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Strong and Steady: 2016 MAPP Business Forecast

Manufacturers Association of Plastics Processors

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Top 5 Challenges


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Adjustments to Compensation Tue to Minimum Wage Legislation

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Over 84 percent of plastics processing executives reported they had experienced either an increase in sales (61 percent) or remained flat (24 percent) over the last 12 months, according to the most recent State of the Plastics Industry survey from the Manufacturers Association of Plastic Processors (MAPP).

In its 16th year, MAPP’s annual State of the Plastics Industry survey shows that executives predict optimistic trends for plastic processors. Data for this survey were collected from 156 senior-level executives representing companies from a variety of sizes and processing disciplines. The report generated from this survey helps company leaders benchmark how their companies stack up in comparison to industry norms and helps to calibrate the intuitive “gut feel” that most executives constantly are looking to validate.

While sales trend increases are anticipated, certain indicators reveal that the positive momentum enjoyed by most over the last four to five years seems to be slowing a bit. “If you were to simply take the results of this report in a vacuum, all indicators are very positive,” stated Troy Nix, executive director of MAPP. “However, when examining the last five years of data, some of the trend lines simply aren’t as positive.”

As an example, MAPP’s latest published report indicates that 76 percent of the survey respondents anticipate an increase in sales over the next 12 months, compared to a reported 85 percent this time last year. The other trend that troubled Nix is the fact that 4th quarter over 3rd quarter 2015 sales growth was not as robust as in the last six years. “I’ve tracked this trend for some time and use it as a predictor of what’s to come,” he explained “Nearly 60 percent of executives in 2014 and almost 55 percent in 2013 reported strong growth over 3rd quarter sales performance, compared to a mere 40 percent this year. Don’t misinterpret this – the industry still is doing well, but I’m just not as comfortable with the trends.”

While anticipated sales trends may not be as strong, companies remain optimistic about what is in the pipeline for the upcoming year. With a number of new programs being awarded, respondents found they are most optimistic about three key market segments: automotive, medical and consumer goods.

Reinforcing the automotive optimism, Steven Szakaly, chief economist of the National Automobile Dealers Association, recently indicated that “new light-vehicle sales will rise to 17.71 million units in 2016, a 2.3 percent increase from our forecast of 17.3 million sales in 2015.” As the automotive market continues growing, companies find that new products are being designed and produced more frequently. “The overall pace of automotive design rollouts is unprecedented,” noted one senior-level executive. Lower fuel costs are anticipated to continue throughout 2016, leading to more robust domestic automotive sales growth.

Executives also hold optimistic outlooks for the medical industry. Medical device growth has been strong in recent history, and experts believe that this trend will continue into 2016. Constant innovation in the medical field, advancements in care for the growing elderly population and the support required for new medical devices requiring both housing and disposables lead many to predict that medical sector growth will persist throughout the year.

Consumer goods ranked third in the listing of segments about which respondents were most optimistic for 2016. Professionals are seeing an increase in consumer demand, including positive signs in consumers planning to upgrade. A strong economy, low inflation, low transportation costs and low oil prices are driving increased reported sales in consumer goods.

According to the survey, although sales and business are projected to increase, executives find themselves facing a variety of challenges in the upcoming months. Recruiting and retaining skilled employees remains the top challenge, dwarfing all other issues. The aging workforce and the ability to attract today’s youth to the industry continue to impact operations, leaving many companies in a constant search for talented workers. More companies are working to gain the attention of potential candidates in the job market by bettering their image and attempting to gain publicity as employers of choice.

Rising costs due to new government regulations, particularly in relation to the Affordable Care Act and minimum wage legislation, are major challenges. While some industry executives have hired outside consultants to manage their companies’ health care plans, other senior leaders are adding resources in-house to find and implement the most affordable health coverage for their employees.

Minimum wage legislation also is forcing many companies to make changes in their compensation in 2016. Nearly half of executives, 48 percent, plan on making slight to drastic adjustments to their wage structure to compete over the next year. Although there will be an increased cost in compensation, 40 percent of executives anticipate increasing the number of production employees.

A positive trend in reshoring experienced over the last seven years is prominent in this year’s survey. Forty-one percent of executives responded that their customers are relocating work from off-shore suppliers to US suppliers; another 37 percent noted that their customers are not actively looking for off-shore suppliers. The number of customers who are moderately to aggressively looking for off-shore suppliers continues to decrease.

While business is coming back to the US from foreign suppliers, companies are noticing an increase in customer demands. Over 60 percent of executives noted that customer specifications and requirements for new business are more demanding than in the past. Managing customer costs and expectations leads some companies to look to off-shore suppliers when purchasing their production tooling. Roughly 56 percent of companies purchase tooling overseas – down seven percent from last year. Thirty-nine percent of respondents do not purchase any production tooling from off-shore suppliers – up six percent from 2015.

With increases in sales and opportunities, nearly three-fourths of companies report their current profits as being acceptable or great. Ninety-eight percent of executives expect business activity to either increase or remain steady over the next twelve months. The survey indicates that the overall health of the US plastics industry for 2016 can be summed up with two words: strong and steady.

Join MAPP on March 3, 2016, at 11 a.m. EST for the State of the Plastics Industry webinar for more information on the full report. Register at www.mappinc.com.