Skip to main content
Sister Publication Links
  • Sustainable Plastics
  • Rubber News
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Processor News
    • Suppliers
    • More News
    • Digital Edition
    • End Markets
    • Special Reports
    • Newsletters
    • Resin pricing news
    • Videos
    • Injection Molding
    • Blow Molding
    • Film & Sheet
    • Pipe/Profile/Tubing
    • Rotomolding
    • Thermoforming
    • Recycling
    • Machinery
    • Materials
    • Molds/Tooling
    • Product news
    • Design
    • K Show
    • Mergers & Acquisitions
    • Sustainability
    • Public Policy
    • Material Insights Videos
    • Numbers that Matter
    • Automotive
    • Packaging
    • Medical
    • Consumer Products
    • Construction
    • Processor of the Year
    • Best Places to Work
    • Women Breaking the Mold
    • Rising Stars
    • Diversity
    • Most Interesting Social Media Accounts in Plastics
  • Opinion
    • The Plastics Blog
    • Kickstart
    • One Good Resin
    • Pellets and Politics
    • All Things Data
    • Viewpoint
    • From Pillar to Post
    • Perspective
    • Mailbag
    • Fake Plastic Trees
  • Shop Floor
    • Blending
    • Compounding
    • Drying
    • Injection Molding
    • Purging
    • Robotics
    • Size Reduction
    • Structural Foam
    • Tooling
    • Training
  • Events
    • K Show Livestream
    • Plastics News Events
    • Industry Events
    • Injection Molding & Design Expo
    • Livestreams/Webinars
    • Editorial Livestreams
    • Ask the Expert
    • Plastics News Events Library
    • Processor of the Year submissions
    • Plastics News Executive Forum
    • Injection Molding & Design Expo
    • Plastics News Caps & Closures
    • Women Breaking the Mold Networking Forum
    • Plastics in Automotive
    • PN Live: Mergers and Acquisitions
    • Polymer Points Live
    • Numbers that Matter Live
    • Plastics in Politics Live
    • Sustainable Plastics Live
    • Plastics Caps & Closures Library
    • Plastics in Healthcare Library
    • Women Breaking the Mold Networking Forum Library
  • Rankings & Data
    • Injection Molders
    • Blow Molders
    • Film Sheet
    • Thermoformers
    • Pipe Profile Tubing
    • Rotomolders
    • Mold/Toolmakers
    • LSR Processors
    • Recyclers
    • Compounders - List
    • Association - List
    • Plastic Lumber - List
    • All
  • Directory
  • Resin Prices
    • Commodity TPs
    • High Temp TPs
    • ETPs
    • Thermosets
    • Recycled Plastics
    • Historic Commodity Thermoplastics
    • Historic High Temp Thermoplastics
    • Historic Engineering Thermoplastics
    • Historic Thermosets
    • Historic Recycled Plastics
  • Custom
    • Sponsored Content
    • LS Mtron Sponsored Content
    • Conair Sponsored Content
    • KraussMaffei Sponsored Content
    • ENGEL Sponsored Content
    • White Papers
    • Classifieds
    • Place an Ad
    • Sign up for Early Classified
MENU
Breadcrumb
  1. Home
  2. News
March 22, 2022 08:26 AM

Numbers That Matter: Interest rates, energy costs, uncertainty all on the rise

Bill Wood
Economics Editor
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    A building on fire in Kyiv, Ukraine.
    State Emergency Service of Ukraine
    A residential building hit by bombing in Kyiv.

    It is easy to state that recent geopolitical events are now at the top of my list of risks to the outlook for the U.S. economy and the plastics industry. But it is exceedingly difficult to assess this risk and then come up with reasonable probabilities for potential outcomes.

    Try as I will, I cannot fully wrap my head around all of the possible risks that arise when a megalomaniac in charge of the world's largest nuclear arsenal goes rogue. I am not alone in my confusion, and I know that widespread confusion is part of Russian leader Vladimir Putin's strategy. Nevertheless, that does not make it any easier to forecast. For the time being, I am in day-to-day mode.

    So let's keep it simple and make sure we have a firm grasp on the things we do know. Conditions can and will change quickly, but there are some things about which I am pretty certain — as of today. These are my core issues.

