January update on the US economy, energy and chemicals.
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Macroeconomic
Our US leading business barometer (LBB) peaked last February and has declined since, a signal consistent with a US recession. We believe, however, that any recession will be mild. The former ACC CAB leading indicator was based on the LBB. Our related barometer of US inflation peaked in April and the year-earlier gains in CPI turned last summer. That said, inflation will remain elevated in the near-term. Our global leading business barometer is also signaling conditions consistent with a global recession.
A recession has emerged in the UK but with a warm winter, the prospect of recession in the Euro Area may be receding. China’s economy should improve with the lifting of COVID restrictions, but the virus will work its way through the population, hampering output in the coming months. Property sector woes are also still in play. Japan and many other East Asian nations will soften next year, but likely avoid recession. India continues to be a bright spot and the nation’s economic growth will be among the strongest worldwide. Elsewhere, growth looks set to slow and even weaken in some markets.
In the United States, the decline in housing continues, and economic headwinds are now presenting challenges in light vehicles. Pent-up demand, however, could provide some support. Industrial production has softened since October as have retail sales. Inventories have risen in many industries. Our forecast for the US economy in 2023 is for a 0.2% gain in real GDP, off from 2.1% in 2022 and 5.9% in 2021. By 2024, growth should rebound to nearly 1%. The path for a soft landing has widened slightly.
Specialty & Fine Chemicals
December was the second month for weak market activity, with overall U.S. specialty chemical and fine chemical volumes falling 1½% to 3.55 million metric tons, a level up 2.2% on a year-over-year (Y/Y) basis. Activity across segments was largely negative, with only two — active pharmaceutical ingredients and agrochemical intermediates — out of 30 market segments expanding in December.
For 2022 as a whole, overall specialty volumes rose 6½% compared to 2021. The first half was largely positive, but many challenges were present in the second half. During 2022, 27 of 30 segments expanded. This year will be a very challenging year.
In our monthly report, we examined printing inks in detail. This is a 722,000 metric ton market in the United States and a 4.51 million metric ton market worldwide. Printing inks is a major market for pigments, resins, solvents, and other chemistries. After expanding 2.5% in 2022, this year at best will prove challenging and the long-term will feature even greater challenges. Opportunities will vary among end-use markets. Growing demand in flexible packaging, commercial printing, packaging, and labels will provide some opportunities but will be offset by loss in advertising and publications. In February, we will examine coatings.
Basic Chemicals & Synthetic Materials
Looking further upstream, production of US basic chemicals and synthetic materials fell to 34.54 million metric tons in December. Output, however, was off 5¾% on a Y/Y basis. With the exception of inorganic chemicals, weakness was widespread among the broad segments. Capacity utilization fell during the month.
Energy
China has reversed its zero-COVID policy and it may have the effect of boosting oil demand later in 2023. Geo-political tensions and uncertainty about the global economic outlook, however, remain. On the supply side, OPEC+ production volumes improved slightly, aided by more Nigerian output. Russian oil output and exports remain firm, but new European sanctions start in February. US production improved to 12.2 million barrels per day but gains in the rig count appear to have stalled. Our base forecast calls for oil (Brent) to fluctuate around $85 per barrel (with some short-term volatility) this year and in 2024. There are, however, scenarios for both a low case ($68) and high case ($105) for oil prices.
In the United States, mild winter weather has improved supply and with some demand destruction, we have trimmed our outlook for American natural gas prices in 2023.
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Dr. Kevin Swift
Managing Director
Swift Economics LLC
540-642-6379
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