If you're a student of economics and you wonder why U.S. plastics manufacturing hasn't fully recovered in the 16 years since the Great Recession, then the data for single-family housing starts is a perfect place to start.
The construction market has been in a bad slump since the collapse of a housing bubble in 2008.
There were 1.7 million housing starts in 2005. By 2009, after the subprime mortgage crisis, that number dropped to 445,000. After that, the market slowly recovered and got back to 1.1 million in 2021. But then came COVID-19, a collapse of the building products supply chain, inflation and, more recently, high interest rates.
Theoretically, there's a lot of pent-up demand for new homes. But realistically, new single-family homes are too expensive for many Americans. That's a problem that affects more than the construction market; new homeowners also buy new appliances, housewares, furnishings and other plastic products.
Last week in our Numbers That Matter livestream, Economics Editor Bill Wood and I got into an in-depth conversation about when the Federal Reserve is going to declare that the U.S. economy has successfully achieved a soft landing and will start to lower interest rates, because that will have obvious benefits for plastics processors.
"As I have been stating for months, the landing is not going to be soft for the plastics industry or the residential construction sector. Those sectors are already in a relatively deep recession," Wood said after the livestream.
"And until interest rates start to fall, they will likely stay in recession. And if interest rates stay restrictive, there are other sectors which could soon drop into recession. And those sectors that fall into recession are not likely to say the landing was 'soft.'"
So, where are we today, and where are we headed?
Robert Dietz, chief economist for the National Association of Home Builders, said last week that single-family housing starts were at 943,000 units in 2023, and he's predicting they'll increase 4.7 percent this year to 988,000 units and another 4.2 percent in 2025 to 1.03 million units.
NAHB is forecasting two or three rate cuts of 25 basis points each in the latter half of 2024.
"By the end of this year, NAHB projects mortgage rates will be below 6.5 percent, and by the end of 2025, we expect rates to be in the high 5 percent range," Dietz said at the International Builders' Show in Las Vegas. "This is good news for builders, housing demand and housing affordability."
If the Fed changed course tomorrow and decided that the soft landing is already a reality, then it could mean a faster recovery for the construction, auto and plastics sectors. That truly would be good news.
Don Loepp is editor of Plastics News and author of the Plastics Blog.