Market analysis Rising GDP and consumer spending boost outlook for US plastics sector

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Plastics Industry Association

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The Plastics Industry Association (Plastics) has released an official analysis of the third quarter GDP report’s impact on the US plastics industry: The U.S. economy’s recent growth, with a 2.8 percent rise in Q3 GDP, is boosting demand in the plastics industry.

Although gross domestic product (GDP) is a lagging indicator, it remains the most comprehensive measure of economic activity, reflecting household, business, and government sector contributions to the economy. Analyzing GDP components over time provides valuable insights into the growth trajectories across industries.

Current economic performance and output surplus

Since Q4 2021, the U.S. economy has consistently tracked above its potential output, resulting in a 12-quarter output surplus — the opposite of an output gap, where actual output falls below potential. Following 3.0 percent real GDP growth in the second quarter, the economy expanded by 2.8 percent in the third quarter, reaching 23.4 trillion dollars and surpassing the Congressional Budget Office’s estimated real potential GDP of 22.8 trillion dollars.

Household spending and plastics demand

This broad-based increase in economic activity includes a 3.1 percent rise in real household spending and a 3.3 percent increase in business investment, supporting a favorable outlook for the plastics industry. With an estimated 87.6 percent of plastics products directed toward personal consumption expenditures in 2023, the growth in household spending is positive news for the plastics industry. Notably, durable goods consumption increased by 8.1 percent in the third quarter, including a 9.7 percent rise in plastics-intensive motor vehicles and parts, and an 8.8 percent rise in furnishings and durable household equipment. This robust demand in the automotive and appliance sectors bodes well for the plastics industry.

Nondurable goods consumption grew by 4.9 percent, with off-premises food and beverage consumption up 3.1 percent (or 8.8 billion) in the third quarter, signaling increased demand for plastics packaging.

Business investment growth and use of plastics

Business investment spending also showed strength, with a 4.6 billion dollars (7.3 percent) increase in industrial equipment investment in the third quarter. Investment in transportation equipment surged by 25.9 percent, positively impacting the plastics industry, as transportation relies heavily on plastics and plastic products. Similarly, the 14.7 percent increase (or 17.9 billion dollars) in information processing equipment investment benefits the plastics industry, given the sector’s dependence on plastics. Overall, the automotive and electronics markets supported productivity gains in the plastics industry, benefiting upstream sectors.

Inventory drawdown and prospects for production growth

As these data are backward-looking, it’s essential to consider them alongside the recent manufacturing slump driven by high interest rates. While third-quarter spending could reflect inventory drawdowns, GDP estimates showed a 12.8 billion dollars (56.0 percent) decline in nonfarm private inventories. This drawdown, combined with assumed consumption growth, suggests a potential rise in production ahead, especially if labor market conditions remain strong and prices are stable along with prospects of lower interest rates.

In November, the Federal Reserve cut rates by 25 basis points, lowering the Fed funds rate to a target range of 4.50 to 4.75 percent. Lower interest rates are expected to reduce business risk aversion, stimulate investment in new products and projects, and likely bolster activity across the plastics industry supply chain.

* Perc Pineda, PhD; Chief Economist, Plastics

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