Industry analysts continue to report a very positive economic outlook for our industry.
Macroeconomic indicators of growth in the U.S. show continued improvement in the domestic economy with growth in personal income, business sales, industrial production and non-farm payrolls. The economic statistics of light-duty truck sales, home sales and industrial activity are all strong indicators of economic growth. Many credit the shale economy for our industry’s continued economic competitiveness sustaining the U.S. manufacturing renaissance.
Automobile manufacturing represents an important market for our industry with about $3,500 in chemical products in each vehicle. With a rebound in 2014, light vehicle sales are expected to rise in 2015 and 2016 due to continued demand, improving employment and income prospects, avail-ability of credit and low gasoline prices. Economists predict more than 17 million new cars to be sold annually through 2017.
The housing industry is another large consumer of chemistry products with more than $15,000 in chemistry in each new housing start. Driven by low inventories, low interest rates, better credit conditions and job growth, one economist anticipates housing starts of 1.16 million this year, 1.32 million next year and 1.45 million in 2017.
Industrial customers account for 85 percent of all basic and specialty chemical sales. The American Chemistry Council’s (ACC) industrial production index saw activity re-engaged in 2014 (to a 4.2-per-cent gain, compared to 2.9 percent in 2013). ACC predicts growth rates of 1.8 percent in 2015, 3.8 percent in 2016 and 3.5 percent in 2017.
The growth underscores the overall state of the industry, especially improved competitiveness compared to Western Europe. Since 2010, ACC has tracked 242 chemical industry investments valued at nearly $150 billion. But ACC warns factors exist that could put some of that investment at risk. These factors include unpredictable energy dynamics, workforce shortages, infrastructure bottlenecks, protective tariffs, government regulations and global market imbalances.
According to one economist, with the long-term impacts of oil and natural gas price ratios, natural gas will remain competitive with naphtha. Another variable will be the potential impact of Iranian oil production if a nuclear deal is reached and economic sanctions are lifted.
A Texas-based economist reported the rate of job growth in Texas is outpacing job growth across the U.S., and pointed out while the oil and gas industry is a significant part of the Texas economy, the “Texas Miracle” is much more than oil and gas. Year after year, Texas (3-percent growth rate) outperforms the rest of the country (2 percent) even without oil and gas jobs counted.
Good economic and tax policies are often divergent from good politics. In the last legislative session, there was an initiative to continually increase the property tax homestead exemption, which would create a progressive split roll in the property taxes paid by homeowners and businesses. This is bad tax policy that could have significantly impacted our state’s ability to attract future business investment.
The Texas Chemical Council (TCC) worked with the other major business organizations to express concerns about the tax proposal, and we were ultimately successful in negotiating a tax relief plan that cuts the franchise (margins) tax by 25 percent, raises the homestead exemption to $25,000 (up from $15,000), eliminates various occupational taxes and requires a 60-percent vote by local governments wishing to raise property tax rates above the effective tax rate.
Texas faces some ongoing budget pressures caused by depressed oil prices, a public school finance lawsuit that may require increased state funding and a November ballot initiative that would dedicate $5 billion from the state’s general revenue fund to pay for new highway projects each biennium.
Fair and balanced tax policy is essential to maintaining the economic growth of the chemical industry. TCC will continue to lead the fight to protect our industry investment and preserve our economic competitiveness to attract new investment opportunities.
For more information, visit TCC or ACIT at www.txchemcouncil.org or www.acit.org, or call (512) 646-6400.