My outlook for the North American plastics industry in 2020 is mixed. Some major industry sectors will experience moderate declines in end market demand for plastics products, while others will enjoy moderate increases in market demand.
For the industry as a whole, my forecast calls for a gain of 1 percent in total U.S. production of plastics products in 2020. I expect the trend next year to exhibit flat to modest growth during the first two quarters followed by a moderate acceleration in the second half of next year. I have plotted my forecast on the chart. It should be noted this data series does not include output of resins and other related materials.
There has been some debate recently about whether the plastics industry and the overall manufacturing sector are currently in a recession. Based on this chart, as well as other manufacturing data, it is clear to me we have been in a phase of moderate contraction for the past year. Whether you call it a period of recession, consolidation or contraction is a matter of personal taste. But it is clear the domestic plastics industry is not growing at the same pace as the overall economy.
I expect the industry to register positive growth next year, but we will still lag the overall economy. This gradual upward trend in output should provide only a moderate lift to the overall capacity utilization rate for the plastics industry. Most processors should be able to meet the expected increase in demand with existing capacity already in place, which means that equipment suppliers will continue to focus on upgrades and replacement demand rather than expansions.
My forecast is primarily based on the continuation of some well-established market trends that are currently affecting demand for plastics products.
On the positive side, the U.S. economy will continue to expand in 2020. The longest period of economic recovery in our lifetimes will get even longer. And not only are we going to avoid a recession next year, but we are not going to be at the end of the cycle. Many people want to believe that a recovery this old must be near the end. That means the next recession, when it ultimately happens, will be the most anticipated recession of all time — for those of you interested in the economics record book. But as of now, this economy is not winding down; it is recharging.
The current recovery has been so gradual I am prepared to believe it could go on indefinitely. There are no signs of inflation, so there is no need to raise interest rates from their current low levels. The economy keeps creating a steady stream of jobs, and these jobs are gradually getting filled by the available pool of labor. Thus, wage gains have been gradual and manageable. Many small business owners still plan to hire more workers, if they can find them. This does not describe the end of a cycle.
The segments of the economy that will benefit next year from these trends include residential construction and real estate, lawn and garden equipment, home electronics and appliances, and most types of recreational and entertainment products and services. Builders and contractors will continue to struggle to find skilled laborers, and this will impede growth in demand for construction materials. But the number of new household formations will continue to rise, and this will keep a solid floor under demand for new houses, home renovations and many types of household products.