US packaging machinery growth predicted for 2006

The Packaging Machinery Manufacturers Institute (PMMI) predicts a 3 per cent growth in packaging machinery sales in the United States to an estimated $5.854 billion. PMMI's US Purchasing Plans Study represents the collective voice of 446 decision makers responsible for 8,339 packaging lines in 1,123 plants throughout eight key segments of the US market.

This will be the fifth consecutive year following the economic downturn experienced in 2001 in which domestic demand will increase. Much of the continued strength can be attributed to sustained growth of the US economy, strong cash positions held by corporations and improved rates of capacity utilization. Another significant factor for growth is the ongoing effort by manufacturing organizations to reduce costs and improve productivity by expanding packaging line automation and installing the latest in high technology equipment.

‘Machinery purchasers recognize the inherent benefit of incorporating the latest packaging technology into their lines in order to strengthen their existing operations,’ noted Charles D. Yuska, president, PMMI. ‘Whether the reason is reducing maintenance costs, increasing line speeds or raising productivity, packaging machinery end users are looking for innovation from PMMI member companies.’

Five of the eight market segments defined in the study are expected to increase expenditures for packaging machinery this year. The largest increase in spending is predicted to come from the personal care products segment (10-12%) followed by beverages (6-8%) and converters, printers and all other (6-8%). The other segments looking to increase spending are food (2-3%) and pharmaceutical/medical (1-3%). The study indicates that 62% of the respondents plan to either increase their spending or keep expenditures at their 2005 level.  

Macroeconomic Assumptions 

The assessment of prospects for the U.S. economy and capital spending in 2006 are based largely on analyses of several groups of economic data in combination with the current consensus of economic forecasts. To that end, the purchasing plans forecasts reflect the following macroeconomic assumptions:

• US 2006 gross domestic product (GDP) real growth of 2.9 to 3.4 percent

• Capacity utilization by US manufacturers to edge slightly higher in 2006 – As of February 2006, capacity utilization for non-durable manufacturing stood at 81.5%, including 84.1% for the food industry

• US capital spending to grow this year – All indications point to a meaningful increase in aggregate capital spending for 2006

• Interest rates to continue rising from current (February, March 2006) levels through the year, with the prime exceeding 8.2% and the 10-year treasury 5.5%

• Consumer spending to taper off in the second half as the effects of higher interest rates, higher oil prices, negative savings and a weekend real estate market take their toll

• Corporate profits to continue higher, but at a slightly slower pace than in 2005   

Key Market Drivers 

In addition to the macro economic assumptions that are driving an increase in capital equipment spending in 2006, the end users surveyed also indicated several market specific factors, trends and expected developments seen as contributing to growth in packaging machinery sales this year. These include: 

• End-users’ optimism about the economy likely to spur investment in machinery

• Strong cash positions among U.S. corporations suggest improved buying power

• Growing end-user recognition of benefits inherent in new machinery technology expected to encourage further replacement of older machinery

• Predicted strength of consumer spending during first half of 2006 likely to create need for additional packaging capacity

• End-users’ collective sense of urgency in reducing labor costs and improving productivity through expanded packaging automation to continue stimulating demand for new units

• Undiminished stream of new product and SKU additions expected to remain a reliable foundation for added machinery business in 2006

• Consumer-product packagers’ continuing focus on packaging innovation (i.e. design, configuration, material) likely to yield further dividends in new machine demand

• Strong influence of super stores and retail chains on packaging requirements to remain an important positive factor

• Further attention to worker ergonomics, product security and safety issues as related to packaging machinery expected as part of ongoing trend

• Favorable influence of underlying consumer trends on machinery demand to evolve further in 2006, including shifting demographics, competition among diet and nutritional theories, consumer expectation for alternative package sizes and shapes, consumer demand for convenience products and the growing home ownership trend and resulting 'do it yourself' market

The complete 2006 Purchasing Plans study is available for $1500 by contacting Paula Feldman, director of statistics, at 1 888 ASK PMMI (275 7664). The study reports detailed findings for each of the eight segments and goes into depth on the market trends and factors affecting machinery purchasing.