By Perc Pineda, PhD, PLASTICS Chief Economist
The unemployment rate in May can be viewed from two angles. May job numbers from the U.S. Bureau of Labor Statistics estimates show that the U.S. employment rate fell to 13.3% in May following the 14.7% rate in April. On one hand, it is noteworthy that the unemployment rate stopped increasing in May. On the other hand, it is still significantly above the 3.5% rate in February and 4.4% in March. The US economy enjoyed unemployment rates at or below 4.0% since March 2018. As Americans grew accustomed to a strong labor market, double-digit unemployment rates in two consecutive months cause consternation to some.
The services sector of the economy lost more jobs than manufacturing beginning in March. The unemployment rate in service occupations was 23.6% in May and 27.1% in April. In manufacturing, the unemployment rate in May was 11.6%—down from 13.2% in April. In plastics and rubber products manufacturing, 29,800 jobs were recouped in May after the 900 and 73,900 job losses in March and April, respectively.
While there are statistical improvements, monthly data tend to be noisy and there will be residual effects on what I call the great economic disruption. Government-mandated lockdowns due to the coronavirus pandemic interrupted an economy that has been chugging along. Nevertheless, these early signs of improvements provide some clues. For instance, plastics and rubber shipments decreased 9.1% or $1.8 billion in April from March, based on the U.S. Census Bureau estimates. While it was the largest drop from the 8.1% decline in January 2009, it can be expected that the value of shipment of plastics and rubber products in May improved from April. Jobs added in plastics and rubber products manufacturing point to an upturn in demand that necessitated hiring workers in sync with business activity uptick in the automotive industry – a significant end-market of the plastics industry. Motor vehicles and parts manufacturing added 27,700 jobs in May.
Auto and light truck sales in May was 12.2 million units on a seasonally adjusted annual rate. This improved from 11.4 and 8.7 million unit sales in March and April, respectively. Since March 2013 auto and light truck sales in the U.S. were at or above 16.5 million units. Whether the upturn in auto sales May will continue and pick-up pace remains to be seen. The industrial production index (2012=100) on motor vehicles and parts read 25.9 in April. It was significantly lower than 130.5 in February before the coronavirus lockdowns and the lowest since January 1972 data from the Board of Governments of the Federal Reserve Bank. Nevertheless, an increase in auto and light truck sales reduces costly inventory buildup in the automotive industry.
In May, 464,000 jobs were added in construction and 43,500 in food and beverage stores. Building and construction is another significant end-market of the plastics industry. An increase in construction activity indicates demand for building and construction materials, including those made of plastics and plastic materials. It has been reported that the reopening of restaurants for outdoor dining has increased the demand for canopies and tents – architectural fabrics using PFTE, PVC, and HDPE. The demand for plastic products used in consumer essentials such as food and beverage stayed stable since the lockdowns – and will only likely increase as the economy reopens and activities supported by food and beverage consumption off-premises, such as sporting events, resume.
Although there are early signs of easing in the economy, there is no telling what the shape of the recovery will be due to residual effects of the great economic disruption. From a macroeconomic point of view, it is tempting to describe or simplify a recovery using letters of the alphabet—whether a V, U, W, or an L—even a symbol such as a swoosh or a mathematical radical or root symbol. Perhaps, the recovery would come in different shapes as far as industries—and between products within the industries—are concerned. There is reason to expect an L-shaped recovery of jet fuel demand since air travel is not projected to sharply rebound. In contrast, the demand for gasoline could very well be V-shaped as the easing of lockdowns is getting more people back into their cars – not to underscore safety concerns on using public transportation. As the U.S. economy reopens, which is synonymous with an increase in demand for goods and services and workers, signs of economic recovery will eventually be more visible.