End Market Report: Packaging and Aerospace

Article From: MoldMaking Technology, , from Mountaintop Economics & Research Inc.

Posted on: 4/1/2013

Packaging Outlook: Stable to Better; Aerospace Industry was Strong in 2012-- Can It Sustain the Momentum?

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Packaging Outlook: Stable to Better
When all of the economic factors that affect packaging demand are considered, the outlook for 2013 calls for a year of moderate growth in the range of 2% to 3%. This is about the same as it has been for the past three or four years. Overall activity will likely be subdued through this summer, but by the end of this year demand for plastic packaging products will start to gain momentum. If all goes well, more rapid gains are in the cards for 2014 and 2015.

The keys to a more rapid increase in the demand for packaging are consistent gains in the data for both employment and household incomes. After four years of only gradual improvement, the data measuring employment levels in the US are poised for a more rapid rise later this year. Income levels took a hit at the beginning of 2013 with the expiration of the payroll tax holiday. It will take a few months before consumers fully adjust to the resulting decline in their paychecks. So growth in consumer spending will be sluggish for another quarter or two.

Moldmakers who supply the packaging end-markets should keep an eye on the retail sales data. The good news is that the economic fundamentals in the US are getting stronger. The crucial residential construction and real estate sectors are finally in a full-scale recovery. Solid gains in the housing sector will create jobs and raise household wealth. This will also result in higher levels of consumer confidence. These are the ingredients for stronger consumer spending, elevated retail sales figures, and rising demand for plastics packaging products.

Aerospace Industry was Strong in 2012-- Can It Sustain the Momentum?
The total output of the US aerospace industry increased by a salubrious 8% in 2012 when compared with the previous year. Under normal circumstances, I would predict another solid year of growth in 2013 based on the momentum in this industry at the end of last year. But we are experiencing anything but normal circumstances so far in 2013. My current forecast calls for a decline of 5% in the total US industrial production of aerospace equipment and parts in 2013. This forecast is likely to be changed as this year progresses, so suppliers to this industry must stay tuned.

There are several negative factors currently affecting the outlook for the aerospace industry. These are: persistent problems with the Boeing Dreamliner; a slow, but gradual rise in the political opposition to America's use of unmanned aircraft (a.k.a. drones); and finally, the uncertainty surrounding the Defense Department budget as a result of the recent sequestration debacle in Washington. I still believe that the most likely outcome will be a favorable resolution of each of these problems. But nobody can guarantee that this will be the case, and this uncertainty will be a constraint on the aerospace industry for at least another year or so.

The good news is that the long term outlook for the aerospace industry is quite bright. The world's airspace will increasingly be developed and utilized in the future. And barring some unforeseen collapse, the American aerospace industry will retain its spot as the top innovator and manufacturer in this sector. These products will increasingly be manufactured out of plastic and other composite materials, so this will continue to be a strong market for moldmakers who can overcome the high barriers to entry.

 

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End Market Report: Packaging and Aerospace

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