Topline:
- Businesses and consumers have struggled with uncertainty this year.
- Disruptions to global supply chains have created a challenging environment for manufacturers.
- Hundreds of billions of dollars of announced investments in U.S. manufacturing will create demand for American chemistry over the next decade.
- Clarity on tax policy and a deregulatory trend have promoted competitiveness, but there are additional policy opportunities to do more to help the U.S. chemical industry remain a global leader.
“America’s chemical industry faced a difficult economic environment during 2025,” said Martha Moore, Chief Economist at the American Chemistry Council. “Despite unprecedented levels of uncertainty that challenged the industry and its customer markets this year, we anticipate a recovery emerging mid-year of 2026. Over the next decade, we look for growth as the President’s ‘America First’ agenda bolsters domestic manufacturing and pro-growth, pro-manufacturing policies enhance the chemical industry’s competitiveness around the world.”
Economic Outlook
While uncertainty remains high, it has come down since the mid-year with the passage of the One Big Beautiful Bill tax law, progress on deregulation, and a raft of trade deals that offer a more level playing field. The U.S. economy has remained resilient coming into the end of the year, though that resilience masks different paths in consumer spending and capital spending. Consumer spending has continued to expand; however, it is largely being driven by the highest-income consumers. Middle and lower-income households have held spending steady or pulled back, as higher prices, a softening labor market, and for some, repayment of student loans, reduces spending momentum. Business investment has been stronger than anticipated due to a combination of front-loading of investment goods ahead of tariffs (during the first half of the year) and the build out of data centers and electricity generating and transmission infrastructure. Capital spending in other areas has largely slowed in response to higher costs and an uncertain demand environment.
The unprecedented seven-week government shut down delayed key data releases, but private-sector data and surveys partially filled in the gaps and provided some evidence that economic activity has slowed in many parts of the economy. U.S. GDP is expected to have grown 2.0% in 2025, lower than in 2024, but better than expected at the mid-year. In 2026, GDP remains steady with a 2.0% gain.
Inflation picked up a bit during the summer, but with evidence of a weakening labor market, the Fed cut interest rates by a combined 75 basis points in September, October, and December. We expect consumer prices to rise 2.9% in 2025, down only slightly from 2024. We expect disinflation to continue into 2026 with a 2.8% gain in consumer prices, as the one-time impact of tariffs fades. We expect the labor market to continue to loosen as the unemployment rate rises from 4.2% in 2025 to 4.5% in 2026.
Consumer spending continued to expand in 2025, up 2.5% as the wealth effect from ebullient equity markets provided momentum, especially for the high-income consumers that are more likely to hold equity investments. Consumers at the other end of the spectrum, however, have pulled back as they struggle with higher prices for non-discretionary goods and services and a weakening job market. We expect growth in consumer spending to decelerate to 1.8% in 2026.
Business investment has also been a tale of two segments – AI and non-AI. The surge in construction of data centers has triggered demand for semiconductors, computers, certain electrical equipment, and advanced cooling materials, all of which require chemistry. The power needs of these data centers have also motivated record capital spending from power generators and distributors. These gains have been offset by other segments of the economy as high interest rates, higher prices for imported equipment and materials, and a highly uncertain economic landscape have curtailed or delayed investments.
Globally, growth has been subdued amid persistent uncertainty from trade tensions, geopolitics and structural shifts as greater protectionism and industrial policy shifts are reshaping global supply chains and investment flows. As economic growth and inflation have moderated in many parts of the world, central banks have lowered interest rates. We expect global GDP to grow 2.9% in 2025 and 2.7% in 2026.
Following a modest recovery in 2024, global industrial activity accelerated in 2025, up by 2.6% propelled by a surge in technology-driven investment, emerging high-growth sectors, and easing monetary policy.
Despite a challenging trade environment, world trade volumes expanded in 2025. A burst of activity in the first part of the year due to front-loading ahead of tariffs was followed by sustained activity driven by emerging markets.
