FINE / SPECIALTY CHEMICALS

LAWRENCE D. SLOAN
Society of Chemical Manufacturers and Affiliates, 1850 M Street NW, Suite 700,
Washington, DC 20036-5810, USA

Lawrence D. Sloan

Economic outlook:

survey reveals optimism among specialty manufacturers

about future economic growth
KEYWORDS: Chemicals, manufacturing, survey, small business, trade, economy.

Abstract

Specialty chemical companies have reason to be hopeful about prospects for economic growth this
year. According to recent industry survey data by the Society of Chemical Manufacturers and Affiliates
(SOCMA), in partnership with United Business Media (UBM), specialty chemical companies entered 2015 optimistic about higher sales,
higher employment numbers and plans to invest and innovate. While, overall, the numbers paint a rosy picture for the specialty
chemicals industry going into this year, concerns remain. It is important for stakeholders to continue to advocate for pragmatic
industry-friendly laws and regulations to help ensure a positive business outlook.

Specialty chemical companies have reason to be hopeful

about prospects for economic growth this year. According
to recent industry survey data by the Society of Chemical
Manufacturers and Affiliates (SOCMA), in partnership
with United Business Media (UBM), specialty chemical
companies entered 2015 optimistic about higher sales, higher
employment numbers and plans to invest and innovate.
Provided here is a bit of insight into the economic state of the
specialty chemical manufacturing industry within the context
of the broader manufacturing economy. Before we begin,
however, it is important to note that the chemical industry is in
and of itself one sub-sector that makes up the manufacturing
sector. Hence, data reported for manufacturing should be
interpreted as a bellwether indicator for the chemical industry.
In addition, data serve as an important metric for end-use
markets where chemicals are sold. As defined by the U.S.
federal government, the manufacturing sector is composed of
the production of durable goods (such as kitchen appliances
and cars) and non-durable goods (such as food and other
perishables). Specialty chemicals go into these markets, plus
the separately categorized construction market, reflecting
activity spanning single-family homes, office towers to roads,
highways and bridges, and oil/gas exploration.
According to a survey conducted by the Manufacturers' Alliance
for Productivity and Innovation at the end of last year, the
manufacturing sector as a whole was forecasted to increase at
a 3.3 percent annual rate in 2015. At that time, the drop in the
price of oil, resulting in lower gas prices, was an additional boost
to an increase in consumer confidence ( the savings at the pump
translated to roughly $750 in savings per household over the last
12 months). Since then, the U.S. economy reportedly has grown
at a sluggish annual rate of 0.2 percent in the first quarter, down

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from a 2.2 percent growth rate in the previous fourth quarter.

According to the Associated Press (AP), the stronger dollar has
hurt the economy by making U.S. exports more expensive to
foreigners and imports more attractive to U.S. consumers, which
helped increase the trade deficit and reduce economic growth
by 1.25 percentage points. Consumer spending on goods and
nonresidential fixed investment were also weak, with the latter
experiencing sharp declines stemming from the energy market
and its supply chain. The bright spots were service-sector spending
and a rebound in manufacturing plant inventories.
The SOCMA-UBM survey, distributed to specialty chemical
manufacturers at the end of the fourth quarter of 2014,
depicts a positive outlook for the industry with 88 percent of
responding companies characterizing the market as good
or excellent. Before continuing, its important to note that
a large portion of the specialty chemicals industry and
a majority of respondents to the SOCMA-UBM survey are
characterized as small and medium sized enterprises (SME).
Due to their size, SMEs often feel the blow of an economic
downturn faster and harder than their larger counterparts. For
example, during a boom, business increases and small businesses
may find themselves making adjustments to keep pace with
demand, such as adding new product lines, hiring more staff and
expanding their facilities or retail space. If the economy begins to
falter, these same businesses can find themselves overextended,
oftentimes resulting in layoffs and closures. However, unlike a
larger business with thousands of employees, laying off a few
workers can make for a dramatic reduction in those companies
where staffing is lean. Furthermore, a business facing financial
struggles is far less likely to qualify for loans, which may limit growth
opportunities. When faced with these circumstances, SMEs often
lack the financial cushion that a larger company might have.

Chimica Oggi - Chemistry Today - vol. 33(3) May/June 2015

All that said, having such a large proportion of SMEs characterize

their economic outlook as positive demonstrates an increased
level of confidence from a sector that can be particularly
vulnerable to the effects of an economic recession.

are planning to scale production. Meanwhile, 35 percent

expressed a preference to hire jobs in the lab. Given the growth
strategy mentioned above, as well as companies intentions
to increase R&D investment, it makes sense to increase lab
personnel to scale up new products and product development.

