After adjusting for inflation, U.S. gross domestic product will expand 4-5 percent in 2021. This pace is substantially faster than the long-term average. Therefore, it will not be sustainable for more than a year or two at most. This expansion in the overall economy will generate a corresponding increase in the demand for plastics products. I expect the gains in U.S. industrial output of plastics products to grow 2-3 percent this year.
Before I explain my forecast for 2021, I must mention that I perceive more risks to this version of my start-of-the-year outlook than ever before. I have performed this annual ritual for more than three decades, and I have great confidence that my powers of perception and my analytical skills are as good or better than they have ever been. Over the years, I have been surprised, stumped, amazed and outright wrong. But the events of the past few months have completely eliminated the need for decimal points in my outlook for the coming year.
There are three types of risks to any outlook, and in my opinion, all of them are widely in play at the moment. First, there is directional risk. This occurs when you think things will go up and they actually go down, or vice versa. Second, there is the risk that you get the direction right, but your expectations either underestimate or overestimate the amount of change by a substantial degree. And finally, there is the risk that you have the direction and the magnitude of change about right, but your timing is way off.
If this sounds to you like a VUCA environment — the acronym the military uses to describe the situation on the battlefield — then you are on the right track. This acronym stands for volatile, uncertain, complex and ambiguous. I am leaning hard on this acronym as we start 2021, but that does not mean I am advising caution. To the contrary, the current environment requires you to be both bold and smart. And here I emphasize both bold and smart.
With that as my mantra, what follows is a brief explanation of my outlook for 2021. Please know I am prepared to alter or even reverse any part of this outlook if the trends in the data require it.
The outcome of the recent election raised the level of uncertainty for many small-business owners and managers, especially in plastics. The NFIB Small Business Optimism Index declined 5.5 points in December to 95.9, which is below the average index value since 1973 of 98. According to NFIB Chief Economist Bill Dunkelberg, "Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation."
This level of uncertainty about "new economic policy" may be particularly acute among plastics processors and their suppliers because of increased worries about rising regulations on both the plastics and the petrochemical (resins) industries.
It is much too early for me to develop a deep explanation about what the election will mean for our industry in the coming months. However, I will admit that the potential for increased regulations and market deselection is one of two reasons I expect the total output of the plastics industry in 2021 to expand at a rate that is measurably slower than the expected pace of growth in the overall U.S. economy. The other reason is that many segments of the plastics industry did not fall off as dramatically last year as did other sectors of the economy, so the year-over-year comparisons will not be as easy for the plastics data this year.
But regardless of the numbers, I will proclaim in as loud a voice as possible that there is a big opportunity here for policymakers and industry leaders to be both bold and smart. The plastics industry is not a problem we must repress. But rather, the intelligent application of plastics products is a solution to the most important problems currently vexing our nation. Issues pertaining to public health, the environment, energy and even geopolitics and social justice are all made better by the deft increase in our nation's ability to design and manufacture things out of plastic. I will concede that some of our past cultural practices have been less than deft, but if ever there was a time to learn and grow — as opposed to slash and burn — it is now.
One thing the election has made more certain is the increased likelihood of additional fiscal stimulus from the federal government. Another big round of fiscal stimulus, combined with the fact that last year's sharp drop in the second quarter will make for an easy year-over-year comparison, is the basis for my belief that the U.S. economy will expand at a rate that is well above average this year.
The Biden administration and Congress will probably approve another round of support equaling close to $2 trillion. If so, this will put the total amount of stimulus in the past 12 months at $5.2 trillion, an amount that is equal to one-fourth of the entire U.S. economy. I do not have words to describe either the magnitude of this spending or the complexity of the consequences that may eventually arise in our economy as a result. But it should significantly boost consumer spending, and with it the entire economy, for the foreseeable future.
We are currently in the midst of the darkest days for the coronavirus, we are struggling to come to terms with an indescribably contentious election, and we are just starting to get a handle on some long-festering social issues. So it is unusually difficult for me at the moment to predict with a great level of detail just how we get the economic data trending in the right direction even with a gigantic infusion of free money from the federal government.
But we will do it. Vaccines will get administered, businesses will be reopened or started anew, and people will return to work. Last year, spending for services plummeted while goods spending soared. Thanks to the vaccine, these trends will change this year. Services spending will see the strongest growth this year, while spending for both durable and nondurable goods remain above their long-term averages. The economy will not recover all of the 9 million jobs it has lost since the pandemic hit, but it will get back about half of them this year with the other half coming in 2022. That is the base of my forecast, and I will continue to add color and detail as we progress.
I will save a discussion about interest rates, inflation and the value of the U.S. dollar, along with the corresponding trends in motor vehicles, construction, packaging, medical supplies and consumer goods, for a later column. I will end this column by saying the risks to the outlook for this year are large and numerous, but so are the opportunities. The data will continue to provide clues we can use to assess the situation at hand and then take appropriate action. It is a time for heightened vigilance and focus and effort. It is also time to suppress the impulses and rhetoric generated by fear.