By now you have probably heard the disconcerting news about the negative economic growth in the first quarter of this year. But in case you have not, here is a recap: according to the latest data released by the Bureau of Economic Analysis, total GDP in the U.S. declined by 2.9 percent in the first quarter of 2014. A moderate gain in consumer spending during the first three months of this year was not enough to make up for sharp declines in business inventories and net exports.
But not all of the news from the first quarter GDP data was bad. The latest report from the BEA also included data on U.S. corporate profits from the first quarter. The details here were mixed. And for a few sectors that are important to plastics processors, much of the profits data was downright favorable.
It appears that while total consumer spending was rising slowly in the first quarter, many manufacturers were sharply reducing inventories (thereby pulling down the overall GDP data), and saving the cash (thus generating higher profits). To appreciate this point fully, one needs to “drill down” through the data, but a little patience with the numbers will prove illuminating. Allow me to walk you through it.
As one might expect when total economic activity suffers a significant decline, total corporate profits also posted a substantial drop of roughly 9 percent in the quarter when compared with the previous quarter. Keep in mind that profits were still positive and still quite high, they were just not as positive as they were in the fourth quarter of 2013.
The good news for many plastics processors is that profits total for the entire manufacturing sector decreased by a much more moderate 4 percent, and all of this decline was due to a sharp drop in the non-durable goods data (mostly in the food and petroleum industries). Profit levels for durable goods manufacturers actually increased by a vigorous 10 percent when compared with the previous quarter.
Again, just to be clear: corporate profits for the entire manufacturing sector slipped 4 percent in the first quarter from the record-high levels posted in the fourth quarter of last year. Despite this decline, the first quarter total for manufacturing profits was still the second highest quarterly total ever. The total for the durable goods profits data increased markedly and registered an all-time high in the first quarter.
The surge in profits for the durable goods sector was due primarily to sharp gains in the computer and motor vehicle industries. The auto industry is now making more money than at any other time in this century. The data on auto sales confirms this uptick in the profits data — the sales data have trended higher since hitting a lull in January. The trend in the auto data is a leading indicator for the near-term trend in both the durable goods profits data as well as the data that measures demand for the many types of plastics products. So with the sales and profits data both trending higher through the first half of 2014, the second half of this year is shaping up nicely for many processors.