Outlook 2000: 3.8% growth



Sure, there will be
some ups and some downs, but overall, as far as injection molders
are concerned, the ups will prevail. The next five years look
again like solid growth years for all key molding markets. In
practical terms this means that the massive capital investment
of the past five years in advanced injection machines, automated
assembly equipment, and new auxiliary devices not only will pay
off but is likely to continue.

Actual growth in the past 12 months for all types of injection
molded parts, on a value basis, was 3.7 percent. For the next
year-through November 2000-we anticipate growth of 3.8 percent,
and for the five-year period 2000 through 2004, we project at
least 3.6 percent growth per year.

As is the case with most projections, these are based on both
past figures and the few clues of what is possible for the future.
As you now look back on 1999, it was one of the best years for
injection molding growth ever, prompted in considerable part by
an overall roaring economy and unrestrained consumer spending.
Just in the third quarter of 1999, the overall economy grew a
super-charged 5.5 percent annual rate, following somewhat anemic
1.9 percent growth in the second quarter.

Inventory buildup, as reported in December
1999 IMM, pp. 34-35
, had much to do with this. Molders whom
we contact on a regular basis all say that much of their latest
output growth is based on inventory increases.

It will be March 2000 before we know for sure just what happened
in the fourth quarter of 1999 and how the effects of Y2K impact
the manufacturing economy. We are certain, however, that as you
read this in early January, there will be an overall slowdown
in new orders for the first few months of 2000. Most of this weakness
will be in nondurables such as packaging (injection molded drinking
cups and the like), medical devices such as syringes, appliances,
or computers and office equipment.

Data released late in 1999 showed a sharp rise in inventories
as all types of businesses, as well as consumers, stocked up "just
in case" of Y2K-related troubles. Excellent holiday sales-based
on late November 1999 data-were also partially motivated by Y2K
concerns.

U.S. businesses stockpiled goods last September at the fastest
pace in six months, led by food and department stores, the Commerce
Department reported. At the time of this writing-late November
1999-these were the latest data available. Inventories rose .4
percent in September.

Other more anecdotal information shows that the inventory increases
continued well into the fourth quarter. The National Assn. of
Purchasing Management's October index showed that inventory levels
rose to 51.1 from 43.2 the month earlier, suggesting more businesses
had rebuilt their stockpiles.

It was the first time in nearly 11 years that this index has
risen above 50. Based on that as well as other information, it
appears that fourth quarter growth will have been well above 3.8
percent and possibly as high as 4.8 percent.

In late summer 1999, inventories had been drawn down because
consumer demand stayed firm. In the third quarter of 1999, consumer
spending jumped at an annual rate of 4.6 percent. The government
reported in November 1999 that retail sales in October were 8.5
percent higher than the same month a year ago. The recent rate
increases by the Federal Reserve had some impact on new house
sales and transportation orders but overall did little to restrain
consumer spending.

As of fall 1999, Christmas sales were expected to rise in the
area of 4.5 percent to 5 percent, according to one typically reliable
forecast made by the Bank of Tokyo/Mitsubishi. While the prediction
is slightly less than 1998's 5.1 percent increase, it matches
gains made in 1997. The holiday sales generally account for a
quarter of annual sales for most retailers.

Table 1. Manufacturing
plant orders, 1999


Category


Shipments, YTD


New orders, YTD

Automotive +4.7% +5.2%
Home

goods
+13.9% +14.1%
Consumer

goods
+5.1% +5.6%
Machinery +5.7% +5.8%




The Strength of Manufacturing: Productivity
Continued increases
in manufacturing productivity hold the key to maintaining growth
overall and in injection molding in particular. For the past few
years, manufacturing productivity has been rising at a fast rate,
faster than wage growth. This, more than anything else, has kept
inflation in check.

