AKRON - Plastics will continue to be a hot industry despite the Federal Reserve Board's efforts to arrange a cool, soft landing for the U.S. economy in 1995. The plastics industry grew twice as fast as the U.S. economy in 1994, and the sector expects to continue that pace through next year.
New uses for plastic products are providing the primary impetus for the strong demand, but the industry continues to see gains through the replacement of other materials.
Economists estimate that the U.S. gross domestic product grew 4 percent in 1994.
Meanwhile, the U.S. plastics industry grew 8 percent, according to Michael Paslawskyj, vice president for business development and economic research for CIT Group Inc., a finance firm based in Livingston, N.J.
Paslawskyj spoke Dec. 15 in Akron at a one-day economic outlook conference for 55 executives of plastics processors and suppliers.
The Federal Reserve, in its attempt to throttle inflation while avoiding a recession, tinkered with interest rates throughout 1994, Paslawskyj noted.
The Fed raised short-term lending rates six times in 1994, moving them from 3 percent inFebruary to 6.5 percent in De-cember. Short-term interest rates are viewed as a primary instrument in affecting the economy because they directly influ-ence businesses' spending and growth plans.
``The Federal Reserve Bank is attempting to engineer what we economists call a `soft landing,'*'' Paslawskyj said, noting that the managers of U.S. economic policies would like to restrict the 1995 growth rate to 2.5 percent and to 1.7 percent in 1996.
At those growth rates, Paslawskyj said, expansion can continue while inflationary pressures are diminished.
Richard Stuckey, chief economist for DuPont Co. in Wilmington, Del., said Dec. 21 he is optimistic that the Federal Reserve will accomplish its goal of slowing the economy, but he and Paslawskyj both noted the economy has proven stronger than the Fed's efforts to curb its growth.
Stuckey, who retired from his DuPont post at year's end, said the Federal Reserve's effortshave not been successful because the two strongest sectors
of the economy - export trade and capital spending - are removed from the direct influence of short-term interest rates.
Paslawskyj sees continued strength in those segments as dangerous for the long-term health of the economy.
``The longer the economy goes on without a slowdown, the greater is the risk that in 1996 and 1997 there will be a recession,'' he said.
``There is a 30 percent chance of [a recession] happening today. Six months ago, I would have said there was a 20 percent chance of that happening. The risk increases with each month in which there is no slowdown,'' Paslawskyj said.
He believes the plastics industry will grow 4.6 percent in 1995 and 1.6 percent in 1996, but he noted that the industry could see a recession in 1996 if the economy slips into a recession.
``Plastics are having a great year. They have had strong, solid growth, production capacity and productivity are up, and foreign trade is growing,'' he said.
Stuckey said he believes the Federal Reserve will increase short-term interest rates to 7.5 percent by the end of 1995.
However, even with those expected increases, Stuckey and Tom Allen, vice president of Wentworth Capital Corp. of Portsmouth, N.H., noted that current lending rates are well below the rates seen in the height of the economic expansion period in the 1980s.
Like CIT Group, Wentworth provides equipment financing and leasing to plastic processing companies.
``We saw short-term lending rates at 10.5 percent in 1989,'' Stuckey said, adding that he believes the strengths of the economy - beyond the export and capital spending areas - will support continued growth through the end of this decade without a recession.
Allen agrees with Paslawskyj's prediction that the plastics industry will continue to grow through this year. His firm's payment portfolio is better now than it has been in five years, indicating that plastics processors are profitable and able to make payments on loans and leases.
Paslawskyj recommended that the industry use this flush period to improve productivity.
He is optimistic about the industry as a whole and concedes that productivity rose in 1994, but he said plastics has lagged other industries in productivity.
That lag will make the plastics industry less competitive in an economic downturn, and will curb its profit margins, he said.
``Some day, this industry is going to have to address productivity as an issue,'' he said, noting that plastics processors in Europe and the Far East have higher productivity levels than processors in North America.