    The U.S. economy has been hit recently by two significant supply shocks: the global pandemic and the crisis in Ukraine. Prior to Russia's invasion, the rate of inflation in the U.S. was already at levels we have not seen in decades. After the attack on Ukraine, prices for commodities such as oil, industrial metals and grains spiked.

    The specter of a war in Europe notwithstanding, the spike in energy prices exacerbated consumers' rising worries about inflation. Before the invasion and despite the strongest job market the nation has enjoyed in years, U.S. consumer sentiment was trending lower. The latest reading for the University of Michigan's Consumer Sentiment Index represented a 10-year low. Fortunately, there has not yet been much evidence to suggest that consumers were starting to pull back on their spending patterns. But a persistent trend of lower consumer sentiment cannot be ignored indefinitely by either business leaders or politicians because burgeoning negative attitudes might just turn into action.

    In an effort to stem the rising tide of inflation, the Federal Reserve Board will start to raise interest rates this month. This will be the first increase in the Fed Funds Rate since 2018, and it will mark the beginning of the end of the most accommodative period of Fed support ever.

    It was always going to be a delicate mission for the Fed to increase interest rates just enough to cool inflation but not raise them so much that it resulted in a recession in the U.S. economy. The difficulty of that mission has now been ratcheted up substantially. Due to the restrictions on trade and the tightening of global supply chains, there is widespread consensus that the Russian attack on Ukraine is likely to impede GDP growth in the U.S. and at the same time increase inflationary pressures.

    That about sums up the bad news, and there is more than enough to cause concern. But there are bright spots, and some mitigating nuances, which bear mentioning.

    We all know that rising energy prices are an unwelcome tax on consumers, and this is especially true for lower-income households. We also know that persistently higher oil prices correspond to rising resin prices, and this represents a threat to profit margins for processors. But there are a few other things to keep in mind about the energy markets.

    When adjusted for inflation, the recent spike in energy prices is not really quite as high as one might assume from just a quick glance at a historical chart. In fact, the real impact of a surge in the price of oil has been much higher in the past than it is right now. Part of this is due to inflation, but mostly it is because gasoline and heating fuels account for a much smaller share of household expenses than they have in the past. By some calculations, the share of consumer wallets that goes to gasoline is down by 50 percent when compared with the 2008 spike in oil prices. And one more positive fact: The U.S. is energy independent. This was not always the case in my lifetime, but it is now, and rising oil prices actually benefit the U.S. energy sector.

    To be sure, many American households will feel the pinch from higher energy costs, but most households will not change their patterns of consumption. As I mentioned, the labor market is robust and wages are rising. Not only that, but there is still an abundance of excess savings in the system.

    Overall, the balance sheets for both households and businesses are relatively healthy, and demand for bank loans remains strong. The Fed will raise interest rates in the coming months, perhaps by as much as 2-3 percent. But for the foreseeable future, real interest rates will remain negative.

    In a healthy, well-functioning economy, the pace of growth in real GDP should be approximately equal to the inflation-adjusted yield on a 10-year Treasury Note. We still have a long way to go before we get back to this level of economic health, and until we do, I can only describe the interest rate environment as accommodative. Therefore, I believe it is quite possible that these conditions will allow the U.S. economy to ride out the current spate of price shocks and continue to expand, albeit at a somewhat slower pace than we would have had if Russia had not invaded Ukraine.

    So as of this writing, I am not forecasting a recession in the coming year. Interest rates will rise, the stock market will be volatile, and the price of many commodities may continue to swing wildly. But all of this will be mitigated if the current trend of rising real wages persists. Thus far, I have not yet seen enough reliable signals in the intermediate- to long-term data to indicate that a recession is imminent. But I do think the rate of growth will decelerate, which is not necessarily a bad thing if we are trying to wrestle the rate of inflation lower.

    Obviously, this could change. But regardless of whether my outlook is right or wrong, my heart goes out to the freedom-loving citizens of Ukraine. As Thomas Jefferson wrote in the Declaration of Independence, "Governments ... derive their just powers from the consent of the governed." That is a forecast I will buy into long after Putin is dead and buried.

