Fri August 31, 2018

Last week’s second estimate of the second quarter gross domestic product (GDP) for the U.S. underscores the stellar performance of the economy in the first half of 2018. The household and business sectors of the economy remained upbeat as the economy’s output continued to expand. The labor market tightened, and consumer and producer prices rose.

In the second quarter, U.S. real GDP growth—that is, GDP growth after adjusting for the effect of inflation—came in at 4.2 percent, outperforming most forecasts. The output expansion in the first half of the year was broad-based due mainly to much improved balance sheets of the household and business sectors of the economy. Personal consumption expenditures in the second quarter rose 3.8 percent, and gross domestic private nonresidential investment increased 8.5 percent in the second quarter. Healthy corporate profits will continue to buoy business investment spending. Corporate profits with inventory valuation and capital consumption adjustments edged up 3.3 percent in the second quarter—a 7.7-percent increase from the same period last year.

The first year closed with the civilian unemployment rate in June at 4.0 percent. U-6, another measure of unemployment that includes marginally attached workers plus total employed part-time for economic reasons, was 7.8 percent, down from 9.5 percent at the close of the first half of 2017. Tightening labor markets have started causing moderate upward pressure on wages. In the second quarter, the average hourly earnings of all employees were 2.7 percent higher than a year ago. Real personal income in both the first and second quarter rose 2.8 percent and 2.9 percent, respectively.

Prices remained stable in the first half of the year but have risen in sync with an economy that is growing. Consumer Price Index inflation for all items, also known as headline inflation, was up 2.8 percent year-over-year in June, and core inflation, which excludes food and energy prices, was also up 2.2 percent from June last year. The producer price index for all commodities in June 2018 was also up the same period last year, at 5.5 percent.

For plastics, as the economy marches on in its ninth year of expansion, the underlying trend in products, machinery and total industry manufacturing in the U.S. remains positive and will most likely continue through 2018. Plastics and rubber shipments rose 0.5 percent in the second quarter—a 1.9-percent increase from the end of the second quarter last year, based on PLASTICS’ analysis of U.S. Census Bureau data. If current favorable employment conditions in the economy continue, real disposable income rises and consumers remain engaged, projections of excess demand in the U.S. economy could mean a larger increase in plastics shipments.

While trade disagreements with China continue to go unresolved, the recent preliminary trade agreement with the U.S. and Mexico is a breakthrough in the renegotiation of the North American Free Trade Agreement (NAFTA) and has the potential to put all three countries—U.S., Mexico and Canada—into a beneficial, modernized trade agreement. The recent announcement of the European Union’s willingness to eliminate tariffs on cars and other industrial products as part of a trade deal with the U.S. is similarly promising. While quarterly and monthly data will continue to come in unevenly, the U.S. economy seems to be on track for continued growth. Barring any or further deterioration in U.S. trade relations with its partners, the outlook remains healthy—for both the economy and the plastics industry.