Economics Outlook - August 2008

Business conditions are tough this year for most any industry segment that has the word “house” as part of its name. But so far, molded housewares are holding up better than most. Our Housewares Business Index of domestic injection molding of these products is down less than 1% for the year to date. After a jump of 14% in 2007, we expect the Index to remain steady for 2008 and grow 6% to 8% in 2009.

That production of molded housewares is off only slightly this year is remarkable, given the prevailing business conditions that have historcally affected this market. The residential construction and real estate sectors are in the midst of a deep recession. This has depressed consumer confidence and has had a severely negative effect on overall household wealth. The situation in these sectors appears to be stabilizing, but the trends in housing starts, home prices, and construction spending are not expected to register consistent growth until 2009.

Exacerbating the decline in household wealth is the sharp spike in the price of energy, most prominently gasoline. This means that many categories of discretionary spending are being curtailed because of the discomfort caused by the prices at the pump. These factors crimp demand for all consumer goods, including housewares.

Some negative supply factors weigh on the housewares industry, most notably the prices of both resins and steel. Resin prices have increased an average of 15% per year over the past five years. The price of steel has jumped an average of 13%/yr during this time. Both of these trends have restricted the profits of housewares molders. U.S. demand for crude oil and steel has decelerated recently, which will put downward pressure on their prices in the coming months, though they are not expected to fall very far in the near-term.

Despite all these short-term negative factors in both supply and demand, molded housewares seem poised for growth over the long-term. One positive factor is the low value of the U.S. dollar compared with other currencies, which has made many products imported from other countries, including certain kinds of housewares, much more expensive. At the same time, domestically produced housewares are less expensive to overseas markets. The high price of energy has increased the cost of shipping foreign-made products to the U.S., and this too has benefited domestic producers of some types of housewares.

But the main trend that is driving market demand for molded housewares is a long-term shift in consumers’ tastes and lifestyles. The preparation, storage, and serving of food are becoming increasingly upscale. “Foodies” are spending more time and money in the kitchen.

These long-term trends are less susceptible to the business cycle and they are also prime opportunities for new or improved housewares. And by far the biggest advantage for domestic producers of these goods is their proximity to the market. In the current environment, speed to market is the critical hurdle for manufacturers of these products. The drive to keep up with changing tastes and capabilities requires that products be designed, manufactured, brought to market quickly. This can only be accomplished if the designers and manufacturers and shippers are close to the consumer.

 

About the Author

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.