Business investment spending on nonresidential structures, such as factories or warehouses, equipment, and intellectual property, are referred to as capital expenditures or CapEx. Businesses spend to acquire, improve, or maintain such long-term assets to sustain and enhance efficiency or capacity. The rise and fall of business investment go hand in hand with the businesses’ confidence in economic growth. CapEx in the U.S. nonfinancial sector moves with shifts in manufacturing confidence.
Perc Pineda, PhD
PLASTICS Chief Economist
Follow @PercPineda
The U.S. economy is roughly 70% consumption and 18% business investment. Government expenditures and trade – exports minus imports – split the remaining 12% of U.S. gross domestic product (GDP). While business investment spending is a smaller share of the economy vis-à-vis consumer spending, its effect extends into the future. Today, the household sector of the economy enjoys the results of past business investment spending on the production of goods and services.
Business investment spending on nonresidential structures, such as factories or warehouses, equipment, and intellectual property, are referred to as capital expenditures or CapEx. Businesses spend to acquire, improve, or maintain such long-term assets to sustain and enhance efficiency or capacity. The rise and fall of business investment go hand in hand with the businesses’ confidence in economic growth. CapEx in the U.S. nonfinancial sector moves with shifts in manufacturing confidence.
How has CapEx in the plastics industry changed in recent years? As shown in the latest annual Size and Impact report, the U.S. plastics industry CapEx in 2019 was $14.7 billion. Of that, $7.6 billion was spending on plastics material and resin manufacturing and $7.8 billion was spent on plastic products manufacturing. The balance is divided between plastics working machinery and molds for plastics. In 2015, the plastics industry CapEx was $12.1 billion. The growth in the U.S. plastics industry’s CapEx in the last five years speaks to its efficiency in meeting the needs of business and household sectors. As shown in the accompanying graphic, the plastics material and resin manufacturing CapEx grew from $4.1 billion in 2015 to $7.6 billion last year. It has increased by an average of $900 million annually over the five-year period ending 2019. It has grown for good reason – to support innovation in U.S. manufacturing and meet the needs of the household sector of the economy. The plastics industry primarily supports the manufacturing sector. Last year, 79% of plastic products were used for some form of personal consumption (see Section F. 2020 Size and Impact Report).
Any prospect of policy changes that could affect the economy’s growth trajectory would cause businesses to reevaluate CapEx. For instance, Sen. Udall and Rep. Lowenthal’s Break Free From Plastics Pollution Act – calling for a pause of up to three years on permitting for new and expanded industrial facilities that create new plastic or convert plastics into chemical feedstocks for new products or fuel – will adversely impact the industry, and by extension the manufacturing sector which plastics materials and products support. It is important for policy makers to consider that for every dollar spent in manufacturing another $2.74 is added to the economy. Hence, the $7.6 billion in plastics materials and resin manufacturing CapEx in 2019 added another $20.8 billion to the economy. In total, the U.S. plastics industry CapEx of $14.7 billion last year added another $40.3 billion to the U.S. economy.
As a continuously innovating industry, the plastics industry CapEx includes research- and development-related spending, enabling the industry to create new and sustainable manufacturing processes and products. The plastics industry supports innovation throughout the economy.
Boston Consulting Group’s Top 50 Most Innovative Companies in 2020 fall into four categories: technology, consumer goods and services, transportation and energy, and health. All these sectors use plastic materials and products for the simple reason that plastics perform exceptionally well. The real value-added of plastics and rubber products manufacturing, or its contribution to overall GDP, exceeds those of other industries as shown in the accompanying chart. Plastics materials and products must be readily available for these sectors of the economy and consumers.
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A policy promoting the opposite would cause supply chain disruptions in the economy —affecting not only the business sector but also the household sector. Sen. Udall and Rep. Lowenthal’s bill would reverse the upward trend in the plastics industry CapEx. A decrease in CapEx would reduce employment in the industry and upstream suppliers. Lower CapEx would also cap employment growth downstream. In 2019, the plastics industry employed more than a million workers, jumping to over 1.55 million for those employed in upstream industries.
It is necessary to pursue policies to increase CapEx and support innovation in the economy. We live in a multi-material world. The U.S. and the global economy thrive on the use of multi-materials – giving manufacturers access to the best materials to produce goods and services that consumers in turn are free to choose. Pollution is also a multi-materials issue affecting every manufacturing industry. Policies that address longstanding waste management inadequacies and recycling infrastructure benefit the business and household sectors of the economy.
