ACC's new ESI Reveals Chemical Manufacturers Both Optimistic and Concerned

US chemical manufacturers report their company’s activity level overall (e.g., sales, production, output) improved in Q1 2024, according to the American Chemistry Council’s (ACC) Chemical Manufacturing Economic Sentiment Index (ESI).

Though chemical manufacturers’ sentiment regarding the state of the global economy remained negative in Q1, their assessment of the US economy improved.

“Concerns about costs and regulations cast a shadow over positive reports from companies that orders have picked up,” said Emily Sanchez, director of Economics & Data Analytics at the ACC. “While there has been some improvement regarding costs, the survey indicates that regulatory pressures continue to be a big worry for companies.”

Report Findings

Demand: Following a drop off in Q4 new orders for US chemicals recovered strongly in Q1. In welcome news orders were up for both domestic orders and exports. Over Q1, more than half (57%) of chemical manufacturers reported the volume of new orders had increased. Looking ahead six months, chemical manufacturers anticipate gains in the volume of both domestic and foreign orders. 

Production Costs: Energy costs (for fuel and power) have eased since an uptick in Q3 2023 and the Q1 2024 ESI reading of -9.3 reveal declines overall. The report shares that transportation and input/raw materials costs rose over Q1 following declines every quarter in 2023. And labor costs continued to build following gains every quarter in 2023. 

ACC's Economic Sentiment Index statistics

Regulatory Concerns: In a troubling trend, many manufacturers (58%) reported their regulatory burden grew in Q1 and even more (67%) expect it to rise further in the coming six months. These findings track with an earlier regulatory survey ACC conducted that found the regulatory burden for most companies increased across all levels of government, which has hurt their ability to support national priorities and expand production.

Companies said they expect both the U.S. and global economy to improve over the coming six months. And chemical manufacturers expect demand to strengthen and their own company’s activity levels to accelerate over the first half of this year.

Labor Levels: Employment levels rose in Q1 following a decline in the fourth quarter. While 77% of companies reported levels held steady through Q1, 19% expanded employment levels and only 5% reported declines. Chemical manufacturers expect to increase employment levels over the coming six months. While most chemical manufacturers continue to indicate the availability of skilled labor has been “about the same” from quarter to quarter, the ESI reading has declined for the past three quarters. Just 2% of companies foresee increased availability six months from now. Most companies expect no change.

Inventory Readings: Chemical manufacturers have reported running down raw materials inventory levels for the past five quarters (all quarters the survey has been conducted), but the pace decelerated noticeably over Q1. About 60% of chemical manufacturers reported levels were “about the same” in Q1 as in Q4. Levels are expected to have stabilized by Q4. Similarly, more than half of chemical manufacturers (60%) reported finished goods inventory levels were stable over Q1. The reading for finished goods inventory levels nudged into positive territory over Q1 following three quarterly readings indicating manufacturers were destocking. Overall, manufacturers expect no further destocking in the coming six months.

The ESI provides quarterly insights from chemical companies engaged in nearly every aspect of the manufacturing sector and the US economy. This latest report builds on over five quarters of data from Q1 2023 to Q1 2024 and marks a shift in how companies feel about the economy.

“For the first time since we started conducting the survey companies are signaling optimism about economic conditions,” said Sanchez. “That’s probably because there has been a significant shift toward improved customer demand and increased production output. Addressing the cost and regulatory challenges will be key to sustaining this optimism and positive trend.”  

Read the complete ACC Chemical Manufacturing Economic Sentiment Index here.