Perc Pineda, PhD
Chief Economist, PLASTICS
If you have read the latest PLASTICS Size and Impact report, chances are you’ve learned that 89% of plastic products ended up in the personal consumption column. Given that two-thirds of the U.S. gross domestic product (GDP) is personal consumption expenditures, strong consumer spending data are greeted with optimism in the plastics industry.
According to the advanced retail sales estimates by the U.S. Census Bureau for January of 2023, U.S. retail sales rose by 3.0% from December and 6.4% from a year earlier. Retail sales in all business categories, except for gasoline stations which had zero growth, increased in January. Department store sales increased the most by 17.5% followed by food services and drinking locales which rose by 7.2%. The strong increased sales in these business categories including motor vehicle and parts dealers, furniture stores, and electronics and appliances stores, could increase plastics shipments as inventories are replenished. This, however, hinges on the retailer’s inventories-to-sales ratio.
The retailers’ amount of inventory relative to number of sales was 1.26 in December, according to the U.S. Census Bureau. While this ratio has been increasing throughout 2022, prior to the COVID-19 recession it stayed above 1.40.
Some factors to consider
Monthly data tend to be noisy or have high variability—not an indication of a trend. U.S. retail sales estimates are reported in nominal terms or without adjusting for inflation. The Consumer Price Index was up 0.5% in January. Headline inflation was 6.4% in January – negligibly lower from 6.5% in December. In real terms, or adjusted for inflation, the retail sales growth in January is lower than the nominal estimates.
One possible implication of robust consumer spending during an inflationary environment is higher consumer debt. Consumer loans consisting of credit cards and other revolving credit at all commercial banks rose $14.7 billion in January from December. It was a 16.8% increase from a year earlier. Debt-driven growth has limits and could be problematic during an economic slowdown. A weaker labor market, although not a current issue but likely during a low-growth economic environment, could generate higher unemployment rates negative affecting household personal income.
If the economy continues to stay strong, and consumers remain engaged, plastic product shipments could increase as plastics and plastic products are part of household consumption. However, with the U.S. economic outlook continuing to evolve, a single data point does not reflect an underlying growth momentum in the economy. The U.S. economy is adjusting from a robust 5.9% post-COVID-19 growth rate in 2021 to long-run sustainable growth. The likelihood that the U.S. will grow below 2022’s 2.1% GDP growth remains. The First Quarter 2023 Survey of Professional Forecasters of the Federal Reserve Bank of Philadelphia shares this view.