As the year draws to a close, all indicators point to another good year for the U.S. plastics industry. Against the backdrop of sound U.S. economic fundamentals, strong labor markets, healthy business and consumer balances, demand for plastics stayed upbeat in 2018.

Output measured by real gross domestic product (GDP) grew in the last three quarters. The expectation for the fourth quarter is another positive increase in GDP. This year opened with a 4.1-percent unemployment rate that has stayed under 3.7 percent since September. By all indications, tight labor markets have kept the unemployment rate anchored around 3.7 percent as the year comes to a close.

Personal consumption expenditures rose 5.2 percent and gross private domestic investment spending was up 8.6 percent from a year ago. This is in sync with the household and business sector being fully engaged and is unlikely to change negatively in the final quarter of the year.

As the manufacturing sector is the major market of the U.S. plastics industry, plastics shipments moved in lockstep with gains in manufacturing industrial production, consistent with PLASTICS’ quarterly forecast. Moreover, plastics machineries, materials and resin, and plastics molds shipments also stayed in positive territory this year.   

Undoubtedly this year’s buoyant business activity in the plastics industry, which is expected to continue next year, brought about a positive impact on the U.S. economy and particularly on employment. In 2019, however, the plastics industry will remain healthy, but operating in a different business landscape due to shifts in internal and external factors affecting a U.S. economy that has been operating at full capacity. Trade tensions against the backdrop of divergent growth between major markets could lead to lower U.S. exports next year.

Higher business costs can also be expected in 2019. Producer Price Index (PPI) inflation for all plastics materials and resins peaked in August at 7.0 percent year-over-year. It fell to 2.8 percent in November year-over-year due to a strong U.S. dollar and lower oil prices. Falling oil prices are most likely temporary, particularly if the recently announced supply reductions by the Organization of Petroleum Exporting Countries (OPEC) occur in the coming months.

While further hikes in the Fed funds rate could cause the U.S. dollar to strengthen and temper higher commodity prices, the tight labor market will continue to exert upward pressures on wages. Imported intermediate input prices will also increase due to higher import tariffs, driving up business costs and retail prices, particularly for U.S. manufacturers which consume about 22.0 percent of all imported intermediate inputs according to the Federal Reserve Bank of St. Louis. Pricing will be key next year, and the focus will be on revenue rather than volume as companies continue to operate to maximize profit. Margins could move from double to single digits as the U.S. economy—given its resource constraints—continues bumping against its upper limit.

U.S. economic expansion will most likely continue for a 10th year in a row, but how long the U.S. economy can continue to operate at full capacity is an open question. Except for the auto and housing market activities that have slowed this year, real GDP growth is expected to stay healthy in 2019 but the growth rate will start to moderate. PLASTICS’ current forecast of real GDP in 2019 is 2.7 percent.

Though 2018 was another positive year for the industry and though the outlook for 2019 looks positive overall, this year ends on a somber note with the passing of Bill Carteaux who had a vision that PLASTICS members and the industry would benefit greatly from forward-looking insights into the economy, which was why he hired me. He was more than a great boss, but also a great friend, and will be missed by many.