Output of molded housewares rising.

Domestic production of injection molded housewares will rise by at least 12% in 2007 after a flat 2006 and a drop of 18% in 2005. This is according to the latest trend in our Injection Molded Housewares Index. As the chart indicates, output of molded housewares hit a cyclical low point in the second half of 2006 and since then has recovered steadily. This uptrend is expected to continue through 2008.

This rise in housewares production will occur in an environment of moderately increasing consumer spending. The recent spike in gasoline prices has been a huge drag on consumer spending for other products, and the concurrent weakness in the housing markets has decreased mortgage equity withdrawal--also pinching consumer spending. But barring a major supply disruption, gasoline prices should ease during the second half of this year, once we are safely past the summer driving and hurricane seasons. Improvement in the housing market will probably have to wait until the spring of 2008, but we are already beyond the cyclical low point. So the market is not expected to get much worse.

Taking a longer-term perspective, household consumption of plastics housewares in the U.S. has gradually but steadily increased during the past two decades. This market segment is broad and diverse, and is therefore vulnerable to a wide range of market forces. The one unifying characteristic is that plastics housewares tend to be smaller, inexpensive items that are high-volume but low-margin to produce. And they are easily copied by other producers.

In recent years, North American molders of these goods have been affected by the rapidly rising costs of materials, labor, energy, and shipping. As a result, production of many housewares products has shifted to lower-cost countries in Asia and Latin America. This shift not only has affected domestic injection molders--there has also been a significant decrease in demand for North American-made molds and tooling.

This trend to off-shoring has been widely cited in the press, but recent evidence suggests that the momentum may be starting to swing back in favor of domestic producers, at least in some market segments. The housewares market is not only affected by manufacturing costs; it also heavily reliant on rapidly changing consumer tastes. Consumers expect an increasing array of colors, styles, textures, plus continually improving durability, and functionality. This demand puts a premium on not only price, but also design capabilities and speed to market.

Foreign suppliers are at a distinct disadvantage when it comes to spotting emerging trends in North American consumer demand. Therefore, they tend to be much slower to market with new products. In recent years, domestic suppliers have invested heavily in faster, more capable design software, machinery, and tooling, all of which has substantially lowered their costs as well as their time to market.

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Foreign suppliers are still going to be the producers of choice for many types of low-margin, commodity-type goods. But by lowering costs through investment, adding value to the products through superior design, and responding quickly to changes in market demand, domestic producers of plastic housewares are now able to re-capture business that likely would have gone overseas just a few years ago.

Bill Wood

Plastics Market Economist

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at [e-mail]. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.