This week, Plastics News features the Machinery Outlook package, and this year it rolls out against a dramatic backdrop: President Donald Trump's tax reform plan.
As we finished production of the issue, the Senate was set to vote on the U.S. tax overhaul. The Senate tax bill would cut the corporate tax rate to 20 percent from 35 percent, starting in 2019.
Some processors are likely to use the windfall to buy equipment, both to add new capacity and replace older machines. The replacement angle is significant, as U.S. plastics processors still have plenty of older, inefficient injection molding presses, blow molders and extruders.
And, in an era when finding and retaining skilled manufacturing workers is such a pressing issue, pay raises to key employees should be in order.
But the tax reform's proposed 100 percent deprecation for capital spending is what could really supercharge machinery sales, and it could go into effect next year.
Fourth-quarter machinery business currently gets a boost from the 50 percent "bonus depreciation," which has been used to stimulate the economy. Think what an immediate 100 percent tax write-off would do. As Niigata sales executive Peter Gardner said, it "should spur incredible investments in replacement and new capacity in the United States."
Of course, as these words are being written, tax reform still had not become law. But all signs were pointing toward that happening.
Even without tax reform, the U.S. machinery sector has been relatively healthy. Plastics News reporters Bill Bregar and Audrey LaForest talked to more than 35 executives at machinery companies. The bellwether injection press business has tallied U.S. shipments of around 4,000 units for three years in a row now. Large machines are selling well, industry leaders said, crediting the resilient automotive market and renewed areas like appliances.
Processors are looking for new technology to reduce costs and make more advanced goods than ever before, using multi-shot molding, barrier layers and in-mold assembly. Machine controls get better all the time, and now Industry 4.0 promises a fully connected future. All that, combined with tax reform, could make NPE2018 a very dynamic environment where machines get sold, not just admired by the tire-kickers.
The U.S. economy seems to be on solid ground. And, importantly, growth is happening around the world. A synchronized global economic recovery doesn't happen very often. But this one is powering stock markets in many countries to new heights.
"Now we're entering the new year with more momentum," Plastics News economist Bill Wood said in the outlook story on injection molding machines.
Some potential roadblocks remain. Automotive sales could end a long streak of record years ,and sales may slack off.
The North American Free Trade Agreement is getting renegotiated. No one knows what will happen. It seems impossible that the U.S. could pull out of NAFTA, but there are no absolute certainties with President Trump.
New home construction, which stimulates siding, windows, pipe and other plastic construction products, faces some possible headwinds. The Republican-led tax reform could end the deduction for state and local taxes, which would hit potential homebuyers in high-tax states. The proposal to cut the cap on mortgage interest deductions will reduce that tax incentive for homebuyers in expensive markets.
But the U.S. economy has always faced these wild cards. And after the last major downturn, the Great Recession, now nearly 10 years ago, plastics machinery bounced back sharply.
Plastics remains a growth market. Plastics continue to replace traditional materials — witness not one but two see-through plastic food cans: the Klear Can from Milacron Holdings Corp. and TruVue made by Sonoco Products Co.
Innovative people, companies and machinery are the heart of the plastics industry — the vital ingredients that keep it strong. That won't change as we move into 2018.