Plastics capital equipment spending marks first quarterly decline since 2010

In a sign of moderating growth in capital equipment spending, an industry report says North American plastics machinery shipments fell in the third quarter of 2016, from the third quarter a year ago — only the second time there was a year-over-year quarterly decline since the economic recovery started in 2010.

The Plastics Industry Association's Committee on Equipment Statistics reported the numbers Dec. 7. The Washington-based trade association, which changed its name from the Society of the Plastics Industry Inc. on Dec. 6, releases its machinery data in dollar value amounts.

Economist Bill Wood said the growth rate for machinery is moderating, after enjoying a solid run coming out of the Great Recession.

“Shipments of plastics equipment rose steadily during the six-year period from 2010 through 2015, but this trend hit a plateau in 2016,” said Wood, who runs Mountaintop Economics & Research Inc. “The quarterly comparison will be difficult in the fourth quarter of this year, so the annual growth rate will continue to moderate in the near-term.”

Even so, the Plastics Industry Association reports that, for the first three quarters of 2016, shipments of primary machinery are up 4.7 percent when compared with the first three quarters of 2015.

Wood said action next year in Washington, where a Republican Congress will operate with a new president, Donald Trump, could spur the capital equipment sector. “The incentives to invest in new equipment remain strong, and if Congress passes some meaningful corporate tax reform in 2017, they may even improve,” said Wood, who analyzes the machinery statistics for the association's statistics committee and is also economics editor for Plastics News.

Third-quarter shipments of primary plastics machinery — injection molding presses, extruders and blow molding machines — totaled $294.7 million, for reporting companies. That was 2.4 percent lower than the year-ago third quarter mark of $302 million, and was down 6.5 percent from the second quarter of 2016, which was $315.3 million.

The value of shipments of the key injection molding machinery segment decreased by 6 percent in the third quarter of 2016 vs. the same quarter a year ago.

The shipment value of single screw extruders declined 3.8 percent, again, when measured against the third quarter of a year ago.

Twin-screw extruders enjoyed a jump of 27.6 percent in the third quarter compared to the year-ago period. The twin-screw segment includes both co-rotating and counter-rotating extruders.

The trade group did not disclose numbers on blow molding machines for the third quarter.

New bookings for auxiliary equipment totaled $119.8 million in dollar values in the third quarter, for reporting companies. That was a gain of 0.7 percent from the third quarter of 2015, but was a 3 percent drop when compared with the second quarter of 2016.

Wood said the moderate decline in the CES machinery data is still better than the performance posted in the third quarter for all types of industrial machinery. The Census Bureau reported the total value of new orders for U.S. industrial machinery fell 8 percent, measured on a year-ago quarterly basis. That decline followed a rise of 6.8 percent in the first half of this year.

Another government report was more positive. The Bureau of Economic Analysis said business investment in industrial equipment increased 4.1 percent in the third quarter of 2016, compared with the third quarter of 2015. (The figures are seasonally adjusted, annualized rates). That followed a 3 percent gain in the first half of this year.

Wood forecasts real gross domestic product should grow around 3 percent in 2017, “due primarily to steady improvement in wages and household incomes resulting from stronger employment levels.

“Growth in the U.S. GDP is gaining momentum in the second half of 2016, and the improving economic fundamentals bode well for consumer spending in the coming year,” Wood said. “I still expect consumer demand for plastics products to increase at a sustainable pace in the coming months.”

And machinery executives are upbeat for the coming year, according to the third-quarter survey by the Committee on Equipment Statistics. The CES said 86 percent of respondents expect market conditions to either remain steady or improve during the next year — up from 77 percent in the second quarter.

They expect the medical and packaging markets to enjoy the best growth in demand for plastic products and equipment in 2017. Expectations also improved for construction and appliances. However, automation expectations slipped.

Looking globally, Mexico was the region where survey respondents expect the strongest growth in 2017. The rest of North America, as well as Europe, should be steady-to-better, survey respondents said. The outlooks for Asia and Latin America are more optimistic than they were in the second quarter, but the majority still thinks conditions in those regions will mostly hold steady.