But unless you are in the auto industry, consumer behavior still feels a little tentative. This is causing a feeling of uncertainty in the marketplace, and uncertainty is acutely felt by many segments of the plastics industry, especially mold makers. As one industry executive recently said to me, “Quoting activity is strong, but getting the customer to commit is becoming more difficult.”
The ISM index was created to indicate inflection points in the U.S. manufacturing sector. Neither the U.S. economy, nor the U.S. manufacturing sector, ever stand still. They are always moving. They grow the majority of the time, but there are periods when they contract. The idea behind the ISM index is that when it hits 50, it is an indication that the manufacturing sector might be changing from a period of expansion to one of contraction.
Contraction coming?
Such was the case in 2008. After a long period of expansion during the middle of last decade, the index slipped below 50 in December 2007. It plummeted a few months later. But the chart also demonstrates that there are times when the index glides down to 50 and then rebounds higher. So sometimes a value of 50 is a harbinger of a period of contraction, and sometimes it is a precursor of a future period of expansion.
Our Plastics News Business Monitor Index was created for the same reason as the ISM index, but our index focuses on the plastics industry. As the table shows, our injection molding index increased moderately in the second quarter, but much of this increase can be attributed to the fact that export orders were stable then, after suffering a precipitous drop in the first quarter.
Further analysis reveals that the sub-indices for new orders and production levels remained high for the injection molding segment in the second quarter, and there was a gratifying rise in the number of employees. Future expectations amongst injection molders were quite optimistic, and this was reflected in the strong level of capital spending plans. All in all, the injection molding segment performed well in the first half of this year in spite of the business conditions that were restricting growth in other manufacturing sectors.
All of that is assuredly positive, but still we must ask “What's next?” We know that periods of economic expansion do not rise ever upward in an uninterrupted linear fashion. Expansionary periods are always punctuated by healthy corrections that create buying opportunities for savvy investors.
But we also know that expansions do not last forever, and sooner or later, a period of contraction will develop. But how does one tell the difference between a healthy, and short-term correction (a good time to invest), and the start of a longer-term recession (an obvious time to divest)?
At the present time, the decision about whether to invest in new employees or machinery or tooling is an uncomfortable one for many in the plastics industry. To many, it feels like we may be near one of those potential inflection points that mark the beginning of a contraction. So should we plan for more growth in 2016, or not? Or maybe we should make no changes and just wait and see. If it makes you feel any better, the Federal Reserve Board is struggling with this same problem right now as it weighs the timing of its decision to raise (normalize) interest rates. Even the experts are uncertain.
My personal opinion is that the current period of recovery has a ways to go — two or three years — before we must suffer through another recession. I do not expect the rate of growth to accelerate much in the next year, but overall economic conditions will improve moderately. And growth in the domestic plastics industry will continue to outpace the gains in the U.S. manufacturing sector as a whole.
