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December 22, 2020 09:12 AM

As vaccines roll out, US plastics expected to grow 3% in 2021

Bill Wood
Plastics News Economics Editor
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    University of Michigan Health
    A nurse receives a COVID-19 vaccine shot on the first day Pfizer's vaccine was available.

    This is the week of the winter solstice for 2020, and the solstice has been a noteworthy occurrence for mankind since before recorded history. Our early ancestors paid particular attention to the winter solstice because it marked the time the days would stop getting shorter, and the daily amount of sunlight would start to increase. It meant that spring was just one quarter away. I have always felt a connection to these early observances because if you think about it, they were some of the earliest known examples of quarterly macroeconomic forecasts.

    The 2020 version of the winter solstice is especially poignant for at least two other reasons. The first of these is that if I stare hard at the charts and squint my eyes, I can vaguely make out a peak in the COVID-19 statistics. It is a bit too early for me to proclaim this is the all-time high in the data, but it is certainly possible we are at or very near the true peak.

    I can say this because of the second reason this solstice is remarkable: Now is the moment they are starting to roll out the vaccines for COVID-19. So despite the shutdown and all of the other restraints that currently impede our traditional holiday festivities, I am forecasting more sunlight and fewer infections next quarter. I am even planning for a robust celebration of the vernal equinox next quarter.

    And to mark this outlook for next quarter, I want to finish 2020 with a deeper dive than usual into my bag of forecasts. We have all spent a lot of time in recent months analyzing the ways in which the plastics industry has been affected by the U.S. economic shutdown. Naturally, our focus during this time has been on the obvious sectors of medical, packaging and automotive. But the impact of our industry is so widespread there is hardly a segment of the entire American economy that is not touched by plastics in some way or another. To quote ZZ Top, "We bad, we nationwide."

    For my last column of this momentous year, I want to spend a bit of time reflecting on the recent trends in the entire U.S. manufacturing sector and offer a glance at some of the other segments that have not been at the center of all the recent attention. For this purpose, I have included a table that shows the annual changes in total output of U.S. manufactured products and a breakdown of these products into their major categories.

    The major takeaway from this table is that with only a couple of exceptions, this was a difficult year for the vast majority of U.S. manufacturers. There have been stories of bright spots, especially in the plastics industry, but the net result of the shutdown has been a severe decline in overall manufacturing activity. The decline this year was not as severe as the drop during the Great Recession in 2009 due to the enormous relief package appropriated by Congress last spring.

    I agree with the strong consensus that another relief package will be necessary if we are to going to continue along the path of recovery in 2021. But there was tremendous damage done to the economy this year, and it will take more than just the next 12 months for all sectors to recover fully. My baseline forecast assumes that Congress will pass another relief package soon, and this will generate a growth rate for the manufacturing sector in 2021 that is stronger than its long-term average rate of growth. But for most segments, the growth I am forecasting for next year will not quite make up for the volume that was lost this year.

    This pattern will be similar to the one I expect to see in the overall U.S. employment data in 2021. The economy should generate a lot of jobs over the next four quarters, but we will not fully recover to the pre-COVID-19 levels of employment next year. The manufacturing sector will need a full recovery in aggregate demand before it is fully recovered, and a full recovery in aggregate demand depends on full employment and rising household incomes. This includes not only the jobs levels in the manufacturing sector, but also the crucial service sector employment levels.

    And that brings me to my outlook for total output of plastics products in 2021. It should come as no surprise that changes in the total volume of plastics products manufactured in the U.S. each year does not vary much from the changes in the volume for total nondurable goods. The plastics industry is mature, diverse and widespread. The trend in this industry is a good proxy for the trend in the overall economy. As I implied earlier, we are ubiquitous. The irony that many of our detractors are using this fact against us is not lost on me. In fact, I have factored it into my overall forecast for the industry.

    I expect the overall plastics data will get a bump up from the motor vehicle sector, which should be able to post growth next year, especially in the second quarter. I also expect that demand for plastic construction materials as well as certain types of packaging products and medical supplies will also remain strong. Demand from these segments, along with the aforementioned gains in aggregate household demand, will be enough to keep the plastics production data on an upward trajectory.

    But the industry will continue to face headwinds from market deselection of some products, as well as a reversion back to the mean for certain other products. Here I am referring to certain packaging products for which demand was inflated by the coronavirus outbreak. Some examples of this will include some types of packaged foods, household chemicals and personal care products.

    My overall forecast for total U.S. output of plastics products calls for a gain of 3 percent next year. This follows a decline of 4 1/2 percent this year. The data from the plastics industry was slowly declining before the pandemic hit, and although the industry most certainly burnished its reputation in recent months, issues pertaining to sustainability and public perception remain to be solved.

    Here's wishing all of you a healthy holiday (solstice) season and a prosperous new year. We have a lot of collective work to do in 2021, and I am certain we are all eager to get started.

     

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