    Numbers That Matter Live
    Numbers That Matter Live February 2022: Strategy for supply chain disruptions, uncertainty
    RECOMMENDED FOR YOU
    Industry sees Biden bioplastics goal as serious signal
    Letter
    to the
    Editor

    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Plastics News would love to hear from you. Email your letter to Editor at [email protected]

    Most Popular
    1
    Biden sets US goal to replace 90% of plastics with biomaterials
    2
    Industry sees Biden bioplastics goal as serious signal
    3
    Report urges treaty to regulate plastics like pharmaceuticals, limit growth
    4
    One injured in explosion at Ineos cumene plant in Texas
    5
    Engineering resin prices close the first quarter with a drop
    SIGN UP FOR OUR FREE NEWSLETTERS
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    Get our newsletters

    Staying current is easy with Plastics News delivered straight to your inbox, free of charge.

    Subscribe today

    Subscribe to Plastics News

    Subscribe now
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter
    • Instagram

    Plastics News covers the business of the global plastics industry. We report news, gather data and deliver timely information that provides our readers with a competitive advantage.

    Contact Us

    1155 Gratiot Avenue
    Detroit MI 48207-2997

    Customer Service:
    877-320-1723

    Resources
    • About
    • Staff
    • Editorial Calendar
    • Media Kit
    • Data Store
    • Digital Edition
    • Custom Content
    • People
    • Contact
    • Careers
    • Sitemap
    Related Crain Publications
    • Sustainable Plastics
    • Rubber News
    • Tire Business
    • Urethanes Technology
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Processor News
        • Injection Molding
        • Blow Molding
        • Film & Sheet
        • Pipe/Profile/Tubing
        • Rotomolding
        • Thermoforming
        • Recycling
      • Suppliers
        • Machinery
        • Materials
        • Molds/Tooling
        • Product news
        • Design
      • More News
        • K Show
        • Mergers & Acquisitions
        • Sustainability
        • Public Policy
        • Material Insights Videos
        • Numbers that Matter
      • Digital Edition
      • End Markets
        • Automotive
        • Packaging
        • Medical
        • Consumer Products
        • Construction
      • Special Reports
        • Processor of the Year
        • Best Places to Work
        • Women Breaking the Mold
        • Rising Stars
        • Diversity
        • Most Interesting Social Media Accounts in Plastics
      • Newsletters
      • Resin pricing news
      • Videos
    • Opinion
      • The Plastics Blog
      • Kickstart
      • One Good Resin
      • Pellets and Politics
      • All Things Data
      • Viewpoint
      • From Pillar to Post
      • Perspective
      • Mailbag
      • Fake Plastic Trees
    • Shop Floor
      • Blending
      • Compounding
      • Drying
      • Injection Molding
      • Purging
      • Robotics
      • Size Reduction
      • Structural Foam
      • Tooling
      • Training
    • Events
      • K Show Livestream
      • Plastics News Events
        • Plastics News Executive Forum
        • Injection Molding & Design Expo
        • Plastics News Caps & Closures
        • Women Breaking the Mold Networking Forum
        • Plastics in Automotive
      • Industry Events
      • Injection Molding & Design Expo
      • Livestreams/Webinars
        • PN Live: Mergers and Acquisitions
      • Editorial Livestreams
        • Polymer Points Live
        • Numbers that Matter Live
        • Plastics in Politics Live
        • Sustainable Plastics Live
      • Ask the Expert
      • Plastics News Events Library
        • Plastics Caps & Closures Library
        • Plastics in Healthcare Library
        • Women Breaking the Mold Networking Forum Library
      • Processor of the Year submissions
    • Rankings & Data
      • Injection Molders
      • Blow Molders
      • Film Sheet
      • Thermoformers
      • Pipe Profile Tubing
      • Rotomolders
      • Mold/Toolmakers
      • LSR Processors
      • Recyclers
      • Compounders - List
      • Association - List
      • Plastic Lumber - List
      • All
    • Directory
    • Resin Prices
      • Commodity TPs
        • Historic Commodity Thermoplastics
      • High Temp TPs
        • Historic High Temp Thermoplastics
      • ETPs
        • Historic Engineering Thermoplastics
      • Thermosets
        • Historic Thermosets
      • Recycled Plastics
        • Historic Recycled Plastics
    • Custom
      • Sponsored Content
      • LS Mtron Sponsored Content
      • Conair Sponsored Content
      • KraussMaffei Sponsored Content
      • ENGEL Sponsored Content
      • White Papers
      • Classifieds
        • Place an Ad
        • Sign up for Early Classified