CHICAGO — Brace yourself, because things are about to get good.
That's the economic forecast according to Alan Beaulieu, president of ITR Economics, at the International Association of Plastics Distribution annual Convention and Plastics Expo in Chicago in November.
Overall, and in spite of some naysayers, the U.S. economy is looking good, Beaulieu declared in his keynote address, noting record high levels of activity for industrial production and a strong GDP.
“You're going to find I'm quite bullish on the U.S., and not because of a sense of patriotism. Because of reality,” he said. “Where the economy goes, so does plastics demand. Where the economy goes is going to be up. You're going to like life.”
But part of getting the chance to “like life” in the next few years of booming business means getting ready now, he said. ITR, which enjoys a more than 95 percent accuracy rate on its economic forecasts over the last 20 years, is predicting a slight dip in the speed of the improving economy and rates of production next year followed by much stronger increases in 2016 and 2017 before a small recession hits in 2019.
Beaulieu predicts only modest gains for first half of 2015 will, but there will be an upturn in demand for plastics as early as the third quarter, driven by construction and automotive demand. But that will buy plastics business owners time to prepare for 2016, which he says will mean 4.6 percent growth and the possibility of doubling that in 2017.
“You have a slower 2015 to make sure that your ship is ready for action in 2016,” Beaulieu said. “Look at your business, where do you find a need? You're not going to have time to fix anything in 2016. Do it in ‘15 so you can reap all the rewards.”
Getting ready for growth doesn't necessarily mean plastics processors should be going on a hiring spree, the economist warned. Beaulieu advises keeping head counts low in the face of coming inflation, freeing up cash to make sure that your employees are being well compensated — and not shopping around for a better-paying gig.
“People's wages are going up, people's expectations for wages are going up and it's going to be more difficult to have a casual approach to the labor force,” he said, especially when finding skilled labor in plastics is already difficult and only getting more so.
As wages go up for various reasons, including health care costs, wages are rising faster than inflation, making inflation an insufficient metric to use for how business is going, he said.
“Be paying in the 75th or higher percentile to keep your A and B employees around and happy. It's expensive but it's necessary for the talent that is going to cause your company to grow,” he said. With high wages and productive employees combined with his predictions of a lack of pricing and inventory problems plus ample demand, “you should be profitable,” Beaulieu said.
Now is also the time for capital improvements, with a boom coming and banks back on the prowl. “This is an environment where banks want to lend, people want to borrow,” he said. Banks are looking to negotiate with borrowers again, so take advantage while you can, he advised.
“Invest in the assets that will increase your efficiency or increase your business and you're going to find yourself reaping the benefits. Pay back with cheaper dollars, interest rates will be going up, you're going to be an economic hero,” he said.
But makes your moves with an eye toward 2019, which is expected to hold a “fairly mild” recession — one that will be “consumer-based and not disastrous.”
