Through the first five months of 2005, retail and food-service sales are up 7% compared with the same period last year.

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Through the first five months of 2005, retail and food-service sales are up 7% compared with the same period last year. This is according to data compiled and reported every month by the U.S. Census Bureau. The rate of growth so far in 2005 is moderately slower than the 8% expansion for all of 2004, but it is still well above the long-term average. Growth will decelerate modestly in the second half of the year, but our forecast still calls for U.S. retail sales to grow a solid 6% in 2005.

The trends in retail sales data are an important indicator of present and future demand for plastics markets because the vast majority of plastics products eventually end up in the hands of consumers. The Census Bureau breaks this data down into several end-market categories, so processors can get a very clear idea about which markets are hot and which ones are performing below average.

The fastest growing retail segment so far in 2005 is gasoline stations. The sharp hike in the price of petroleum prices has pushed receipts at gas stations up 16% this year. There is both good news and bad news in this for the plastics industry. The production and consumption of gasoline are not plastics-intensive activities, and high gasoline prices correspond with high resin prices. So in the short term, the high cost of petroleum products is a drag on the plastics industry. But in the long term, high energy costs promote spending and investment for products that reduce energy consumption, and many of these products are at least partially manufactured out of plastic.


One example of this is plastics building materials, such as vinyl replacement windows, and the rising demand for these types of products has pushed retail sales at building material and supplies dealers up a robust 9% in 2005. This market sector has benefited not only from rising energy prices, but also the vigorous activity in both residential construction and sales of existing homes. These trends are expected to ease in the coming months, but the combination of low mortgage rates, sharply higher home equity values, and high energy costs will ensure that demand for plastics building materials will remain strong through at least the end of this year.

Another retail segment that is enjoying rapid growth this year is electronic (online) shopping. Sales for these merchants are expanding at a 12% clip in 2005, and this market sector has developed into a large piece of the overall retail sales pie. Manufacturers of plastics packaging products have already started to adjust to the different needs of the online sellers, but new opportunities will continue to emerge. Products that are stored and handled in large warehouses and then shipped directly to the consumer often require a different packaging strategy than they would if they were displayed on a store’s shelves and purchased at a cash register.

One other retail sector that is expected to grow at an above-average pace this year is restaurants and bars. Receipts at these establishments have expanded 7% for the year to date, and sales for these places tend to grow faster during periods of solid overall economic growth. While many restaurants are large consumers of plastics products, the products they use tend to be low-margin items for the processors that manufacture them. Therefore, strong market conditions will continue to help suppliers to the restaurant industry, but the real gains will come from the gradual downtrend in the price of resins and energy products that is expected to prevail in the second half of this year. This will raise profit margins for processors and give consumers more disposable income with which to eat out.

Sales at general merchandise stores, clothing stores, food and beverage stores, electronics and appliance stores, as well as health and personal-care stores will all come in above their long-term historical averages in 2005. Retail segments that are forecast to register positive but below-average growth this year include sporting goods and home furnishing stores. One final category that is important to the plastics industry is sales at motor vehicle dealers, and here the story is mixed. Sales at auto dealers will rise a respectable 4% to 5% in 2005, but most of this growth will come from the sale of imports. Sales of domestically-produced autos are expected to be flat to down.