U.S. chemical manufacturers’ sentiment rises strongly in Q1 2026, but higher costs, labor shortages, and global uncertainty temper optimism.
Economic confidence among U.S. chemical producers strengthened during the first quarter of 2026, even as businesses continued to grapple with mounting operational expenses, according to the latest Chemical Manufacturing Economic Sentiment Index (ESI) released by the American Chemistry Council. The report highlights a notable upswing in overall sentiment, with several key indicators climbing to their highest levels since the survey was first introduced in early 2023.
A number of core performance metrics showed marked improvement compared to the final quarter of 2025. Measures tracking new orders, order backlogs, production output, and capacity utilization all recorded significant gains, reflecting stronger business activity across the sector. While expectations for the next six months eased slightly, they remained at relatively elevated levels, suggesting that companies are still cautiously optimistic about near-term prospects.
Investment activity also showed resilience, as capital expenditure rose for a second consecutive quarter, reaching its highest point since mid-2024. Companies’ evaluations of their own business performance shifted decisively into positive territory after two quarters of negative sentiment. In addition, perceptions of demand from major customers improved substantially, moving into expansion territory for the first time since the second quarter of 2024. Although views on broader U.S. economic conditions continued to signal contraction, the corresponding index still improved to its strongest reading since the third quarter of 2024.
According to Diego Saltes, the sector experienced a meaningful expansion in activity during the first quarter, building on the modest recovery observed at the end of the previous year. He noted that most performance indicators pointed toward solid and sustained growth during this period.
Despite these encouraging developments, chemical manufacturers are facing ongoing challenges, particularly in relation to rising costs. Production expenses increased sharply in the first quarter, with energy and transportation emerging as the primary cost drivers. Labor costs also edged higher after remaining relatively stable over the previous two quarters. At the same time, employment levels saw a modest increase, marking the first rise in workforce numbers since mid-2024. However, the availability of skilled labor deteriorated significantly, with the relevant index dropping to its lowest level in a year.
Inventory trends presented a mixed picture. Stockpiles of raw materials expanded for the first time since the second quarter of 2025, indicating improved supply availability or strategic stock-building. Meanwhile, inventories of finished goods continued to decline, although at a slower pace compared to the previous three quarters, suggesting some stabilization in downstream demand.
Looking ahead, a slight moderation in forward-looking indicators may signal emerging headwinds. While the recent quarter delivered strong performance, expectations have softened, potentially reflecting concerns over global economic uncertainty, geopolitical tensions, and persistently high energy and production costs. These factors could pose challenges for sustained growth in the coming months, even as the industry benefits from its recent momentum.
