Business indicators
An upbeat year lor chemicals It's an upbeat year. But for the chemical industry, hardly one to cheer about. Business certainly has a better tone to it than it had a year ago. Improvements in the overall national economy are being translated into gains for chemical producers as well. Gross national product, for example, probably will total about $1.05 trillion this year, and may even edge a bit higher. That's an increase of about 8% from 1970. Home building is a decided strong point; housing starts are expected to climb to between 1.9 and 2.0 million, up a resounding 30% or more. Some experts in Detroit are still hoping for sales of a record 10 million new cars this year (compared with 8.4 million in 1970), although 9.5 million is probably a better guess. Steel shipments are estimated to total 92 to 93 million tons; last year's total was 90.8 million. All in all, the broad statistics look good. But if you look at business trends just a bit more closely, some of the brightness quickly fades. Recovery from last year's recession has been more slow and painful than many had expected earlier. (In part, to be sure, this stems from the relative mildness of the 1970 decline.) Unemployment remains stubbornly high, with little likelihood of any significant decline from the first-half rate of about 6% of the labor force before the year is over. Although the Administration's freeze has dampened the upward spiral of wages and prices, at least temporarily, underlying inflationary pressures remain strong, and half or more of this year's growth in GNP will be accounted for by price rises. The nation's balance of payments position has deteriorated alarmingly. Rising imports of cars (foreign-made autos are capturing 15% or more of the domestic market) and steel (imports are likely to top 16 million tons), 8A
C&EN SEPT. 6, 1971
among other things, have dimmed much of the glitter of those industries' record. Spending on new plant and equipment, a powerful economic stimulus, is now expected to advance by a very modest 2 or 3% for the year as a whole to about $82 billion. For the chemical industry, it will be a year of moderate gain—better than last year, certainly, but nothing to match some of the industry's best years of the mid-1960's or before. At midyear, in fact, the record was pretty much of a standoff. Production of chemicals and allied products was about 2% ahead of the previous year's level. Shipments were up by about 4%. Profits for the first half were decidedly spotty, with many major firms still trailing year-earlier performance. But the second quarter was clearly an improvement over the first. And comparisons between the second half of this year and the depressed final six months of 1970 are bound to look more favorable. By year end, production and sales may well be showing annual growth rates of 7 to 9%, about in line with the industry's average during the past decade or so. For the entire year, the Federal Reserve's production index for chemicals and allied products probably will register a gain of 3 to 5%, while that for industrial chemicals alone will do nearly the same. And thanks in part to somewhat higher selling prices, shipments of chemicals and allied products are likely to rise by 6 to 7% to approximately $53 billion. Firmer prices, in fact, are a key to much of the industry's current spate of optimism. The Bureau of Labor Statistics' index of wholesale prices for chemicals and allied products was up 2% from a year earlier at midyear, and for all of 1971 a gain of 2 to 3% seems reasonable. The outlook for earnings is more
difficult to estimate. Last year, the overall chemical industry netted $3.4 billion, a drop of 4%. But it did no worse only because of continued strength in the "allied products" segments of the industry, such as drugs (where profits were up 9%) and detergents. Producers of basic chemicals watched their net income collapse by 16% to $1.36 billion, the lowest level since 1963. The peak was $1.9 billion in 1966. Despite a less than robust first half, 1971 could shape up relatively well. Even modest gains in sales volume and selling prices during the second half would lift profits in the basic chemicals area by 6 to 10% to between $1.45 and $1.5 billion; earnings for the industry as a whole probably will approximate $3.7 or $3.8 billion, a gain of 8 to 11%. Industry executives, meanwhile, are generally optimistic about their future prospects. They look, for one thing, to an easing of the excess capacity that has plagued the industry during the 1960's. The industry is planning to spend $3.36 billion on new plant and equipment this year, a slight drop from 1970's $3.44 billion outlay. But actual expansion of capacity will be less than the figures might suggest; construction costs have been rising steeply, for one thing, while an increasing share of outlays is going for pollution control equipment and other nonproductive facilities. Slower expansion of capacity, coupled wih rising demand, will result in more effective use of plant and equipment. The chemical industry, which last year operated at roughly 75% of capacity, is likely to push operating rates above 80% this year. And a better balance between supply and demand should lead to further strengthening of the industry's battered selling prices and, in turn, healthier profit margins—at least in the short run.
