Consumer-goods spending seems poised to grow more slowly, and therefore plastics packaging will see its peak rate of growth sometime in the second half of 2014.

Click Image to Enlarge

The use of plastics packaging is closely tied to the production of consumer goods. Therefore, following the trends in consumer-goods production will provide an indication of what is happening in the packaging market.

To understand what will happen with consumer-goods production, start with real disposable income. The month-over-month rate of change in real disposable income grew faster than 2% each month in the first quarter of 2014—the first such three-month stretch since July-September 2011. Incomes grew at an accelerating rate in each of the first three months of 2014. However, the current rate of growth is still quite low.

Changes in real disposable income tend to lead changes in real consumer spending by about six months. The month-over-month rate of change in consumer-goods spending in March was growing at its fastest rate since November 2013. Annually, the rate of growth in consumer-goods spending has been flat since December 2012. Incomes are indicating that consumer-goods spending is likely to remain flat.

However, housing permits are also an important leading indicator for consumer-goods spending. The rate of growth in housing permits is slowing significantly. This indicates that consumer-goods spending will see slower growth for the remainder of 2014. Taking into account both leading indicators, it is likely that we currently are seeing the peak rate of growth in consumer-goods spending.

Changes in consumer-goods spending tend to lead changes in consumer-goods production (and therefore plastics packaging) by about nine months on average. Since the summer of 2011, consumer-goods production has been growing at a steadily accelerating rate. The current annual growth in consumer-goods production is the fastest since March 2003. But since consumer-goods spending seems poised to grow more slowly, it is likely that consumer-goods production, and therefore plastics packaging, will see its peak rate of growth sometime in the second half of 2014.

Of particular importance to many packaging processors is the food and beverage industry. The rate of growth in food and beverage production is slowing rapidly. This decelerating growth looks like it will continue for the next quarter or two.