Beneath all the recent news, noise and distractions generated by hurricanes and the midterm elections, the U.S. economy is steadily humming along. To be more specific, many of the data series that measure the important activity levels for both the U.S. manufacturing sector and the plastics industry continue to register improvement at a rate that is solid yet also sustainable for the foreseeable future.
Good examples are the recent trends in new orders for manufactured goods, and more specifically durable goods. According to Census Bureau data, new orders for all types of manufactured goods (both durable and nondurable) increased by nearly 7 percent in September when compared with a year ago. For the year to date, this series is up by almost 8 percent.
Many plastics products, such as packaging and some major end markets for plastics, such as food products, are categorized as nondurable goods, so I always want to know how this data series is performing. But the nondurables data series is too heavily influenced by end markets like petroleum or chemical products that are not particularly large users of plastics products. For this reason, the data series that exhibits the strongest historical connection to demand for most types of plastics products is demand for durable goods.
If we drill down to just the data for new orders of durable goods, the news is most encouraging. In September, new orders escalated 8 percent when compared with a year ago. For the third quarter, new orders for durable goods advanced 10 percent over last year, and the gain for the year to date is 9 percent.
As the chart illustrates, this data series appears to be hitting its cyclical peak, and the level is quite favorable by historical standards. My forecast calls for the growth rate to decelerate gradually through next year. But as of now, I still expect that the growth rate will remain positive next year.
Often times in the history of this data, a cyclical high is followed by a cyclical low point that is well into negative territory a few quarters later. So there is a possibility that I will need to adjust this forecast downward in the coming quarters. But I believe there is still enough juice left as a result of President Donald Trump's recent tax cuts and deregulation program to keep a floor under business investment spending for a while longer.