It was the best of times, it was the worst of times — this succinctly sums up the sentiment of processors when they view the U.S. economy at the cusp of the new millennium.
Just one year ago, processors polled by Plastics News overwhelmingly held a very favorable or somewhat favorable view toward the economy; in fact, the 84.8 percent total was one-tenth of a percentage point shy of the record set in 1995. PN started the poll in 1994.
As processors look into the crystal ball for 2001, however, a new record is set — that of the lowest percentage, 43.6 percent — for those who hold one of the two optimistic views.
Consequently, this year also set a record for the highest percentage of those who have a neutral or somewhat unfavorable outlook on the economy — 54.6 percent. Last year only 14 percent of processors felt that way, a record since the poll began.
Interest rate reaction
Why the sudden shift in view?
"Part of it is just looking at what's going on right now. The economy's not in good shape," said Bill Coleman, president of Vinylplex Inc., a pipe extruder in Pittsburg, Kan.
The numbers back up Coleman's view.
News reports have indicated the economy's about to take a downturn, and the stock market has echoed this fear. Several processors indicated the high interest rates are partly to blame for the negative outlook. Some 44.7 percent of processors cited interest rates as a factor in their outlook, up 14.6 percentage points from last year.
"The interest rates are the key indicator for me," said Jeff Braden, material manager at Venture Plastics Inc., an injection molder based in Newton Falls, Ohio.
"I'm really disappointed [Federal Reserve Chairman Alan] Greenspan didn't just start dumping interest rates. It would spur business for everybody," Coleman said.
Stephen Fleming, vice president of sales at CSP Inc., a film and sheet manufacturer in St. Louis, cited a myriad of factors for the outlook.
"I think it's several factors, one being the supply of money has tightened up, partly due to the fact you've had a fuel-cost increase, which in turn has accelerated the raw material product cost," he said.
Others cite overseas competition as the reason for a somewhat unfavorable outlook.
"I get the feeling that more customer bases are going to China," said John McNamara, president of J-Mac Plastics Inc., an injection molder based in Kenilworth, N.J. "I really can't see anything getting much better unless the government does something about tariffs."
John Anselmi, president and owner of Sunbelt Plastics Inc., an injection molder in Frisco, Texas, also cites the overseas market as trouble.
"I believe NAFTA/GATT has a lot to do with our business. Some companies think they get a better product out of China," he stated.
Others who took part in this year's poll, however, feel the news media may be partially to blame for the economic scare.
"I actually firmly believe we talk ourselves into recessions," said Al Marquis, general manager of Olamon Industries, an injection molder based in Old Town, Maine. "The media overreacts, and we listen.
"The economic surge we've had has been unprecedented, and one wonders how much longer it can go on. I think attitudes will play a big role in that."
Joe Germy, director of sales and marketing at S&L Plastics Inc., an injection molder and extruder in Nazareth, Pa., echoes this statement.
"If you keep talking about the economy going bad, it's going to go bad," he said. "You keep telling everybody, `Hey, there's a dangerous curve up ahead,' everybody's going to slow down, even if it's a straight road."
A cap on capital
Processors' relatively negative outlook on the economy this year also spilled over to how much they plan to spend on capital projects in 2001. Last year 81 percent planned to spend the same amount or more on capital projects, up 10 percentage points from the previous year. This year that figure plummeted more than 20 percentage points to 60.1.
What seems to be the driving force behind processors' skepticism can be found in the jumps in external factors they indicated would play the greatest role in expectations for the new year.
In addition to interest rates, raw material pricing and availability remains a major factor for processors.
But customer growth or cutbacks again leads the way as processors' top concern. A whopping 90.8 percent who participated in the poll cited this as the factor that plays the greatest role in expectations for the year. That figure is a jump of nearly 20 percent from last year.
Some have indications that cutbacks are imminent.
"Some of our customers have already indicated to us that things will slow down," Germy said.
"Everybody's taking a more cautious approach to their growth," said Fleming.
But some processors have already felt the effects of this factor. McNamara indicated he's at the mercy of customers.
"I've already gone through quite a bit. I've tried to build my business back up again to fill up the voids. You grow with the customers," he said. "But when they pull out, you're left holding the bag."
And he doesn't see this changing in the near future — definitely not in 2001.
"I don't see any rosy pictures here," he said.
Neither does Venture Plastics' Braden.
"Some of the automotive work has already been cut back in schedules. Some of the appliance schedules have cut down also," he said.
"Hopefully, we'll get enough new business to offset some of the losses we have."
Is there any light at the end of the tunnel?
Coleman, for one, is hoping to end the year with a more positive outlook.
"Optimistically, I'm hoping we're going to go through a bad year, and then things are going to pick up," he said.
The silver lining
And despite processors' negative outlook on the economy, nearly half of the processors polled still feel their company will be more profitable in the new year, which is a decrease of only 8 percent from 2000.
A large part of the reason may be due to processors' recent or planned expansions. Companies such as S&L Plastics and CSP Inc. fall into this category.
The unscientific poll was faxed the week of Dec. 11 to 1,314 processors in the United States, Canada and Mexico, yielding a 11.9 percent response rate. Processors were chosen from Plastics News' rankings of injection and blow molders; film and sheet makers; pipe, profile and tubing extruders; thermoformers; and rotomolders.