Las Vegas — For the plastics industry, the current state of the economy can be an unsettling thought for many business owners.
Across the business landscape, leaders and analysts alike are searching for answers to developing trends. What caused the big market swoon and can it happen again? Will interest rates go up? What will the election year mean to the economy?
Christopher Kuehl, managing director and lead economic analyst of Armada Corporate Intelligence, gave his opinion on those topics in a keynote presentation at the IQMS Pinnacle User Conference, held April 5-7 in Las Vegas. Kuehl also is chief economist for the National Association for Credit Management
According to Kuehl, the U.S. and international economies are having some impact on the demand for manufactured goods. But positive trends — including a spike in future orders — point to growth in the manufacturing sector.
China's shadow
According to Kuehl, key topics on the mind of most manufacturers include the changing role of China, economic developments in the U.S. and internationally, retail and stock market trends and oil prices.
“China may really be entering a prolonged period of slow growth,” he said. “They no longer play the global growth role they played for 20 years.”
Currently, growth in China is at about 6 percent a year, which Kuehl said is virtually stagnant for the Chinese economy.
Moreover, falling oil prices have disrupted the economics of oil producing nations.
There also is a new phenomenon going on in the U.S. as foreign investors begin to look here for investment opportunities.
“As a result, this foreign money is leading to more volatility in the markets and it is driving up the value of the dollar,” Kuehl said.
Lower interest rates, Kuehl added, also can slow growth.
“If you want to invest today, you need cash,” he said. “And for foreign investors, this also means the correct currency.”
Another hot issue continues to be the aging labor force, which Kuehl said continues to be a problem across virtually every manufacturing sector today.
“”We don't have the people we need,” he noted. “For example, the average age of an industrial welder is 65. We have to become a more automated and technologically driven economy.”
It's all about the oil
Lower oil prices, which have had a ripple effect throughout the plastics industry, have caught the attention of virtually everyone, Kuehl added.
“If you have been watching forecasts on oil prices, there have to be a few oil analysts working at Starbuck's today,” he pointed out.
Kuehl spotlighted a few trends that bode well for manufacturers in 2016.
Key indicators — from housing to jobs to some manufacturing numbers — are either trending at slightly positive direction, or at least they are stable.
Notably, industrial production numbers are now better than they were before the recession, particularly in areas, such as automotive, farm equipment, and healthcare manufacturing. Moreover, the Institute for Supply Management (ISM) Manufacturing New Orders Index is going up, which he explained, is a good sign for two to three months down the line.
“We are seeing a lot more opportunity,” he said. “This is because of the millennials. They enjoy apartment living.”
Show us the money
Kuehl then observed that low oil prices have allowed consumers to save a little money, which they are now starting to spend.
“Consumers do have more money because gas is cheap,” Kuehl added. “Now they can actually think of spending that windfall.”
At the same time, the numbers for job growth have been consistent, and housing starts, especially for rental buildings, are up, he stated. The National Association for Credit Management also is reporting improved numbers, he said.
The U.S. economy also is experiencing an interesting trend, with a lot of Americans existing the formal economy.
Kuehl added that these are people who have found other means to earn a living. There also is less competition to spur wage growth.
“We now have a gray economy,” he pointed out.
In conclusion, Kuehl explained that while the overall U.S. economy is growing at about 2.1 percent, the performance of individual states can vary widely.
“We do see some states that are experiencing growth of up to 5 percent or 7 percent,” he said.
As a result, Kuehl advised manufacturers to look beyond national trends when making decisions and also think locally about their city and state.
Hutton is a Plastics News research analyst.
