended a year-and-a-half later in the summer of 2009. After publishing its Year-End 2009 Situation & Outlook last November, the American Chemistry Council (ACC) says the economy's performance in the intervening months points to a definitive end to the longest recession since the Great Depression, with a V-shaped recovery currently in progress. As a result, the ACC anticipates 3.1% GDP growth in 2010 followed by 2.8% growth in 2011.

This recovery comes on the heels of a series of negative historical precedents for the economy in 2009, including a drop in consumer spending (-0.6%) for the first time since 1938; two consecutive years of declines in industrial production; and two straight years of diminished U.S. chemical output, with 2009 production down 4.5% following a 4.7% decline in 2008.

Going forward, the ACC is predicting that consumer spending in the U.S. will increase by 2.0% in 2010 and 2.4% in 2011. Although new homebuilding will remain at low levels in 2010, housing starts will grow modestly to a rate of 780,000 in 2010. This after falling to 564,000 in 2009. Consumer durables, including light vehicles, will also improve from historic lows, rising to 11.7 million in 2010. Business investment is also expected to recover, growing 1.1% this year before accelerating to 7.5% growth in 2011. Also, after those two consecutive years of decline, industrial production is expected to increase by 4.7% in 2010 and 4.3% in 2011.

Nearly all indicators show positive trends, but the ACC does advise against unabashed optimism in the coming months. "Although projected growth rates for most industries appear positive in 2010, they must be viewed in the context of the exceptionally sharp declines seen in 2008 and continuing into 2009," the ACC report cautions. "Moreover, it may take years for activity to recover from these steep declines and reach past peaks."

With the U.S. economic rebound deemed "fragile", weakened by high unemployment and a collapsed housing market, the ACC says this recovery will be led by emerging markets. The ACC believes global GDP will increase by 3.0% in 2010 and 3.1% in 2011, with the strongest growth concentrated in the BRIC (Brazil, Russia, India, and China) nations. World trade volumes, which fell dramatically in early 2009, have recovered and are expected to grow by 6.6% in 2010 and 6.7% in 2011. Concerns remain, however, about sovereign debt, with Greece and Dubai as notable examples that are serving to keep credit markets tight. The ACC also believes that threat of asset bubbles in China is a concern.

In chemicals, output is projected to rise 7.8% in 2010 before moderating to a 4.0% pace of growth in 2011, and 3.8% in 2012. For chemicals excluding pharmaceuticals, output is expected to rise 7.8% in 2010, partially offsetting the 8.4% decline in 2009 and 6.5% drop-off in 2008. The sector is expected to gain by 3.7% in 2011 and 2.9% in 2012, but it may be 2013 before the prior peak is reached. —mpweditorial@cancom.com