It is late summer, and we are already almost two-thirds of the way through the third quarter. But I find myself wanting to bask in the warm afterglow of the economic data from the second quarter a bit longer.
In case you have forgotten, that was the quarter when overall gross domestic product growth in the United States hit the 4 percent-mark, and the rate of expansion in the data measuring total output of the U.S. plastics industry exceeded 6 percent when compared with the previous year.
The increase in the production of plastics products so far in 2014 has been driven primarily by strong demand from the durable goods sector. The data measuring output levels for the motor vehicles and appliances industries also enjoyed robust growth in the second quarter. And as usual, there was another strong performance registered by the medical supplies and equipment sector. So as we head toward the end of the year, many segments of the plastics industry have good reason to feel optimistic about the months and quarters ahead.
But lest we start feeling too exuberant about future prospects, I am reminded that not all sectors of the plastics industry are yet participating in the current stretch of above-average expansion. The data from certain segments of the packaging sector as well as the consumer products sector are still stuck in a trend of modest growth. One packaging executive recently lamented, “We are living in a 1 percent world.” My research indicates that the products included in this category include: caps and closures, tubs and containers, bottles for liquid food and household chemicals, and housewares.
Now modest growth is better than no growth, or even negative growth, but it is not enough to inspire greater confidence in the future. Processors in this situation are unlikely to hire additional workers or invest in new plants and equipment. They have been willing to replace worn-out or obsolescent capital stock with new, more efficient machines, and thus they are able to meet the small increases in demand through productivity gains. But many of them are still waiting to see firm evidence of a sustained rise in consumer demand before they invest more aggressively.
Compounding the problem of slow growth in the demand for these products has been the rise in the prices paid for plastic resins. Many of the products in this category are high-volume, low margin products, and therefore the price of materials represents a large portion of their total cost of production. The overall rate of inflation in the U.S. may be below the Fed's target levels, but the price of resins has marched upward at a pretty good clip during the past few quarters.