It is the best of times, and in the future it could be the worst of times. This past year has been a fairly strong year for pallet companies, especially recyclers who due to high core costs were able to charge in many cases record prices for pallets. But this also means that pallet recyclers are concerned about the future.
Every year core supplies seem to get tighter and tighter. While this trend is driving profitability, it also means the future of the white-wood GMA remains in question. Many companies are starting to move to producing more specialty pallets as well as combo pallets to deal with the changing market. But this could mean even more competition in the future for those areas.
Now, I don’t want people to think the GMA is going away any time soon. But supplies of recycled GMAs continue to dwindle and the new pallets being produced are not making up the difference in most markets. While 2015 saw decent economic activity and overall strong demand for both new and used pallets, the U.S. economy was far from gangbusters.
Looking at the U.S. economy, most analysts predict continued mild growth into 2016. The Federal Reserve appeared confident enough in the U.S. economy that it just approved its first interest rate hike in nine years. Consumer spending remains strong even though business investment continues to lag behind and has not caught up with pre-recessionary levels.
There is a lot of good news. The U.S. economy has generated 12.1 million new jobs in the past five years.
The rate of economic growth for all of 2015 is predicted to be around 2.5%, which is only mildly better than the 2.4% growth experienced in 2014. The tortoise recovery is likely to continue for the next year although a number of factors could contribute to an economic decrease. This includes gridlock in Washington during a presidential election year, contagion from Europe and a slowing economy in China, concern over the recovery running its course and the market having to trend downward, harsh reaction to interest rate increases, or even strong weather events.
While it is true that the current recovery has been going on for a while, these recoveries are usually stopped by major events not just running out of steam. Jeffrey Bartash, a financial reporter with Marketwatch.com, recently wrote that consumers are spending at the fastest pace since the Great Recession. He pointed to brisk sales of new and preowned homes as well as strong auto sales. One reason for higher consumer spending is greater levels of employment combined with cheaper price for commodities, such as fuel.
But not all the news is good news. The bust in the oil and gas business has impacted U.S. production and exploration, which was driving economic growth in some parts of the country. While unemployment has dropped over the last few years, many people are working part-time jobs and or entry-level positions. Overall, wage growth has stagnated in many industries. It is easier than ever for companies to shift operations from one country to another, which has put a downward pressure on wages for years.
The housing market is rebounding although it is coming back slowly, and many young couples still can’t afford to buy a home. Due to high levels of college debt and lower paying jobs and the inability to get approved for a loan, they are opting instead to rent a home or lease an apartment.
So what do election years mean? Well, political parties are likely to kick any contentious issue down the road. Don’t expect for any major reforms to make it through Congress. Look for President Obama to try to move lots of executive orders through in his last year in office. Imagine what a year of Clinton and Trump blasting each other will do for consumer confidence. I generally think you will see the presidential election have a negative effect on the economy especially since one major party is really up in the air on who its candidate will be.
The good news is that a last-minute compromise was able to avoid a government shutdown at the end of 2015. So at least that drama won’t play out to start 2016 like it has in some other years.
Here are some developments to monitor in global trade. The Panama Canal is set in the late spring/early summer of 2016 to open up a new set of locks that are capable of handling bigger ships. This could help spur more global growth as an expanded canal facilities trade. Also, the Trans-Pacific Partnership could win approval from key nations that make up to 40% of global economic production. This trade deal is designed to foster improved trade relations between the United States and a number of key countries in Asia.
What should we expect in 2016? Most experts are betting on more of the same. And if you were in the pallet business, that probably means a pretty good year ahead. But there are a number of key concerns in the future, and smart companies are taking the good times to prepare for the future. While no five or ten year plan is perfect, if you don’t have one that is a sure prescription for failure and lost opportunities.
As we enter 2016, stop to consider where you want your business to be in 5-10 years and how the industry may evolve over that timeframe. Those are not just idle thoughts if they help you chart a strong course for the future.
