Chemical Industry Outlook 2025: Gradual Momentum Builds

Coming into 2025, the U.S. economy finds itself on solid ground as business investment and consumer spending continue to be drivers. U.S. gross domestic product was up by 2.7% in 2024. Growth is expected to slow to 2% in 2025. Recent Federal Reserve interest rate cuts have reduced recession risks, though inflation continues to moderate slowly. 

While much lower than in 2022, inflation remains stubbornly above trend, with the Fed's target price index for core personal consumption expenditures remaining mostly stable since the second quarter of 2024. While goods prices have declined due to weak demand, services inflation remains above trend. Headline consumer prices rose by 2.9% in 2024, down from 4.1% in 2023 and are expected to drift lower to 2.2% in 2025.

The Fed's rate cuts in September and November are expected to boost investment and consumption, though with a lag. Potential tariffs and wage increases pose risks to this easing cycle. Consumer spending has been resilient, supported by wage gains and a tight labor market, with a 2.6% rise in 2024. However, as the labor market cools, wage growth and consumer spending are expected to slow to 2.1% in 2025.

Business investment, driven by recent legislation and reshoring activities, rose by 6% in 2023 but slowed to 3.8% in 2024 due to higher borrowing costs. Despite this, spending on equipment remained strong. 

Global Outlook Improving

Global GDP grew by 2.8% in 2024, supported by strong performance in the United States and India, with a steady growth rate expected through 2032. Industrial activity remains weak globally, with modest recovery expected. World trade volumes are set to grow by 2.5% in 2024, accelerating to 3.2% in 2025. Despite these challenges, the global outlook for 2025 shows signs of gradual improvement.

U.S. Industrial Sector Struggles 

Manufacturing is the cornerstone of the chemical industry. More than 80% of basic and specialty chemicals are consumed by the industrial sector, which saw production stall following stagnant growth in 2023. Strikes, supply chain disruptions and several hurricanes hampered demand in the United States. In export markets, where more than a quarter of chemical output finds a home, manufacturing sectors in many economies remained weak. 

Overall U.S.-based industrial production was essentially flat in 2024 for the second consecutive year. However, with falling interest rates and improving growth expectations in key customer economies, expect modest improvement in 2025 of 1.1% in the United States and 1.3% globally.

The ISM Manufacturing PMI indicated that manufacturing activity remained weak, contracting nearly every month for the past two years. Performance among sectors has been uneven, with only eight of the 20 key chemistry end-use industries expanding in 2023. 

This improved slightly in 2024, with 12 industries showing growth. Sectors tied to semiconductors, computers and electrical equipment performed well, while those linked to construction, such as structural panels, appliances and furniture, remained weak. Looking ahead to 2025, growth is expected in 16 of the 20 industries.

Automotive and Housing Markets: Key End-Use Markets for Chemistry

The automotive industry is a crucial end-use market for chemistry, with the average automobile built in North America containing over $4,400 worth of chemistry products. Despite four years of below-average sales, vehicle sales rose slightly to 15.7 million in 2024 and are expected to expand to 16.2 million in 2025, despite affordability constraints and tight dealer inventories.

Housing, another significant market, continued to struggle in 2024 due to interest-rate sensitivity and high home prices. Low inventories of existing homes kept pressure on home prices, making 2024 likely the worst year for the existing home market since 1995. Sales of existing homes are a key driver for remodeling activity which remained lackluster in 2024. 

New homebuilding also faced challenges from land-use regulations and labor shortages, in addition to high borrowing costs, with housing starts falling to 1.35 million in 2024. However, a slight rise to 1.40 million is expected in 2025 as interest rates begin to ease.

Chemistry Moves Forward in 2025

The U.S. chemical industry has faced several years of weak demand for manufactured products, both domestically and internationally. Chemical production was essentially stagnant in 2023, down 0.2%, and output eased again in 2024. Declines in basic and specialty chemical volumes were only partially offset by gains in agricultural chemicals and consumer products. As a result, chemical output volumes fell by 0.4% in 2024. 

However, with lower interest rates driving investment, construction and goods consumption, chemical output is expected to grow by 1.9% in 2025, with the largest gains in the Gulf Coast and Midwest regions.

Amid weak demand, the output of basic chemicals in the United States fell by 1.5% in 2024, with gains in plastic resin output offsetting declines in organic and inorganic chemicals, synthetic rubber and manufactured fibers. Plastic resins output rose by 2.3% in 2024, driven by competitive exports. Specialty chemical output fell again by 3.2%, reflecting the slow recovery across many end-use markets. Agricultural chemicals rose 1.2%, with gains in crop-protection chemicals offsetting a small decline in fertilizers. Consumer products, which grew strongly in 2023, accelerated by 5% in 2024. In 2025, gains are expected across all chemistry segments, in line with a modest recovery in construction and manufacturing.

Globally, chemical production expanded by 3.5% in 2024, with gains across all regions except Latin America. The largest gains are anticipated in Asia/Pacific, former Soviet Union economies and Africa and the Middle East. Europe saw an expansion following a steep decline in 2023 due to surging energy prices from Russia’s invasion of Ukraine. Latin America remains the only region experiencing contraction. Global chemistry volumes are expected to grow by 3.1% in 2025.

Trade and Capital Spending

Trade remains vital to the U.S. chemical industry, the second-largest manufacturing exporter. The U.S. chemical industry exports more than a quarter of what it produces each year. U.S. chemical exports rose 2.1% in 2024, following a decline in 2023, while imports rose by 1.2%. Through 2028, chemical exports are forecasted to average 4%-5% annually, with imports averaging a 7% annual growth rate. Despite potential changes in trade policy, the United States is expected to maintain a trade surplus in chemicals.

Capital spending in the chemical industry remained strong in 2024, up by 4.1% to $34 billion despite higher borrowing costs. Between 2025 and 2028, capital expenditure is expected to grow by an average of 2.9% per year. Investments continue in shale-advantaged projects and specialty chemicals to support growing capacity for high-demand components like semiconductors and batteries. In addition, investments in sustainability continue to represent a large share of the industry’s capital spending.

Employment Trends

Following strong gains in 2022, chemical industry employment eased slightly in 2023 and remained flat in 2024. Employment bottomed out in the first quarter of 2024 and rose in the second and third quarters. A slow expansion of 0.2% is expected in 2025, with gradual gains through 2027.

Despite several years of weak demand, the U.S. chemical industry remains a vital component of the global economy, providing innovative and essential chemistries to customers around the world and supporting local communities by providing over half a million high-paying jobs. With a modest recovery in industrial demand in the United States and abroad, chemical volumes are expected to increase in 2025 and beyond.