Chemical Demand Eased as Customer Markets Faced Uncertainty
The vast majority (80%+) of basic & specialty chemicals are consumed by the industrial sector. The momentum in manufacturing at the end of 2024 and the beginning of 2025 dissipated as tariff announcements generated uncertainty. Customer inventories rose across many segments, setting the stage for lower output across many chemistry-consuming industries during much of the year. Following essentially stagnant growth over the past two years, overall industrial production is expected to rise 1.1% in 2025, largely on gains during the first part of the year and contributions from strong growth in several sectors (especially those tied to data centers, aircraft, and pharmaceuticals). In 2026, headwinds are expected to continue to constrain industrial output growth to a 0.6% gain.
Following long-awaited improvement in January and February, the ISM Manufacturing PMI® has showed ongoing weakness in U.S. manufacturing activity since March. Within manufacturing, performance among sectors has been uneven. In 2024, nine of the 20 key chemistry end-use industries we track expanded. Industries tied to data center investment, (semiconductors, computers, etc.) and aircraft did well, while industries linked to residential construction (e.g., structural panels, appliances, and furniture) remained weak. In 2025, we expect growth again in only nine of the 20 industries. In 2026, we expect some improvement in the industrial sector, especially in the second part of the year, with twelve of the 20 industries posting positive output growth. The recovery intensifies in 2027 and beyond.
Auto manufacturing is one of the most important end-use markets for chemistry. The average automobile built in North America contains more than $4,400 of chemistry products (including 429 lbs. of lightweight and durable plastics and composites). Even before tariffs, the total cost of vehicle ownership (including purchase prices, borrowing costs, insurance, maintenance, and repair) has escalated. Following a burst of sales activity in March and April ahead of tariffs and then again in August and September ahead of the expiration of EV tax credits, vehicle sales had their best year since the pandemic in 2025 with 16.2 million vehicles sold. That momentum is expected to wane in 2026, however, as cost factors and a weakening labor market constrain sales to around 15.8 million.
Housing is another important end-use market for chemistry, with 33,000 pounds of chemistry products in the average single-family home built in the U.S. Though mortgage rates have moved lower during the year, new homebuilding remained constrained by still high mortgage rates and high building costs. Existing home sales, which are a leading indicator of remodeling activity, have also remained weak. Housing starts declined to 1.36 million in 2025 and are expected to remain essentially flat in 2026 (steady at 1.36 million).
Muted Growth in U.S. Chemical Volumes in 2025
The upswing in manufacturing at the end of 2024 and into the first few months of 2025 was reflected in higher chemical production. During Q1, U.S. chemical production was up 3.2% from Q1 2024. Chemical production weakened in Q2 and Q3, however, consistent with the findings of ACC’s Economic Sentiment Index that found chemical firms felt that their overall business activity deteriorated in Q3. Not only has uncertainty held back domestic customers, but it has also impacted export markets which are critical as U.S. chemical makers export nearly a quarter of what they produce. With the weaker second half of 2025, we expect U.S. chemical output volumes rose only 0.7%, with gains in basic, specialty and agricultural chemicals offset by lower output of consumer products.
Basic chemicals production is expected to be only slightly higher (0.1%) in 2025 after declining in 2024, as gains in organic chemicals, synthetic rubber and manufactured fibers output offset declines in inorganic chemicals and plastic resins output. Plastic resins output was down slightly (-0.3%) in 2025, as manufacturing and export demand waned. Specialty chemical output, which fell in 2024, rebounded during the first half of the year and finished the year up 4.3% with gains in coatings and other specialty chemicals. Output of agricultural chemicals also rose in 2025 (up 2.7%), but consumer chemicals finished lower (down 2.2%) following strong gains in 2023 and 2024.
In 2026, demand pressures persist in the first half of the year before recovery builds in the second half. For the year, volumes are expected to remain essentially flat (up by 0.3%) for a fourth year. Output of basic chemicals is expected to rise 1.2% while specialty chemical output is expected to be essentially flat (down 0.2%) as many end-use sectors continue to struggle. Production of agricultural and consumer chemicals is expected to fall by 1.0% and 1.5%, respectively.
Globally, chemical production expanded by 2.6% in 2025, down from a 4.0% gain in 2024. Gains are expected across all regions except Europe. Growth in 2025 was driven by Asia/Pacific and Africa & Middle East regions. Output in Europe, which expanded in 2024 (following a steep decline in 2023), fell by 1.2% in 2025. Moderate growth will continue into 2026 with global volumes up by 1.9%.