Resin consumption data as released by the Society of the Plastics
Industry provide somewhat of a guide to productivity. Employment
in plastics processing plants-this includes all processes, not
just injection molding-grew just 2.3 percent overall from 1995
through June 1999, according to Department of Labor data. At the
same time, U.S. resin consumption has grown at an average 4.9
percent annual rate. In other words, fewer workers process an
ever growing amount of resin every year.

Recent data confirm this long-term trend of rising productivity.
All available forecasts suggest more of the same for the next
few years. The reason: New technologies allow for this almost
unprecedented long-term boost in productivity. Not only are injection
molding machines more efficient, but the use of computers, more
automated production systems, and advanced auxiliary equipment
has helped boost productivity.

The productivity of U.S. workers again rose sharply in the
third quarter of 1999 while the growth in unit labor costs slowed
significantly, the Labor Department reported late last year. Productivity,
measuring the output per hour of workers outside the farm sector,
rose at an annual rate of 4.2 percent in the recent July-September
quarter. That was the fastest productivity rate since a 4.4 percent
gain in the first quarter of 1998 and followed weak growth of
just .6 percent in the second quarter of 1999.

Unfortunately, we do not have productivity measurements specific
to the various manufacturing sectors served by injection molders.
However, segment data released by the Labor Department show that
productivity gains have been healthy in all industries and on
average in manufacturing were around 3.4 percent. Even more detailed
data show that productivity growth in the overall electronics
industry topped 5 percent and that productivity at car parts plants
jumped by 4.8 percent.

One note of caution: Many of these projections are based on
the somewhat inadequate government data released in Washington.
There are no data that apply specifically to injection molding.
We have to piece these together and that is a source of errors.
Another source of errors is the somewhat bizarre way the U.S.
Government collects and reports data. Here's one example: The
monthly Consumer Price Index lists television sets as furniture.


Review
of 1999

The past year returned solid growth to all markets served by
injection molders. This change is primarily due to the reduced
import pressures, the return of significant export opportunities
as Asia's economies roared back, and accelerated domestic demand.

Here are some key data showing growth in 1999 as released by
the U.S. Government. These data confirm our monthly reports tracking
the resurgence of plastics manufacturing and injection molding
after the mini recession of 1998. According to U.S. Department
of Commerce data through September 1999, orders to U.S. manufacturing
plants for all types of goods have shown solid increases. Key
data are shown in Table 1, above.

While these categories do not directly correspond with the
categories used in the monthly index, they do confirm the general
trends. See the data below for actual growth in injection
molding in 1999 as well as forecasts.

According to U.S. Department of Commerce data, imports of molds
for all types of plastics processing applications-including blowmolding,
thermoforming, and others in addition to injection molding-showed
essentially no growth between 1997 and 1998, a down year for manufacturing.
Available data through September 1999 suggest that mold imports
in the past year showed some growth again as new applications
were being designed to meet product requests for Year 2000 product
introductions: Just think of the flood of products now on the
market with a Millennium label.

Another trend is the demand growth of resin used in injection
molding plastics. A review of the data issued by the SPI shows
that on average demand for injection molding grades has risen
4.9 percent in the past five years.

The Resurgence of Asia

The rapid return to growth seen all across Asia-with the exception
of Indonesia-has numerous implications for molders in the United
States.

The strength in the economies around the Pacific Rim means
that local demand there is rising again. This lessens pressures
on the U.S. plastics parts markets as fewer injection molded products
are shipped to the United States. And export opportunities for
U.S. molders are returning. Keep in mind that up until 1997 and
since we started collecting monthly injection molding data, rising
export orders had been the second most important engine of growth
for U.S. molders, next to consumer spending (see Table 2, above).




Sector
by Sector Projections

  • Transportation. U.S. injection molders have seen relatively
    little additional business as a result of the sales records set
    in 1999, the best car and light truck year since 1984. Actual
    growth in output in 1999 was just about 3.1 percent while sales
    overall were up more than 5 percent. At the same time, based
    on data through August 1999, importation of transportation parts
    jumped 6.9 percent over 1998.

