Steady growth ahead for injection molding.

* North American output of injection molded products has steadily increased over the past 12 months, a trend expected to continue through the end of 2005. The latest forecast for our Injection Molding Business Index calls for an annual increase of 5% in domestic production of injection molded goods in 2005. This follows a 5% gain in 2004.

According to the latest available data, injection molding activity declined by about 3% in the first quarter of 2004, and then production moved into a solid expansionary phase by the middle of last year. What is particularly encouraging about the recent expansion is that it occurred during a time when resin costs were trending sharply higher. There is little doubt that were it not for the dramatic increase in materials costs in 2004, growth for the injection molding sector would have been substantially higher over the past 12 months. This means that this sector has potential to exceed the forecasted rate of expansion in 2005 if resin prices come down, even moderately, off of their recent cyclical highs.

As 2005 got under way, the growth for injection molded packaging was particularly robust. According to data released by the American Plastics Council, the consumption of resins by molders of caps, closures, pails, crates, totes, and most types of rigid polypropylene packaging enjoyed strong demand in the second half of 2004.

These gains are corroborated by a strong increase in U.S. data on total retail sales (minus autos). Retail sales have historically been an excellent indicator of the demand for all types of packaging, and in 2004 retail sales expanded by a robust 9%. This rate is not sustainable over the long term, but growth will remain strong this year. The forecast calls for a gain of 6% in total retail sales (minus autos) in 2005.

Most of the traditional durable goods that are major end-markets for injection molded parts are expected to be steady to higher in 2005. These include automotive, appliances, electronics, furniture, and housewares. Total consumer spending on durable goods advanced by 7% in 2004, but the growth rate is forecast to decelerate to 4% in 2005. Domestic production of computers and peripheral equipment will enjoy the strongest gains this year, with growth expected to hit 10%. Output of large appliances and household furniture will expand 4% to 5%. Motor vehicles will be flat in 2005, but a plethora of new models were introduced this year that make increased use of new injection molded materials and technologies.

Two other major injection molding end-markets will continue to enjoy above-average growth this year. They are the medical and defense industries. These markets remain in long-term upward trends that will persist for the fore seeable future. Production of medical equipment and supplies escalated 5% in 2004 and is forecasted to grow 7% in 2005. Defense spending has grown by an average annual rate (inflation-adjusted) of 8% during the past three years, and this pace will be sustained this year.

The one major trend that represents the biggest threat to the continued economic expansion in the U.S. is the rise in energy prices. Presently, it seems most likely that the prices of crude oil and natural gas will trend downward as 2005 progresses. But as we have learned during the past two years, there is no guarantee that this will occur.

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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].

Bill Wood

Plastics Market Economist