It is stating the obvious to say the U.S. plastics industry changed substantially in the past 30 years. But if we want to manage, or even benefit, from future changes, it is necessary to glean an understanding of the lessons from the past.
The charts of the U.S. industrial production indices for plastics products and plastics materials/resins offer both hope and a cautionary tale for the future of the industry.
For this analysis, it is helpful to divide the charts into three segments approximately 10 years in length. The growth patterns in both these charts are similar, but I will focus my comments on the graph for plastics products because it is less noisy and therefore easier to read.
It is important to note this data measures the total volume of output, not the dollar value, so there is no need to adjust for inflation.
During the first segment, starting in 1989 and ending in 1999, the U.S. plastics sector was clearly a "growth industry." There were a couple of short periods of contraction in the data, but the average annual rate of growth during this period was a robust 5.3 percent. This compares quite favorably to the 3.2 percent annual rate of growth in real U.S. GDP for the same 10-year period.
But just when it seemed the party would never end, the industry was rocked by a succession of negative shocks. Things changed dramatically in the following decade, the period from roughly the middle of 1999 to the middle of 2009.
First, the dot-com bubble burst and the U.S. economy suffered a major recession in 2000. We were recovering from this recession in 2001 when the second shock hit; China was admitted into the World Trade Organization. It would not take long before the impact of this development was apparent in the data. Even if you include the decline during the Great Recession, the overall U.S. economy grew at an annual average rate of about 2 percent during the middle 10-year period. Unfortunately, the average growth rate for the plastics industry during this time was negative.
The industry was able to claw its way to an all-time peak in total output in 2006, but this boon was short-lived. The industry was dealt a devastating blow in 2008-09 when the housing bubble burst. By this time, the Chinese manufacturing sector was in high gear, and the offshoring of many plastics jobs, combined with the sharp decline in domestic demand, caused by the Great Recession, resulted in an unprecedented drop of almost 30 percent in U.S. plastics production from peak to trough.
Production levels bounced back significantly during the next 10 years, but they still have not reached the all-time high hit in 2006. The average annual rate of growth in the output of plastics product since hitting bottom in 2009 until now has been 2.5 percent. This is just a bit higher than the 2.3 percent annual rate of growth in real U.S. GDP for a comparable period.
Looking back on the trends of the past 30 years, I think there are two major takeaways. First, the prospects for the North American plastics industry are full of promise. This industry is creative, diverse and resilient. The development of a large-scale natural gas sector in the United States during the past few years will provide a boost. And the U.S. is still the best country in the world for new product innovation and design.
The second takeaway is we cannot take anything for granted. A partial list of the known future risks to the plastics industry includes geopolitical uncertainty, regulatory constraints and market deselection of certain products and materials. These risks will certainly generate change in the way we currently do business, but most of these changes will result in a stronger, more valuable industry. As for the unknown risks, I will discuss those in future anniversary issues.