Plastics Industry Association Analysis on Capital Expenditures Impact Amid Moderate Economic Growth

The US economy is experiencing a slowdown as retail sales dip and producer prices decline. Retail sales fell for the first time in seven months in October, indicating slowing demand at the start of the fourth quarter [cabbfb79]. The decline in sales, along with the biggest decline in producer prices in three-and-a-half years, has led economists to conclude that the US central bank's current rate hiking cycle is over [cabbfb79]. Despite higher interest rates, the US economy and job market have shown resilience, raising hopes for a soft landing in terms of inflation and economic growth [cabbfb79].

In addition to the decline in retail sales, US industrial production also fell more than expected in October. Industrial production decreased by 0.8% compared to the consensus estimate of -0.3% [cabbfb79]. This decline was largely attributed to a 10% drop in the output of motor vehicles and parts, which was affected by strikes at major automakers [cabbfb79]. However, the manufacturing index, excluding motor vehicles, saw a slight increase of 0.1% [cabbfb79]. The downward trend in industrial production suggests a slow decline in the economy, unless there is external intervention [cabbfb79]. US factory production fell in October, largely due to strikes in the automotive industry. Motor-vehicle production dropped by 10%, leading to a 0.7% decrease in overall output. Excluding autos, manufacturing rose by 0.1%. The strikes were authorized by the United Auto Workers union against the Big Three Detroit automakers and their suppliers [24ae5ac4].

The construction sector in the US has also experienced a significant decline in productivity over the past few decades, unlike many other sectors of the economy. This decline is causing a drag on the overall economy. The researchers from Chicago Booth and the Federal Reserve Bank of Chicago have ruled out several potential causes for this trend but suggest that further study is needed to identify the exact reasons behind it [e85e3550]. Despite a significant increase in capital investment in construction, the number of building projects completed is not keeping up with the labor hours and resources required. Possible factors contributing to this decline include regulation, local opposition to construction projects, and weak incentives to avoid slowdowns and stoppages [e85e3550]. The decline in construction productivity is not limited to the US, as 16 out of 29 countries analyzed by the Organization for Economic Co-operation and Development also experienced shrinking productivity in the construction sector [e85e3550]. Further research is needed to understand the underlying causes, and policymakers may need to address the impact on issues such as the lack of affordable housing [e85e3550].

Meanwhile, the Plastics Industry Association (Plastics) has released an official analysis of capital expenditures and its impact on the plastics industry [377bb762]. The first quarter of the US economy saw slower growth, with real GDP expanding at 1.3 percent. Personal Consumption Expenditures (PCE) was revised down to 2.0 percent, indicating weaker consumer spending. Corporate profits also decreased, with non-financial sector profits falling by 114.1 billion dollars [377bb762]. The profitability of the plastics industry will be influenced by the performance of its main customers in the manufacturing sector [377bb762]. Despite these challenges, nonresidential investment spending, a leading economic indicator, has shown resilience with ten consecutive quarters of growth [377bb762]. This suggests a cautiously favorable outlook for sectors that include the end markets of the plastics industry [377bb762].

Meanwhile, in the plastics processing industry, there has been a leveling or slowing of contraction in October. Backlog also experienced slowed contraction, but it is uncertain if this trend will continue [c4d8c3c5]. Supplier deliveries remained flat, and overall business activity in custom plastics processing saw an uptick in contraction [c4d8c3c5]. The Industrial Production Index for plastic products manufacturing had two consecutive monthly increases, but it's unclear if this will be a lasting trend [c4d8c3c5]. Consumer engagement is crucial for the economy, with solid growth in personal consumption expenditure [c4d8c3c5]. The Federal Reserve is not expected to reduce interest rates soon. Consumer confidence declined in October, which could impact plastics production [c4d8c3c5]. NPE, a plastics industry trade show, will feature news on various plastic materials and additives [c4d8c3c5].

According to a recent report from Plastics Today, the Plastics Industry Association's Committee on Equipment Statistics (CES) released the Q1 2024 shipment data for primary plastics machinery in North America. The shipment value for Q1 2024 was $261.9 million, reflecting a 24.8% decrease from the previous quarter and a 24.2% decrease year-over-year. Single-screw extrusion saw a significant 47.7% decrease in quarter-over-quarter analysis and a 23.4% decrease year-over-year. Twin-screw extrusion experienced a 7.0% decrease quarter-over-quarter and a 17.0% decrease year-over-year. Injection molding shipments fell by 33.8% quarter-over-quarter and 24.9% year-over-year. In Q1 2024, U.S. total exports of plastics equipment fell by 7.4%, while imports surged by 7.0% from the previous quarter. Mexico and Canada were the top export markets, jointly accounting for 47.9% of total U.S. plastics machinery exports globally. Perc Pineda, Chief Economist at Plastics, noted that the decrease in shipments is in line with the overall pullback in the macroeconomy and a high-interest-rate environment. He also mentioned that the U.S. economy is poised for another year of growth, albeit at a slightly lower rate [546cf002].

The plastics industry is primed to enter an expansion phase after a couple of years of contraction. The manufacturing sector has been in the contraction/trough phases for around two years. Plastics material and resin industrial capacity has increased about 12% over the past four years, but capacity utilization for that same category has remained soft. Companies have excess capacity and are looking to sell it. Headwinds include sticky inflation and stubbornly high interest rates. There is potential for healthy gains without big capital investments. [2454e085]