Data shows plastics' chronic labor shortage abating

According to the latest Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics, the total number of nonfarm job openings fell to a seasonally adjusted level of just over 9.9 million in February. This is the second consecutive monthly decline in this data, and it is significant for several reasons.

The February reading marked the first time since May 2021 the number of openings dropped below 10 million. As you can see on the chart, the number of openings peaked in March 2022 at just over 12 million. That means in just the past year, the number of openings has declined by 17 percent.

At the peak, there were more than two openings for every unemployed worker in the U.S. As of this past February, the ratio had fallen to close to 1.7 jobs for every worker.

I have been analyzing economic data for a long time, but I am happy to say there are still times when a chart can make me say "wow." A couple of years ago, if you had told me the number of job openings shortly after the pandemic would surge to 12 million, and that this would represent an openings-to-workers ratio of greater than two to one, then I would have assumed you had partaken in too much recently legalized cannabis. And I could never have imagined a scenario in which a year-over-year decline of 17 percent in the total number of openings would one day actually be considered a good thing.

Yet here we are. Job openings are declining rapidly, which means the sharp rise in the Fed's interest rates is having at least some of the desired effect, which means the rate of inflation should also continue to decline.

But the biggest questions still remain: How far and how fast will this data fall this year? And what will the rest of the economy look like when this trend hits bottom? All I can say is stay tuned.

For plastics processors, there are some interesting clues to be gleaned about the possibilities for the future tucked away in the breakdown of the aggregate data. For instance, the total number of job openings in the manufacturing sector declined to about 694,000 in February. This data peaked in April 2022 at just over 1 million openings, so in the 10 months since then, the total number of openings for manufacturers has dropped by 32 percent. During the two decades before the pandemic, this data series averaged around 350,000 openings per month.

The manufacturing data can be broken down further into durable and nondurable goods categories. The decline in openings for durable goods manufacturers since last April's peak has been 25 percent. For reference, the number of job openings for durable goods manufacturers over the past 20 years has averaged around 200,000. The data dropped down to 151,000 during the shutdown in March 2020, then it spiked up to 631,000 in April 2022. As of this past February, there were still 475,000 job openings listed in the durable goods sector and the downtrend has been moderate in recent months.

Surprisingly to me, the volatility in the job openings data out of the nondurables sector has been more extreme. I always think of the trends in the nondurable goods sector as being much less cyclical than those in the durable goods categories. But according to BLS, the number of job openings for nondurables manufacturers peaked in May 2021 — almost a year before the peak in the rest of the economy — at 400,000 jobs. In February, there were 219,000 jobs listed, a drop of 45 percent from the peak.

Prior to the pandemic, the number of openings for nondurables manufacturers averaged around 150,000 per month. This data exhibited no decline during the shutdown and then quickly elevated to its peak within about a year. All of that voracious demand for toilet paper, hand sanitizer and personal protective equipment is clearly evident in this data series.

OK, that's a lot of numbers, but what does that mean for the U.S. economy and the plastics industry going forward?

Perhaps you are already familiar with the phrase "too much money chasing too few goods" as a way to describe the cause of rising inflation or, to be more precise, demand-pull inflation. If you have not heard this phrase before now, then let me introduce it to you because it certainly describes the situation in the U.S. economy for the past two years.

The trillions of dollars of pandemic-induced stimulus payments, pumped into an economy that had operated for over a decade in an environment of negative real interest rates, created the huge surge in demand-pull inflation we experienced in 2022.

This environment also created a situation of "too many employers chasing too few workers." This resulted in upward pressure on wages and salaries across the board, and there are some other, next-order trends gaining momentum that will affect the future.

For some segments of the economy, we have seen much stronger leverage exerted for expanded benefits packages and other more worker-friendly arrangements. In other segments, it increased demand for more automation. And there are still segments that are woefully undermanned (e.g., construction).

In summary, I will say that we are closer to a healthy equilibrium in the U.S. labor market than we were a year ago, but we still have a long way to go. How long it takes us to get there — and whether the Fed and the other policymakers can facilitate getting us to this equilibrium without creating another big crisis — is still an open question.

The pressure on plastics processors generated by the chronic labor shortage will continue to abate in the coming months. This will come from a gradually improving situation in the labor market, but for many, it will also come from a decrease in demand from their end markets.