US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

Hurricane Ida: Still a Disruptive Force to the US Economy

Hurricane Ida has finally passed into memory after making landfall in Louisiana and soaking much of the Eastern US with heavy rainfall. However, the effects of the storm are still being felt across the US in a number of ways:

  • Gas prices: For many in the US, high gas prices were one way in which the effect of Hurricane Ida was evident: a significant number of refineries are located in Louisiana, all of which ceased operations in the wake of the storm. Prices for regular gasoline climbed as supplies fell and people in the path of the storm purchased fuel for their vehicles before temporarily evacuating.
  • Diesel fuel prices: While few Americans fuel up with diesel, the trucks that carry consumer goods across the US almost exclusively rely on it. Thus, refinery shutdowns due to Ida meant that diesel fuel production was curtailed as well. This caused diesel prices to reach new highs – costs which will almost invariably be passed on to the consumer. Shoppers – who have seen high prices due to various pandemic-related supply chain issues – thus saw further price increases as shippers were forced to pay more to fill their trucks’ fuel tanks.
  • Plastic resin costs: In addition to gasoline and diesel fuel, refineries also make the feedstocks used to make the plastics that, in turn, permeate nearly every corner of our lives. Thus, refinery shutdowns also affected resin supplies, with two plastic types – polyvinyl chloride (PVC) and polystyrene (PS) – most affected. PVC is used in a wide range of building materials (e.g., siding, doors, windows, wire and cable jacketing, low-slope roofing membranes); both PVC and PS are frequently used in packaging applications. Shortages of these resins thus would not only affect the housing market – at a time of elevated housing prices – but also impact the price of thousands of consumer products, from groceries to health and beauty products.
  • Building materials: Building materials were already in short supply across the US due to a surging housing market and strong consumer interest in home improvement projects. Now, with thousands of homes and businesses across the nation damaged by Hurricane Ida, consumers are now facing a shortage of building materials as contractors scramble to perform needed repairs. Furthermore, even if materials are available, the workers needed to install them are also in short supply, further delaying repair and renovation projects.

Freedonia analysts will continue to monitor the ongoing effects of Hurricane Ida – as well as other severe weather events – on the US economy.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

Mergers & Acquisitions Are Booming in 2021: Key Factors Driving Increased Activity

M & A activity has been very busy this spring. Across a wide variety of industries, we’re seeing a range of announcements from market leader combos to roll-ups of smaller, regional operations. But what’s behind this rise in activity?

Here are a few key factors driving acquisition and divestiture activity across the economy in 2021:

  • Owners of smaller firms are looking to retire after their businesses’ survived the COVID-19 pandemic (or in some cases, these businesses struggled and owners did not want to rebuild).
  • Certain industries with high pandemic-era sales (e.g., construction goods suppliers, home improvement distributors/retailers, packaged food companies, grocers, lawn and garden equipment and supplies firms) are flush with cash and high stock values and are looking to expand.
  • Pent-up interest from the limited activity of 2020, as transactions that were planned or considered pre-pandemic were put on hold due to economic uncertainty or the difficulty of completing due diligence when you aren't traveling. Some of these previously planned transactions are now going through.
  • Expectations of higher tax rates are leading some firms to cash out now or to make shifts that put them on better footing.
  • SPACs (special purpose acquisition companies) are being increasingly used for acquisitions to expand existing public or private companies.
  • Companies are reevaluating their business operations in the post-pandemic era and are sometimes making changes to what they see as their core operations, or are building on key capabilities that have grown over the course of the pandemic.

Freedonia Group analysts are keeping watch across a wide variety of industries for changes that portend market movements and shifts in the competitive environment.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Chemicals      Construction & Building Products      Consumer Goods      Covid-19      Energy & Petroleum      Food & Beverage      Industrial Components      Machinery & Equipment      Packaging      Plastics & Other Polymers      Services      Textiles & Nonwovens    

Biden Administration to Investigate Global Supply Chain Issues

On February 24, US President Joe Biden signed an executive order mandating that federal agencies conduct a 100-day review of critically important supply chains, as the COVID-19 pandemic has raised focus on issues regarding access to certain products and materials generally sourced from abroad (and particularly those from China).  The review will focus specifically on four items, some of which have faced supply chain problems even before the pandemic:

