Trade friction between the U.S. and China, Brexit and the debate over the USMCA all collaborated to make 2019 a year of uncertainty. But fear not; it is most likely that this triad of issues will be resolved in 2020.
Global output and trade activity forecasts for the coming year that are comparatively better than 2019 can only assume that the economic pressures resulting from these three outstanding concerns will dissipate in 2020. The IMF currently forecasts a 3.4% growth rate in global gross domestic product (GDP) in 2020. Following paltry growth in the volume of goods trade (0.9%) in 2019, it is expected that exports from G7 economies (U.S., Canada, Germany, France, Italy, UK, and Japan) will grow 2.4% in 2020.
In the U.S., employment climbed by 266,000 in November, which included 54,000 positions in the manufacturing industry. The plastics and rubber manufacturing sector added 1,900 jobs in November—6,700 above the number it lost in November last year. In 2019, the U.S. economy added an average of 180,000 jobs a month, and the unemployment rate in November fell to 3.5%. It’s expected that these figures will not see any major revisions and that the 2019 labor market will historically be viewed as a strong one. The third quarter-end period unemployment rate of 3.5% was below PLASTICS’ forecast of 3.7% and the annual unemployment rates this year and the next could stay under PLASTICS’ current forecast of 3.7% for both years.
At the GDP level, in the third quarter of 2019 the U.S. economy expanded 2.1%—above the previous estimate of 1.9%. PLASTICS’ current projections for 2019 and 2020 GDP growth are 2.3% and 1.8% respectively, suggesting a slowdown, but not a recession in 2020.
Personal consumption expenditures in the third quarter of 2019 increased by 2.9%. The household sector’s expenditures on goods rose 2.9% in the third quarter with spending on durable and nondurable goods increasing 8.3% and 4.3%, respectively. The household sector of the economy has been doing the heavy lifting to keep economic activity going this year. While softness in business investment spending has slowed economic growth momentum, third-quarter investment spending fell marginally by 0.1% compared to falling by 6.3% in the second quarter. Investment spending on equipment, however, fell 3.8% in the third quarter. Following a six-quarter consecutive decline, residential investment spending increased by 5.1% in the third quarter. Exports and imports rose 0.9% and 1.5%, respectively in the third quarter of 2019 as well.
So far, headline inflation, measured by the Consumer Price Index (CPI), has stayed under 2.0% this year—1.8% in October. Core inflation, which excludes food and energy prices, has stayed within a narrow band of 1.9% and 2.4% this year. In October core inflation was 2.3%. It is unlikely that the economy will see huge swings in prices for the remainder of the year. Annually, PLASTICS currently forecasts a 1.8% headline inflation this year and 2.1% next year.
The U.S. plastics industry is a mature industry and its growth will continue to track economic activity measured more broadly by GDP. With plastics consumption heavily integrated into a broad range of applications and products, 2020 could see a scenario in which plastics shipments grow at a moderate pace. In PLASTICS’ latest Size and Impact report, real shipments for 2020 and 2021 are projected to increase by 2.5% and 2.4%, respectively. In other words, plastics demand can be expected to stay stable. However, plastics manufacturing shipments moving sideways is another possible scenario. A turnaround in business sector sentiment, if it happens, would boost the demand for machinery, equipment and molds. By extension, this outcome should convert the production decrease in 2019 to an increase in 2020. Growth in plastics materials and resins production is still expected to continue in 2020. While there is room for growth as evidenced by lower capacity utilization in plastics materials and resins and plastics and rubber products manufacturing, human capital as an input to production remains in short supply.
As is standard practice, a more detailed quarterly and annual forecast will be found in the forthcoming PLASTICS Quarterly. Meanwhile, please visit https://www.plasticsindustry.org/data-analysis-reports/ for the latest plastics industry data.