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FINANCES: Sales, earnings riseO n the surface, 1997 was pretty good for the U.S. economy - which grew 3.8% - and for the U.S. chemical in dustry. After all, sales increased about 3% from the year before. And after the first quarter, earnings ended the slide that start ed in early 1996 and began to post year-to- year increases over the lackluster previous year. Production increased, as did demand for chemical products.Demand for chemical products was driven by production increases in many of the major commodity markets for chemi cals. Granted, some of the major end-use markets such as automobiles, housing, aluminum, and apparel showed no growth in production if not outright declines. But production of other commodities such as tires, plastic products, paper, and furniture - all of which use quantities of chemical products - increased between 3 and 6%, according to Federal Reserve Board production indexes. The drive was good enough to bring chemical shipments out of the previous year's doldrums. The value of shipments of chemicals and allied products rose 5% in 1997 to $391.7 billion. Shipments of the largest chemical subcategory, industrial chemicals, likewise rose 5% to $191.8 billion. This compares with a 4% rise for the overall category in 1996 and a 2% decline in industrial chemical shipments. The biggest problem for the chemical industry was the same as it has been for the past few years: pricing. Prices, according to Labor Department statistics, rose just 1% for the broad chemicals and allied products category. But most of the subcategories of chemicals finished 1997 with average prices for the year no higher than they had been in 1996. With rising costs, the result was earnings gains that were no higher than those for sales.
 Note: Based on data for 30 major chemical companies. a After-tax earnings as a percentage of year-end stockholders' equity. b After-tax earnings as a percentage of sales. For 30 major chemical companies regularly tracked by C&EN, sales rose 2.9% to $92.3 billion. Earnings for the group increased just 2.7% to $7.63 billion. Thus, the aggregate profit margin for the group was 8.3%, the same as it had been the year before. And return on stock holders' equity fell to 19.8% from 21.8% in 1996. Productivity gains helped the industry last year. Average U.S. chemical employment fell by about 5,000, and among production workers, employment dropped by 7,000. This, combined with increased production, spurred productivity for chemicals and allied products up 4% over 1996. And unit labor costs - the labor costs associated with producing a unit of output - declined 1.6%. Also helping many companies' bottom tom line in 1997, but not helping future- oriented spending, were cuts in R&D spending. In a C&EN survey of 16 chemical companies, 15 with comparable data for 1996 and 1997 showed an aggregate 3% decline in R&D spending for 1997. This is the fifth straight year of lower research spending and puts outlays back below 1990 levels. A similar survey of 13 pharmaceutical and diversified companies revealed R&D spending growing 11%, the third highest growth in the past decade. The other leg of future-oriented investment - capital spending - also took a hit in 1997. Among 24 major chemical companies, spending on new plants and equipment fell 2%. This ended two years of growth for capital spending.
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