  • Semiconductors:  Access to these chips, which are used for multiple purposes in motor vehicles and also are essential components of iPhones, personal computers, smart TVs, gaming systems, and more, increasingly became a problem during the pandemic. As remote working became more commonplace, demand for these chips increased greatly to accommodate the need for more personal computers and laptops. Additionally, trade restrictions placed on imports from China also caused difficulties, as many of China’s leading chip manufacturers had export restrictions placed on them by the United States. Additionally, some of these companies claim plans to expand manufacturing to the United States have been hindered by national security concerns raised by the Committee on Foreign Investment in the United States (CFIUS), due in part to the possible military applications of these products. The US-based Semiconductor Industry Association claims that the US’s share of global semiconductor manufacturing has fallen from 37% in 1990 to 12% today, and US manufacturers are pushing the White House to work with Congress to provide investment that they claim will support research and design operations and to increase domestic semiconductor production.
  • Pharmaceuticals: Shortages in certain drugs during the pandemic has also prompted a deeper examination into the pharmaceutical supply chain. A combination of increased demand for drugs to address the rising number of hospitalizations and the shutdown or slowdown of some international shipping ports led to key shortages. There are also concerns about being too reliant on China for key pharmaceutical ingredients, which has doubled over the last decade
  • Electric vehicle batteries: Global manufacturing of electric vehicle batteries is currently heavily concentrated in China, with Japan and South Korea ranking numbers two and three leading manufacturers, and the US back at number six, according to a report from S&P Global. With major US automobile manufacturers increasingly focusing on electric vehicles – including General Motors, which has announced that it intends to phase out all gas-powered vehicles by 2035 – reliable access to these batteries will be crucial in the coming years. 
  • Critical minerals: Rare earth minerals are used in a wide variety of applications, including airplanes, steel, light bulbs, wind turbines, and many more. Supply chain issues for these minerals long predate the COVID-19 pandemic, as China is the leading global producer of rare earth minerals. This problem of production being so heavily concentrated in a single country has been intensified by some of the Chinese government’s behavior in the past, including a brief restriction of rare earth exports to Japan in 2010 in response to a dispute in the East China Seas. These concerns have led to increased efforts from the rest of the world to ramp up rare earth mineral production, which has lowered China’s share over the last decade from around 98% down to 63%. In a continuation of efforts from the Obama and Trump administrations, Biden’s executive order will examine means of addressing weaknesses in the rare earth minerals supply chain. This will likely include both strengthening the US rare earth mineral industry and transitioning reliance on imports to countries with whom the US has friendlier reliance – primarily meaning a transition away from China.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Automotive & Transport      Construction & Building Products      Consumer Goods      Covid-19      Energy & Petroleum      Food & Beverage      Industrial Components      Machinery & Equipment      Metals      Packaging      Plastics & Other Polymers      Tariffs      Textiles & Nonwovens    

COVID-19 Pandemic & Rise of Electric Vehicles Continue to Affect Refining Industry

Like many other segments of the economy, petroleum refiners have been severely affected by the COVID-19 pandemic. Steep declines in air travel have caused demand for highly profitable jet fuels to plummet, while US consumers – many of whom now have zero-mile commutes – use far less gasoline. Thus, refiners – like downstream producers and other petroleum industry participants – have seen declines in profitability.

A recent article showcased the difficulties faced by the refining sector. While demand for gasoline and some other petroleum products has largely rebounded as shelter-in-place orders have been lifted, jet fuel use remains low, causing refiners to move to keep facilities closed or to operate at lower capacities, further affecting their profitability.

Furthermore, another threat looms on the horizon: the potential of the electric vehicle, which largely obviate the need for gasoline. While many are familiar with Tesla, a number of other firms are looking to enter the electric vehicle market. Monday’s announcement that Lordstown Motor Company – a firm dedicated to the manufacture of electric pickup trucks – would be going public as part of a reverse merger, demonstrated the continuing interest in electric vehicles. The more widespread introduction of electric-powered trucks and automobiles would cause severe disruptions to refiners, as a key end use for their products would slowly shrink. While packaging has boosted the fortunes of many refiners due to heightened interest in single-use plastics, this, too is not expected to last, especially once the COVID-19 pandemic passes.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including an expanding catalog of COVID-19 Economic Impact reports, which highlight how various industries are responding to the COVID-19 with a comparison to historical recessions. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Automotive & Transport      Chemicals      Covid-19      Energy & Petroleum      Machinery & Equipment    

Is the Crude Oil Situation a “Double Punch”, a Two-Sided Coin, or Both?

March 10, 2020 - On Monday March 9, crude oil fell to its worst day since 1991, with the coronavirus hampering demand at the same time OPEC and Russia went into a supply-side trade war. This is the double-punch that hit the energy industry hard and was a big reason for the S&P 500 having its 19th worst one-day drop by percent change and the worst since 2008.

However, there’s a flip side. Crude oil and gas prices are falling, potentially benefiting industrial users and consumers. Not only is industry using less oil as global demand pressures are reduced by curtailed business travel and manufacturer closures in quarantined areas, but Saudi Arabia is increasing supply.

Lower crude oil prices will help chemical producers outside of the US, at least on the raw material side, since there are a number of companies that produce ethylene and other basic chemicals from crude oil instead of from natural gas. However, that will likely not be enough to offset the drop in demand for more chemical end-use products as the effects of canceled events, flights, vacations, etc., ripple their way through the global economy.

Consumers will likely be happy about the lower gas prices. However, with many limiting or delaying travel plans out of real and/or perceived risk of either contracting COVID-19 or being stuck in a quarantine zone in this volatile time, they are not likely taking advantage of it in the way they ordinarily would. A return to higher levels of consumer confidence will be needed for consumers to absorb this higher level of production.

For more information, please see The Freedonia Group’s coverage of Chemicals, Plastics & Other Polymers, and Consumer Goods. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Chemicals      Covid-19      Energy & Petroleum      Plastics & Other Polymers