Injection molding output accelerates.

* After several quarters in a holding pattern where North-American production levels remained essentially flat, the demand for injection molded products will start to accelerate at a moderate yet steady pace during the rest of this year and into 2005. The latest forecast for our Injection Molding Business Index calls for an overall gain of 6% in domestic output of injection molded products in 2004. This follows a decline of 2% in 2003.

According to the latest available data, the quarterly growth rate for the Index hit bottom in the third quarter of last year, and then production levels entered a recovery phase in the fourth quarter. Domestic output of injection molded products increased by a solid 5% to 6% in the fourth quarter of 2003 compared with the same quarter a year earlier. This year-end rally was not enough to make up for the losses in the first half of the year (our Index fell 13% in the second quarter), but it was enough to halt the downtrend and get 2004 aimed in the right direction.

The outlook is for this steady and sustained expansion to persist. This forecast is based not only on the cyclical pattern in the plastics data, but also on the expected continuation of several well-established trends in the U.S. economy. These include steady growth in consumer spending driven by a gradual increase in employment, continued low interest rates, a relatively low value of the dollar compared with the currencies of our major trading partners, high levels of corporate profits, and a steady rise in capital spending on new equipment by U.S. businesses.

And one more trend that would have a salutary effect on the U.S. economy, but which has yet to become established, is the overdue cyclical decline in the price of petroleum products. At the present time, it is quite likely that the prices of crude oil and natural gas will trend downward as this year progresses, but there is no guarantee that this will occur.

Non-durables lead recovery

Coming into this year, several large segments of the injection molding market exhibited early strength. According to the latest data from the American Plastics Council, consumption of polypropylene resins by molders of consumer housewares and rigid packaging enjoyed a surge at the end of last year. These gains are corroborated by a strong increase during the second half of 2003 in the U.S. GDP data on consumer spending for non-durable goods. The consumption of resins by molders of polyethylene pails, tubs, and caps also experienced faster growth in recent months.

This is a typical pattern in the U.S. business cycle. Consumer spending for high-volume, low-cost, nondurable goods (such as packaging and housewares) accelerates early in the recovery cycle and is then followed a quarter or two later by an increase in spending on more expensive durable goods such as autos, appliances, furniture, and electronics. The trend in consumption of plastics resins by suppliers to the appliance and transportation industries appeared to hit bottom in the first quarter of 2004 and should soon start their respective recovery phases.

Two other major markets for injection molders that will enjoy continued growth are the medical and defense industries. Spending in these markets is in an uptrend that will likely persist for the foreseeable future. These markets are less sensitive to swings in the business cycle.

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Bill Wood, an independent economist specializing in the plastics industry, heads his own firm, Mountaintop Economics & Research, Inc. in Greenfield, Mass. He may be contacted by e-mail: [e-mail]