A couple of weeks ago, I wrote that U.S. manufacturers are reporting strong employment growth so far this year, with most coming from the durable goods sector. Some durable goods segments are huge end markets for plastics products (automobiles, for example), while others are not (fabricated metal products). Thus, not all durable goods trends are the same when it comes to their impact on plastics.
By definition, durable goods are products that have a lifespan of at least three years. They tend to be expensive to make and buy, and they are often purchased on credit. As a result, the changes in the data on durable goods are more volatile than for most nondurable goods categories like food, packaging and gasoline. That means market demand for these products grows faster when the economic fundamentals are strong, and it contracts faster when the overall economy stumbles.
Rising employment levels, wages and corporate profits support strong growth in the demand for durable goods, while increases in interest rates and the value of the dollar tend to inhibit demand increases. For all these reasons, the strongest growth in the data for most durable goods usually occurs later in the business cycle.
While I believe that the current expansion will not end for another year or two, we are certainly in its later stages.
Nevertheless, the prevailing economic conditions in the U.S. are a mixed bag for manufacturers of durable goods as well as the plastics processors that supply many of these industries. We are presently enjoying a gradual rise in the employment and wage data, and corporate profit levels have been robust in recent quarters. But we are also in the midst of an upward trend in interest rates and this trend has started to push the value of the dollar higher in the past few weeks.