The good news is that winter is over, and we expect economic growth will return to the trend that was well-established before all of the weather issues. The bad news is that there are some other factors impeding economic activity. The most important from the perspective of an injection molder is that household incomes are stagnant. The bulk of injection molded parts are not luxury items, so demand for these products is strongest when middle-class household incomes are rising.
Because spending patterns have been subdued for several years now, there is a large amount of pent-up demand for products like automobiles and household appliances. But consumers are currently postponing these purchases until they can pay for them rather than using credit cards. Home equity levels have risen, and this is supporting spending for home improvements. We expect moderately stronger growth in incomes for the next few years, and this will spur aggregate demand and result in moderately stronger growth in production of injection molded products.
Of vital importance to this forecast for stronger demand for manufacturing products is the continuing recovery in the residential construction and real estate sectors. The data show that these market segments are still in the early recovery phase of their respective business cycles, and they both have a long way to go before they get back to “healthy” levels. These segments are the cornerstone of America's consumer economy. Increased activity in these sectors not only generates a large amount of jobs, it also creates free-flowing credit markets. And most importantly, the residential construction and real estate segments reflect consumers' confidence levels and their willingness to spend money. Strong levels of residential construction and real estate activity are the engine that drive the American economy, and are therefore a prerequisite to stronger rates of economic growth.
After a slow start to 2014, we expect housing starts and existing home sales to regain momentum in the second half of the year. This increase will also show up in the data in important markets for injection molded products such as appliances and home furnishings.
Our current forecast calls for an average annual gain of 4-5 percent in appliance production in the years 2014 to 2016. The forecast for medical supplies and equipment is also for average annual growth of 4-5 percent for the next few years. Growth rates for injection molded consumer products such as housewares and packaging are expected to be in the range of 3-4 percent during this period.
For the transportation end markets, the outlook is quite good. The number of motor vehicles assembled in the U.S. has remained steady since the recession ended, and we are very near prerecession levels.
Consumers are still holding onto their cars longer than they might otherwise like due to sluggish improvement in their income levels, but the average age of autos in the U.S. is so old there is still a lot of replacement demand. We expect the number of vehicles assembled in the U.S. to hit 11.5 million units in 2014, and the total will get back to the prerecession plateau of 12 million units in 2015.
The other major transportation end market is aerospace. U.S. production of aerospace products and parts has grown moderately for the past couple of years, but the pace will accelerate gradually for the next 2 to 3 years. Airlines are ordering more aircraft due to increased travel demand. Manufacturers of military aircraft will also experience rising demand for their products in the coming years
In terms of total volume, the injection molding industry still has not reached the levels of output seen in the years immediately preceding the recession. In fact, the industry is only producing about two thirds of its pre-recession volume. But in terms of the dollar value of injection molded goods produced, the domestic industry has just about fully recovered.
In general terms, this means molders are making more money on fewer parts produced. Parts that were made in higher volume, but with lower profit margins in many cases have been replaced by lower volume parts with higher margins.
Bill Wood is Plastics News' economics editor. This analysis is part of Injection Molding Industry Report 2014, a research report by Plastics News' Research & Data Products department. For details and to purchase the full report, visit www.PlasticsNews.com/store.