Disruptions to Chemicals Trade
Trade is vital to the U.S. chemical industry. As the 2nd largest manufacturing exporter, the chemical industry is a model of an “America First” industry and has maintained a trade surplus for decades. With broad disruptions to global trade flows, U.S. chemical exports fell 2.0% this year (2025) and are expected to ease another 0.6% in 2026. U.S. chemical imports also fell in 2025, down 4.4% to $129 billion. Imports are expected to decline again in 2026 (down by 1.6%). Both exports and imports are expected to rebound in 2027 and 2028 as growth re-engages. The U.S. continues to maintain a trade surplus in chemicals throughout the forecast horizon, but due to unfair import competition and overregulation, the U.S. industry has the chance to lose its competitive advantage in the global market.
Uncertainty Dampens Capital Spending
Despite high borrowing costs and high levels of uncertainty, capital spending on chemical industry projects rose 2.4% to $39.8 billion in 2025, boosted by reinstated tax credits. With borrowing costs still elevated, tariffs on imported equipment and materials, and uncertain customer demand, growth in capital spending is expected to continue to slow to a 1.8% gain in 2026. In 2027 and 2028, capital expenditures are expected to accelerate, growing by 4-5% per year.
Chemical Industry Employment Flattens
Following strong gains in 2022, chemical industry employment eased in 2023 and 2024. Chemical industry employment continued to rise through the beginning of 2025, before falling back as customer demand waned mid-year. For the year as a whole, average employment was essentially flat (up 0.1%) and is expected to remain flat in 2026.
Longer-Term Outlook & Opportunities to Build an Advantage
Despite a challenging few quarters ahead, the longer-term outlook for U.S. chemistry remains positive. The U.S. chemical industry enjoys an energy and feedstock advantage that make U.S. production attractive globally. The Administration has promoted policies to build momentum in American manufacturing that will pay dividends for decades, including bolstering critical supply chains, accelerated depreciation for capital expenditures, and expensing of R&D costs. As a result, the hundreds of billions of dollars of recently announced investments in U.S. manufacturing (advanced manufacturing, in particular) will create demand for American chemistry over the next decade. In addition, data center investment and the race to build out AI will also require the products of chemistry. Without chemistry, AI is just an idea on paper.
The reconsideration of several regulations and the passage of the One Big Beautiful Bill tax package will enhance the competitiveness of the industry, but there is an opportunity to do more. Improvements to the Toxic Substances Control Act would increase the attractiveness of the U.S. market for innovative new products. A pro-growth permitting system could tackle the backlog of permit applications and unleash American energy. Smart reforms to transportation policy and thoughtful trade policies would further enhance the industry’s position. In addition, implementing policies championing advanced recycling could be a catalyst to reducing plastic waste and economic growth. A recent ACC analysis found that diverting 50% of plastics from landfill to recycling could generate $48.5 billion in economic output and support 173,200 jobs. Creating a smart regulatory environment is vital to producing more chemistry in America and improving America’s ability to compete with other countries.
As with any outlook, there are variables that could alter the projected outcomes. Currently, uncertainty remains regarding trade policy that could impact this forecast to the upside or the downside. Chemical investments are made for the long-term (up to 60 years in some cases), so a stable business landscape is imperative for decision makers. In addition, the Fed’s interest rate policy (and its impact on borrowing costs) is an important variable. Also, new or escalating geopolitical conflicts, unexpected financial volatility, external shocks (i.e., weather, cyberattacks, etc.) could also disrupt this outlook. On the upside, gains from AI-driven productivity and better-than-expected improvements in the U.S. investment landscape would promote more economic growth.
Not only has American chemistry helped develop and power our nation over the last 250 years, but it will also enable the next generation of American breakthroughs.
The full data set with historic trends and forecasts through 2028 is available to ACC members on ACCExchange and to others on the ACC Store.
Click here for a pdf of the accompanying tables.
Note: The forecasts in this blog reflect a compilation of consensus forecasts from other economists, consultancies, and ACC analysis.
Reasonable effort has been made in the preparation of this publication to provide the best available information. However, neither the American Chemistry Council, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.
