Recovery hanging on US fiscal cliff

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Industrial equipment, including plastics machinery, was on the ropes during the Great Recession. But plastics equipment now has enjoyed three straight solid years. For the latest, see the stories in this week’s Machinery Outlook package. It’s upbeat reading, but ...

The “but” in the immediate future is whether Congress and President Obama can come up with a deal to avoid the so-called fiscal cliff, a combination of tax increases and spending cuts. It’s certainly hard to have much faith in Washington, after one of the most rancorous presidential elections in recent history.

America’s plastics plants continue to invest in equipment. But nearly across the board — in injection molding presses, blow molders and extruders — plastics machinery executives told Plastics News machinery-beat senior reporter Bill Bregar that sales seemed to slow down in the fall.

That clearly shows that, when it comes to discussions about the economy, the turmoil in Washington has moved front and center.

Bill Wood, a plastics industry economist, points out that U.S. companies are forced to create a Plan A and a Plan B, in case the United States does fall off the cliff.

“Not only is that a huge waste of time, creating a contingency plan — it’s a huge mood dampener,” Wood said.

The Wall Street Journal recently ran a story with this headline: “Investment Falls Off a Cliff.” The subhead spells it out: “U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.” The Journal reports that half of the 40 largest U.S. publicly traded companies have announced plans to cut capital investment. “Nationwide, business investment in equipment and software — a measure of economic vitality in the corporate sector — stalled in the third quarter for the first time since early 2009,” the newspaper said.

The plastics industry, and U.S. manufacturing as a whole, has put 2009 in the rearview mirror. Consumers are feeling good. Thanksgiving weekend sales jumped 13 percent. Business leaders are more cautious, watching the slowdown in Europe and China — and the fiscal cliff.

But Wood points out that if the U.S. can avoid the fiscal cliff, companies could turn on the capital spending taps.

“There would be a release. There’s pent-up frustration, but that will turn into pent-up optimism. It’s going to be ‘Ding Dong! The Witch is Dead.’ Projects will be released,” said Wood, who runs Mountaintop Economics and Research in Greenfield, Mass.

Actually, Wood said he is more optimistic than he was a year ago. And the long-awaited home-construction recovery is the reason. We’ve got strong car and truck sales, declining unemployment and renewed consumer confidence. (And no more campaign ads!)

Home sales and new construction have been the final big blocks on the long road back to an economic recovery.

Construction is a key to a strong U.S. economy. “When times are good in the construction trades, times are good in everything,” Wood said. “Construction is going to drive automotive, appliances, electronics — all kinds of consumer durables. Once construction gets going again, we’re going to find the tailwinds are blowing.”

But first, Dorothy’s house has to crush the Wicked Witch of the West.

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