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Manufacturing on upswing?

The U.S. manufacturing sector is slowly recovering following nearly three years of hard times. Key economic indicators offer encouraging news for the plastics industry and all signs point to a complete recovery by 2004. This was the prognosis offered by Robert Shrouds, DuPont''s corporate economist, speaking to MP to update the findings he presented in May at a conference organized by the Society of the Plastics Industry''s (SPI) Machinery and Moldmakers Div.

"Some [manufacturing] sectors are very strong at the present time," he says. "Housing is currently hitting record sales levels, autos had a 19 million [SAAR] sales month in August, which was very strong. Defense spending is now the strongest it''s been since the Reagan years. Electronics is starting to pick up. All these things should lift plastics to some degree."

Shrouds cites several signs that economic recovery is well under way. The U.S. gross domestic product (GDP) is healthy, consumer spending is holding up, and low lending rates are fueling both the new-home construction market and mortgage refinances. Business investment, which in 2001 had the largest decline since the 1974 recession, is showing signs of life, having reached positive growth in early 2003.

A major problem spot that is gradually getting better is U.S. manufacturing. According to Shrouds, "U.S. manufacturing had a negative second quarter, -2.9%, while GDP was positive, up 3.1%," he says. "But manufacturing has been moving up the past few months and is now above second-quarter levels." Indicators suggest a positive third quarter, with manufacturing gaining traction heading into the fourth quarter. Inventories are lean and orders are picking up, Shrouds reports, which should boost production.

Plastics manufacturing lagged even further behind U.S. manufacturing, and production levels are expected to remain flat after growing 5.3% annually from 1990 to 2000. Capacity utilization fell below the industry break-even level of 80%. However, Shrouds predicts production levels to rise 5% in 2004.

A weaker U.S. dollar—whose value is down some 9% after peaking in Q1 2002—is expected to help U.S. manufacturing and the plastics industry.

Auxiliary equipment supplier Maguire (Aston, PA) reports 2003 sales are up 10% over last year, with export sales—representing nearly two-thirds of total revenue—softening the impact of weak domestic markets. Says B. Patrick Smith, VP of sales, "We are seeing modest strengthening in systems business, which is a good sign that expenditures on capital equipment are beginning to get the green light."

Growth prospects for polystyrene, often linked with GDP, are expected for the second half and beyond, predicts Kevin McQuade, business director, polystyrene, BASF Corp. (Mount Olive, NJ)

Greg Valero [email protected]

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