According to data released earlier this week by the Federal Reserve Board, total industrial production of plastics products in the U.S. increased by 6% in the first quarter of 2013 when compared with the same quarter of a year ago. This is an acceleration in the recent uptrend as total output for the whole year of 2012 escalated by a more subdued 4.3%. We expect this pace of growth to be sustained for the remainder of the year, and our forecast for all of 2013 calls for a rise of 6% in total output of plastics products.

It should be noted that this data set was significantly revised in the latest monthly release. The most notable changes were the downward revisions in the monthly output totals in 2012. So the good news is that the growth rate appears to be accelerating, but the bad news is that it is growing off of a significantly lower base than was previously reported. The total output of the plastics industry is still about 10% below the level it was in 2007. It is unlikely we will get back to those levels this year, but on the current trajectory we will certainly get back to prerecession levels in 2014.

Historical analysis suggests that demand for new molds and tooling increases sharply when the growth rate in the output of plastics parts is greater than 5% for a sustained period of time. So the growth in output is currently above 5%, but it needs to continue to expand at this pace for two or three more quarters. If it does, then there will be a sharp rise in demand for new molds and tooling as well as all types of molding equipment. If our forecast holds, then it means that 2013 should be a decent year for moldmakers and the really strong demand will most likely occur in 2014.

 

Productivity rates for nonfarm businesses in the U.S. increased by 2.9% in the third quarter according to data that was just released by the Bureau of Labor Statistics. This was the largest gain in two years. For the year to date, overall productivity has increased 1.5% which compares quite favorably to the 0.7% rise that was registered for all of 2011. Productivity is defined as the output per hour of all persons employed by companies in this sector.

The manufacturing sector is a subset of the nonfarm business sector, but here the news has not been so good in recent months. Manufacturing productivity for the U.S. declined by 0.7% in Q3. This marked the second consecutive quarterly decline following a large jump that was posted in the first quarter of this year. For the year to date, productivity has increased by 1.6% which is noticeably lower than the 2.5% gain in 2011.

At the present time, I am not too concerned by the two straight quarters of negative productivity for manufacturers. All of the uncertainty of the past six months has created a less-than-favorable business climate in the U.S., and this is having a negative effect on the manufacturing sector. But if the trend of slowing productivity persists, then we should all get worried.

Consistent increases in the level of productivity are necessary if the U.S. is going to achieve its goal of rising incomes and low inflation over the long run. Higher productivity rates mean that the US labor force is becoming increasingly competitive. In recent years, the overall productivity in the U.S. has increased faster than compensation levels have. This has resulted in large corporate profits. Under normal circumstances, a large portion of these profits would be re-invested in new equipment and new employees. This may yet happen as soon as Congress finds a solution to the problem of the “fiscal cliff.”

I have stated it many times in the past, and I will continue to say it in the future: productivity growth should be the top priority for policymakers in Washington. Productivity growth is the only way that a country with a growing population can consistently achieve rising prosperity for its citizens. We can reform the tax code and the entitlement programs all we want, and both reforms are desperately needed to be sure.  But if we do not continue to become more productive, none of these reforms will matter because we will not be able to buy any kind of government services anyway.