    With car and light truck sales projected to slide back to
    about 15.5 million units for each of the next five years-and
    it may be even less than that in 2000-U.S. molders can, at best,
    anticipate growth of 3 percent/year or less through 2004.

    We do believe, however, that U.S. molders with attractive
    pricing will be able to regain some market share from imports.
    Demand for parts in Asia is rising sharply and the ability of
    molders in the Pacific Rim to offer rock bottom pricing is declining.

  • Electrical and electronics. Some temporary weakness
    can be seen in this sector late in 1999 and for the first quarter
    of 2000. But beyond that, annual growth rates of at least 10
    percent/year should be the minimum you can expect.

    The current weakness is mostly due to the Taiwan earthquake.
    Note that in 1999 Compaq and other box makers reported that they
    were unable to fill some orders for home computers because of
    a chip shortage caused by the recent earthquake. Similar warnings
    came from Hewlett-Packard.

    But this is only temporary. The demand for all types of electronics-from
    the basic PC to advanced mobile phones-is continuing. Note here
    that some projections forecast annual growth overall in this
    category at plus-15 percent/year. But with many parts continuing
    to be imported and pricing pressures on U.S. molders relentless,
    actual output growth by value in the U.S. molding market will
    remain restrained as seen in the table above.

    We believe that sourcing of larger parts for computers, printers,
    and the like in Asia will grow while domestic molders will see
    most of their growth opportunities in small precision components.

  • Toys. Imports dominate this market and this is unlikely
    to change. The mini baby boom of the late 1990s will mean overall
    growth in toy sales. But most of that will go to importers from
    Asia and select companies such as Denmark's Lego. Domestic output
    growth will be a very moderate 2.56 percent/year in 2000, dropping
    to about 2.4 percent in five years through 2004.
  • Medical. Shipments for all types of injection molded
    health care products will rise at least 10 percent this year,
    far more rapidly than actual health care spending. Renewed export
    opportunities are the key here.

    As Asian economies rebound and their investment in new manufacturing
    capacity pays off-and results in those countries' abilities to
    meet more of an escalating demand for health care products-U.S.
    output growth will drop back through 2004 to the 8.9 percent/year
    range.

  • Packaging. Output growth here is very much in line
    with overall economic growth. We see few surprises and little
    upside potential. This year output growth will be about 4.2 percent,
    declining to 3.78 percent/year through 2004.
  • Building and construction. The past five years have
    been the best years building and construction industries have
    seen since the post-World War II building boom. Injection molded
    parts used in building and construction have seen an average
    annual growth of 3.1 percent. This includes all types of applications
    such as pipe fittings.

    Through September 1999, actual shipments of building and construction
    supplies rose 3.9 percent as compared to the same time period
    of 1998. We anticipate this rate of growth to continue through
    August of 2000. Only then will the higher interest rates and
    declining housing starts have a tangible effect on injection
    molded parts shipments. Such shipments trail housing starts by
    six to nine months.

    For most of 1999, housing starts were reported at an annual
    rate of 1.61 million units, down somewhat from the 1.67 million/year
    rate of 1998. In 2000, due to higher mortgage rates, housing
    starts are anticipated to decline to 1.55 million-still bullish.
    Such a rate is considered to be very strong and benefits key
    injection molding markets as well as overall consumer spending.
    Relatively few imports in this market mean that domestic molders
    benefit the most from growth.

  • Furniture and furnishings. This market segment is
    driven by both housing starts and consumer spending. Little change
    in either is anticipated for the balance of 2000 as detailed
    above. After that, annual growth is likely to decline from a
    bullish 4.25 percent in 2000 to 4.08 percent/year.
  • Appliances, durable goods, and consumer products. Again,
    the same basics apply: Strong consumer spending and a bullish
    outlook for housing drive these applications. Note that export
    opportunities are also a factor as global demand for U.S.-made
    small appliances continues to rise. Segment analysis of U.S.
    export data shows that small appliance shipments abroad have
    been growing sharply again since March 1999, after sliding more
    than 12 percent in the prior 12 months.