INDUSTRIAL PRODUCTION I N D E X E S Chemicals and selected products, 1967 = 100
1960
1968
1969
1970
1971a
Total index Manufacturing, total Nondurable manufacturing, total Chemicals and products Industrial chemicals Inorganic chemicals n.e.c. Alkalies and chlorine Gases, coal tar, etc. Basic organic chemicals, n.e.c. Plastics materials Synthetic rubber Man-made fibers Drugs and medicines Soaps and toiletries Paints Agricultural chemicals Petroleum products Rubber and plastics products Tires Plastics products Paper and products Pulp and paper Converted paper products Textile mill products Cotton fabrics Man-made fabrics Durable manufacturing, total Primary metals Iron and steel Nonferrous metals Clay, glass, and stone products Flat glass and products Cement Structural clay products
66.2 65.4 68.6 52.8 51.4 64.4 68.1 54.5 46.5 48.9 76.3 38.4 46.2 60.9 72.9 50.9 76.7 54.4 73.6 36.6 67.9 67.2 68.6 70.7 86.4 53.3 63.3 74.2 79.1 64.1 81.1 88.6 85.0 98.4
105.7 105.7 106.0 109.9 112.1 98.4 104.7 111.2 111.5 115.1 111.1 131.1 111.3 105.1 108.0 99.4 104.7 112.5 121.6 111.5 106.0 105.8 106.1 108.8 94.1 127.3 105.5 103.2 103.6 102.6 106.0 108.3 105.6 104.4
110.7 110.5 111.1 120.4 123.1 101.4 113.5 127.8 122.2 134.4 117.7 142.2 131.2 112.5 113.7 100.5 108.4 119.5 122.8 125.8 114.2 115.4 112.6 113.2 90.0 137.0 110.0 114.1 113.0 116.0 112.5 116.6 109.1 104.2
106.7 105.2 110.6 120.2 122.3 103.3 116.9 123.0 118.5 137.9 114.9 142.3 137.7 114.3 107.6 100.5 112.6 115.7 110.8 129.0 113.3 115.0 111.5 106.3 87.4 125.6 101.5 106.9 105.3 109.7 106.3 108.9 103.9 92.8
107 106 113 125 127 107 114 125 121 143 117 157 153 116 113 99 116 125 122 140 115 116 115 110 92 125 99 109 107 113 109 134 110 96
a C&EN estimates. Source: Federal Reserve System
WHOLESALE PRICE I N D E X E S Chemicals and selected products, 1967 = 100
1960
1968
1969
1970
1971 a
All wholesale commodities Industrial commodities Chemicals and allied products Industrial chemicals Drugs and pharmaceuticals Fats and oils, inedible Plastic resins and materials Agricultural chemicals and chemical products Prepared paint Paint materials Other chemicals and allied products Rubber and plastic products Crude rubber Tires and tubes Textile products and apparel Man-made fiber textile products Pulp, paper, and allied products Wood pulp Paper Paper board
94.9 95.3 101.8 103.2 106.6 100.2 108.2 98.5 92.1 111.9 93.8 103.1 128.3 96.9 99.5 112.7 98.1 102.2 92.7 104.6
102.5 102.5 99.8 101.0 99.3 90.9 91.9 96.1 104.8 101.4 101.6 103.4 99.3 102.8 103.7 105.0 101.1 100.0 102.0 95.9
106.5 106.0 99.9 100.3 99.8 109.1 90.7 86.7 109.1 102.1 104.2 105.4 104.9 102.3 105.9 106.6 104.2 100.0 106.0 99.4
110.4 110.0 102.2 100.9 101.1 133.3 90.7 88.4 112.4 101.4 108.6 108.6 101.8 109.0 107.2 102.1 108.2 109.3 111.0 101.1
114 114 105 102 102 140 89 94 116 101 112 109 100 108 108 100 110 112 114 102
a C&EN estimates. Source: Department of Labor, Bureau of Labor Statistics SEPT. 6, 1971 C&EN 9A
