Robust economy will create long-term opportunities for processors

This is the time of year when we pay particular attention to the amount of momentum we observe in the trends in the economy, the manufacturing sector and the plastics industry.

Momentum is always a crucial factor in our businesses, which is why I often include rate of change graphs with this column. These graphs are good indicators of momentum in the underlying data. But in the fourth quarter our collective focus on momentum is ratcheted up a notch. It is a long-practiced characteristic of our species to try to finish the year up strong and carry the momentum into the new year. This is the reason our pagan ancestors created religious observances around the Winter Solstice, and it is why we celebrate New Year's Eve to this day.

I expect this particular fourth quarter will be the most closely scrutinized of all time. Not only will it be the end of the year, but also this country has never experienced the conflicting forces we currently face. Due to the pandemic, there is a tremendous amount of pent-up consumer demand for celebrating. But the pandemic has also created an unprecedented bottleneck in the nation's supply chain.

Make no mistake, Americans will figure out a way to celebrate and spend their money. The influx of foreign tourists now allowed to travel to the U.S. will augment this energy. So, I have confidence the overall holiday spending numbers will be robust when compared with the data from the fourth quarter of last year.

The question for me this year is, "What will they buy?" And the follow-up question is, "What does this mean for the coming year?" At this point, I am confident that immense amounts of money will be spent, a lot of people will be hired and the rate of inflation will continue to escalate in the next few weeks. For those keeping score, the Consumer Price Index posted a very large increase in October.

But how do I factor all of this into an outlook for 2022, especially for the manufacturing sector and the plastics industry?

We have already seen unexpected shifts in the patterns of the U.S. labor force. One of the most vexing problems of the past year for the manufacturing sector has been hiring workers. This problem is not unique to manufacturers, but this makes the matter more puzzling for me. For all of my lifetime, manufacturing jobs were "good jobs." Nevertheless, many of these good jobs are currently unfilled despite the fact that there seems to be able bodies in the labor pool that could fill them.

Fortunately, there is evidence this problem is abating. For those of you looking for a graph to enhance your respective celebrations of this season — that always works for me — I offer another rate of change chart. This graph shows the momentum in the total number of people employed by U.S. manufacturing establishments.

The data has been building momentum all year, and just recently the 12-month growth rate got back above the zero line. Just to be clear, the overall total number of people employed in manufacturing is not back up to the pre-COVID levels. But this graph has a strong upward trajectory, and at this pace the overall total will get back to the pre-COVID figure sometime in 2022.

Time will tell whether the shifts in the labor market we have experienced this year have a long-term impact, but this chart gives me confidence that the manufacturing sector is figuring things out. Whether it is due to increased wages or other changes to the terms of employment, the number of people filling open manufacturing jobs is rising strongly.

And this leads me to offer some commentary about the current bottleneck in the supply chain. First of all, humans/employees are the supply chain. Discussions about things such as infrastructure, trade agreements and tariffs may distract us. But in the end, these things distill down to choices made by managers or policymakers — in other words, humans/employees. The supply chain is people making choices and doing work. We are all motivated to make choices in our best interests, but history frequently demonstrates we sometimes make the wrong choices.

In spite of these periodic mistakes, employees are also the solution to the supply chain issues. They not only supply the labor and energy needed to make the supply chain operate properly, but they also supply the creativity, innovation, initiative and insight necessary for the supply chain to adapt to rapidly changing market forces. It is not a coincidence that when the economy experiences a widespread crisis in the employment data there is a corresponding kink in the supply chain. And when I see the employment data rising a strong clip, I know the supply chain is improving.

But getting back to my questions about next year and beyond, this chart does not tell me what to expect from shifting consumer behavior in 2022. As with the labor market, some of the changes in consumer choices caused by the pandemic may last for a long time. A change in the market's definition and perception of the environmental impacts — both accurate and erroneous — of plastic may also affect these shifting consumer behaviors.

The uncertainty notwithstanding, here is my latest economic outlook for the fourth quarter and the coming year.

We will experience a holiday season characterized by robust economic activity. The momentum from the fourth quarter will carry into 2022. Next year the U.S. economy will expand at a pace that is above its long-term potential. The employment data will continue to improve for both the overall economy and the manufacturing sector, due to rising wage growth. The supply chain bottleneck will gradually abate as more human resources are deployed to solve the problems. Consumers will also affect the supply chain problem by adapting and allocating resources to goods and services that are more readily available. This reallocation of resources will create some long-term opportunities for plastics processors, but there will also be casualties.

I remain concerned about inflation and the incessant rise in national debt levels, but I do not yet have enough statistical evidence to make a prediction about these concerns. For now, these are risks I will continue to study.

Due to the pandemic, there is a tremendous amount of pent-up consumer demand for celebrating. But the pandemic has also created an unprecedented bottleneck in the nation's supply chain.