Downturn
I've correctly predicted 9 of the last 5 recessions
Hello,
I wrote last month that for the first half of 2022 it looked like there was no way we were in a recession despite some modest negative GDP numbers getting published. Most companies in the chemical industry were still doing well and lack of available raw materials was still an issue for what felt like everyone in Q1 and Q2. I had never read it, but IMF lowered their Q3 outlook in July. It seems like we might be trending a bit down due to a few signals listed below:
Freight rates for containers and dry bulkers — or vessels carrying raw materials and bulk goods — have fallen over the past three months, S&P said, adding that rates peaked earlier than expected in the second quarter.
"We have seen global economic conditions worsen faster than expected with an accelerated deterioration in both European and North American demand particularly in epoxy and vinyls intermediates, which has been aggravated by increased Chinese exports precipitated by continuing weak Chinese domestic demand.”
“What we have really seen new in the last six weeks or so is a fairly significant drop-off in demand and margins, particularly in our European business,” said Lane. “And that's across the board really. We currently are seeing the headwinds of inflation and energy impacts. That's obviously compressing our margins but also declining demand. I think, ultimately, the consumer is just buckling under the pressure of inflation, and we are certainly seeing that in our portfolio.”
Alexander Tullo for C&EN is reporting that Eastman is correcting Q3 guidance and that Dow is being downgraded to hold by Jefferies. In addition to these signals the Federal Reserve has raised rates and we are now at about 3% for the federal funds rate. I think that all of these signals point to the beginning of real contraction.
So what does that mean for you?
If you are an investor then I really hope you aren’t getting your inflation and recession news here. If you are just a regular person in the chemical industry I’d make sure my resume is updated, your LinkedIn is updated, and I’d be activating my network. There is a chance that I think we see additional hiring freezes or potential layoffs on companies that were planning on 2021 and early 2022 demand continuing into 2023.
If you are in R&D and you are mostly doing a Technical Service job then I think you are actually pretty safe. The great thing about being in technical service is that when it comes time to remove cost you are typically critical to maintaining current business and saving $70-160k/year on your salary isn’t worth potentially losing a million in revenue if a customer isn’t able to get the attention they want.
If you are a student, I think it might be a little more difficult to get a job going into the last part of the year and if you are graduating in the winter things might be tough.
If you are looking for a new job and not having a lot of luck with the big chemical companies then I would recommend looking at start-ups. They often have enough cash to go for another 1-3 years and are often very insulated from macroeconomic forces. If you are going to have a first job I think being at a start-up is an excellent choice.
If you are in graduate school and you are just unsure about everything including graduation or maybe wanting to start your own company feel free to reach out by replying to this email or find me on twitter at @TPolymerist.
The thing about recessions is that they are always going to happen and they always happen eventually. The good news is that they go away and no matter what happens people are still going to need the stuff that the chemical industry makes.
Tony
You made it to the end. The biggest recession I ever lived through was the 2008 Great Financial Crisis which took us years to get out of and made it super difficult for me to get a job (I did get one though). I don’t think we are at that level and here is a clip from The Big Short which kind of shows how ridiculous things were back then in Florida.