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12/29/2014 | 2 MINUTE READ

Slower Growth for Packaging

Market Watch
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Packaging is tied to consumer goods spending, and growth for both may be at peak levels.

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 packaging.

To understand what will happen with consumer goods production, start with real disposable income. In October (the latest data available), real disposable income was $12.002 billion. The month-over-month rate of change in October was 2.5%. In fact, October had the fastest rate of month-over-month growth since 2012. The annual rate of change, now 1.4%, has grown at a faster rate every month in 2014. This is the fastest rate of annual growth in disposable income since September 2013.

However, the rate of growth is still well below the historic average rate of growth in disposable income, which is 3.1%. It seems that the rate of change of income has broken out of its decelerating trend that began in the early part of 2013.

Changes in real disposable income tend to lead changes in real consumer spending by about six months. The month-over-month change in real consumer-goods spending has been growing faster than 3.3% since March 2014. This was roughly 33% faster growth than the historical average. As a result, the annual rate of growth has been between 3.0% and 3.5% since February 2013. This is a very extended period of time for the rate of growth in consumer-goods spending to be so stable. Also, during this time period, the rate of growth in consumer-goods spending has been much faster than the rate of growth in disposable income.

So, even if incomes continue to grow at a faster rate, don’t expect to see accelerating growth in consumer-goods spending. It is likely that we will see a constant or slightly decelerating rate of growth in consumer-goods spending in 2015.

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 rate of annual growth in consumer-goods production is the fastest since early 1999. However, since consumer-goods spending seems poised to grow at a constant rate or more slowly, it is possible that consumer-goods production, and therefore plastics packaging, may have seen its peak rate of growth.

The food and beverage industry are critical to packaging processors. The rate of growth in food and beverage production has accelerated in 2014. However, food and beverage spending has grown at a slower rate for nearly two years. Therefore, it seems likely that food and beverage production is near its peak. 


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