To further illustrate this point, consider a recent survey conducted

Companies are also optimistic about making capital investments
by the National Association of Manufacturers (NAM) and
expanding their facilities and updating or buying new
IndustryWeek, which points to 91 percent of respondents
equipment. Forty percent of respondents to the SOCMAacross the entire manufacturing sector characterizing their
UBM survey say they are
current business outlook,
somewhat or very likely to
as of the end of 2014, as
Lawrence D. Sloan is President and CEO of the Society of
make capital investments in
somewhat or very positive.
Chemical Manufacturers and Affiliates (SOCMA). SOCMA is
2015, and another 47 percent
In fact, sentiments ran high
the only U.S.-based trade association dedicated solely to the
have indicated they already
throughout the course of that
specialty chemical industry. Since 1921, the organization has
have plans in place. These
year, with manufacturers
represented a diverse membership of small, medium and large
figures point to confidence in
keeping the somewhat or
chemical companies and has a global membership of more
the market and an optimism
very positive outlook above
than 220 companies. For more information on our services and
that specialty chemical
85 percent each quarter
products, please visit www.socma.com.
manufacturers will continue to
but this fourth quarter spike
to 91 percent in optimism
indicates the manufacturing
industry generally has high hopes for 2015. Compare these
numbers from the NAM-IndustryWeeks 2012 business outlook
survey conducted on the eve the so-called fiscal cliff when
62 percent of manufacturers forecasted a reduced business
outlook for 2013 and it is clear how much optimism has grown in
just the last two years.
Possibly fueling optimism among specialty chemical
manufacturers is increased sales. Eighty-six percent of respondents
to the SOCMA-UBM survey projected they experienced an
increase in sales revenue compared to the previous year. Close
to 60 percent of these companies projected a revenue increase
by 10 percent or more. Going into 2015, companies believe their
sales will increase. In fact, 60 percent expect their revenue to
increase by 10 percent or more. Again, this sentiment is aligned
with perspectives expressed by the broader manufacturing
economy, which, according to the NAM-IndustryWeek survey of
manufacturers, shows sales steadily increasing from 2012 to 2014
and 2015 sentiments similarly favorable.
Underscoring these increased revenues and overall positive
outlooks are the kinds of business decisions companies indicated
they were going to make in 2015. The SOCMA-UBM survey reveals
these companies plan to incorporate innovation and investment
into their overall growth strategies. New product introduction,
manufacturing process improvement and product development
came in as the top three approaches companies said they would
use to achieve profitable growth. On top of that, more than
half of all respondents said they plan to increase research and
development spending in 2015 manufacturers appear to feel
confident enough with the markets current trajectory to take the
financial risks necessary to find new ways to achieve growth.
Another impressive statistic is that 56 percent of respondents
are very likely to hire new workers. Twenty-six percent of these
companies already have hiring plans in place. Again, the
majority of these survey respondents and specialty chemical
manufacturers are SMEs, which means even a one- or two-job
increase at a plant can have a strong impact on that company
and the surrounding economy.
Drilling down a bit more, 64 percent of companies said they
would put new hires in production, which indicates companies

Chimica Oggi - Chemistry Today - vol. 33(3) May/June 2015

see growth this year.

While, overall, the numbers paint a rosy picture for the specialty
chemicals industry going into this year, concerns remain. Principal
among them are global economic uncertainty and currency
manipulation, where countries are setting their currency to the
U.S. dollar and skewing exchange rates. This is not a concern
unique to the specialty chemicals industry. Federal lawmakers
have introduced legislation seeking to crack down on currency
manipulation. This issue is especially timely as debate over trade
policy kicks into higher gear.
In addition to foreign competition, regulatory compliance
remains a concern. Chemical manufacturing is one of the
most heavily regulated industries in the U.S., and federal
regulatory reform remains a top priority for SOCMA members.
This apprehension underscores the need for lawmakers in
Washington to work better with the chemicals industry. Some
existing regulations impose significant compliance costs and
burdens impacting companies of all sizes, tying up financial
and employee resources that could be devoted to designing
greener or safer chemistries. We need smarter regulations that
achieve their intended goals without compromising industrys
ability to compete in the global marketplace.
Roughly 41 percent of the companies responding to the SOCMAUBM Business Outlook Survey listed intellectual property as a top
concern when selling overseas, in addition to foreign competition
and regulatory compliance. The specialty chemicals industry
produces a large amount of proprietary products, and SOCMA
hears concern from its members about intellectual property theft.
Similarly, companies are concerned with how their customers are
handling confidential business information (CBI). There is anxiety
about mishandling of CBI by customers or, worse, customers
attempting to replicate a product.
In closing, factors such as uncertainty in the global economy,
regulatory compliance and intellectual property protection
continue to provide hurdles for the industry despite the favorable
sentiments reported. Industry stakeholders must continue to
advocate for pragmatic industry-friendly laws and regulations to
help ensure a positive business outlook for our industry. By doing
so, the U.S. can continue to work towards a policy framework
where specialty chemical manufacturers are able to thrive and
remain the global innovation leaders they are today.

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