    Small appliances-many with fancy electronics-remain a hot
    export item as the ability of U.S. manufacturers to bring new
    products to market more rapidly than most global competitors
    creates growth opportunities for molders in the United States.

Issues To Keep in Mind

Projecting economic growth for the next five years and beyond
is complicated by a wave of new technologies that are poised to
change injection molding very dramatically.

The extent of the anticipated changes is similar to what injection
molders saw between 1978 and 1985. At that time advanced machine
controls along with a flood of new resin compounds helped boost
injection molding productivity at speeds never before seen. Apart
from productivity increases, new materials also allowed for the
penetration of plastics into applications long seen as the sole
domain of materials such as glass or steel. And the arrival of
the PC-along with chip-based machine controls-produced the single
fastest injection molding growth market: electronics.

We now know there will be massive change that may very well
derail business plans that extend beyond 2004. This change will
again be driven by new technologies as well as profound changes
in the global market. But we do not know yet which direction injection
molding will change. But for those of you tasked with planning
your firm's future, it is critical that you monitor how these
technologies evolve.

What are we talking about? Watch the trends in molecular-based
computing, nanotechnology, and molding of metal powders and ceramics.
Molecular-based computing, just now starting to emerge from research
laboratories, will probably have the greatest impact. What is
this technology?

A research team consisting of scientists from UCLA and Hewlett-Packard
in the fall of 1999 demonstrated molecular-based logic gates.
These molecules are capable of results equal to or surpassing
typical silicon. Also, this molecular circuitry can be defect-tolerant.
The scientists believe, and much of the computer research community
seems to agree, that these gates can and will lead to molecular
computers. These would be smaller, faster, and far less costly
than current models, while consuming less power. According to
the researchers, such molecular computers would exceed the capacities
of a modern Pentium III by a factor of about 100 billion in terms
of energy needed for calculation. The computational power of 100
workstations would be encapsulated in a space no larger than a
grain of sand.

The researchers hope to have the first models of a molecular-based
computer up and running in six or seven years, if not sooner.
The arrival of such technology could be truly disruptive: The
entire industry built on the technology required to produce silicon-based
computers could be eliminated or profoundly changed. Applications
containing large numbers of injection molded parts-disk drives,
computer housings, and so on-would simply become irrelevant or
could shrink in size to such an extent that they may hold few
opportunities for injection molders.

One example of premolecular computing is the just-patented
one-time use cellphone that is the size of two credit cards end-to-end.
This cellphone is little more than a printed circuit board with
a small battery and loud speaker: After a one-time use of 30 or
60 minutes it would be tossed.

So what else will come in place of conventional mobile phones,
of computers, or of other electronics? There are numerous molders
in the United States, Japan, and Western Europe that are already
hard at work on this new future: micromolding for nano-parts.
We are talking about nanotechnology such as grain-of-sand-sized
medical devices that can travel the arteries of the human body
and fix ailments, or fully functional miniature fake flies that
can hover inside an enemy's compound and transmit real-time video
intelligence. There are applications in many fields, and they
will require the skills of molders who can make parts just a thousandth
of the size of a period on this page, or even smaller. That this
is possible has been demonstrated already. And combined with molecular
computing, nanotechnology could change almost everything.

Technology that requires more conventionally sized injection
molding operations will soon create a major market: injection
molding of metal powders and ceramics as well as other types of
unusual materials. Such molding operations can already be found
in plants all across North America. But as designers learn of
the benefits of these new materials, we believe that such molding
operations may grab as much as 4 percent of the entire U.S. market
of injection molded products-on a value basis-by 2004. At this
time we are not yet in a position to track growth precisely but
anticipate that this will become possible over the next few years.

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