According to data in the latest monthly report from the U.S. Census Bureau, entitled “Manufacturers' Shipments, Inventories, and Orders” (a.k.a. the M3 report), activity levels in U.S. factories continue to rise. Through the first half of this year, total new orders for all manufacturing industries are up a vigorous 11% compared with the same period a year ago. Strongest growth has been in orders for primary metals (up 24%), machinery (up 19%), and computers (up 18%).
The Census Bureau categorizes most plastic products as “nondurable goods,” and new orders for these products are up a solid 10% so far in 2004. The data for most types of plastics equipment are included in the “industrial machinery” category, and the total for this segment is running a healthy 14% ahead of last year.
The trend in overall shipments yields a similar pattern with a few small differences. The momentum, or rate of change, in the shipments figures tends to lag that in the new orders data by three to six months, and the monthly growth rates tend to be less volatile. This lag in the data notwithstanding, total shipments for all manufacturing industries are up almost 11% so far this year. As for the plastics industry, shipments of industrial machinery are also up 11%. But it is interesting to note that the rate of expansion in shipments of plastics products is running somewhat below the overall average at 9%.
This is noteworthy because during past cyclical upturns the monthly data from the plastics sector tended to turn earlier than the overall data, and they also tended to grow faster. However during this recovery, the cyclical recovery in the plastics sector has been a bit more sluggish than the overall average. There are several possible explanations for this.
First, the plastics industry is maturing. A few years ago, new plastics products were rapidly penetrating the markets for construction materials and packaging and as a substitute for metals in autos, appliances, and consumer goods. Today, the market for plastics products is much larger than it was then, and though the overall volume continues to expand, it is more difficult achieve the high growth rates of past cycles.
The second factor that is currently restricting the recovery in the U.S. plastics industry is the high cost of materials. In past cycles, the price of resins declined during times of slack demand. This time resin prices were quite high well before demand for plastics products actually started to increase, and they have continued to rise rapidly as the recovery has gained momentum.
Another factor that may be negatively affecting the strength of the rebound is an increase in imported plastics products. Anecdotal evidence suggests that many high-volume, low-margin plastics products that used to be produced in the U.S. are now being manufactured and shipped in from low-cost countries such as China.
But the good news is that the rates of growth for both the U.S. plastics industry and the total manufacturing sector are now accelerating. Our latest forecast calls for this momentum to be sustained for several more quarters. When compared with the year before, total new orders to U.S. factories will expand by at least 10% in 2004, and total shipments will increase by at least 8%. Moderating materials costs and increased end-market demand will allow the growth rates for the plastics industry to catch up with the overall average during the second half of this year. For 2004 as a whole, total new orders for plastics products will advance 10% and the shipments data will grow by 8%.