Now that we’re one month into 2024, many industry experts, economists, and strongly opinionated people are sharing their thoughts regarding what lies ahead throughout the year. We thought we would share our own thoughts based on what we’re seeing in our market space as well as macroeconomically.
The labor market continues to perform strongly. Overall civilian unemployment across the country is near 20-year lows at 3.7%. The number of unemployed persons per job opening is 0.7, which is the lowest since this metric began being tracked. Both these statistics are from the Bureau of Labor Statistics and are seasonally adjusted. What do these numbers indicate from a big picture perspective? The number of positions employers are looking to fill exceeds the available people to hire.
In Wisconsin, the labor market is even stronger than the national average with unemployment at 3.2% and Labor Force Participation 3.1% higher than the national average. Both numbers are seasonally adjusted and from the Wisconsin Department of Workforce Development’s October 2023 reports. These labor market conditions provide employees the opportunity for mobility as employers continue to compete for workers, highlighting how critical it is for employers to attract and retain high quality employees.
New Berlin Plastics is mitigating this risk by focusing on a strong company culture where people want to work, as well as intelligent investments in automation to smooth the ups and downs of changing labor markets. As of November 2023, NBP saw a ~9% reduction in turnover YoY. The average employee tenure is currently six years (eight years if you don’t include entry level positions). As we grow and hire, new employees pull that average down, but many employees have been with New Berlin Plastics for 10, 20, and 30+ years.
New Berlin Plastics has also been working on developing our talent funnel to soften the impact of the expected continual decrease in the skilled labor pool. By identifying, developing, and deploying our own skilled labor, we will be more resilient as competition for those workers increases over the coming years.
Since the end of 2019, a variety of factors have been impacting segments of the resin markets. Broader macro forces, such as a global pandemic and unexpected weather patterns (i.e., the Texas freeze of 2021), have been creating challenges in resin and raw material markets in general. This led to many disruptions and frustrations throughout the economy over the last few years with some areas recovering more, and faster, than others. These challenges created a market of scarcity which has largely subsided, yet it seems many companies are reacting to the normalization of supply chains only recently. As a result, these companies are finding themselves with growing inventory and stable or stagnant demand. This, and other factors such as the automotive strike, have led to decreased demand across a wide swath of material types.
At New Berlin Plastics, we have seen much of our material supply challenges resolve. Although the move from inventory scarcity to inventory glut for some compounders has led to discussions of reducing production capacity to support price levels. We expect, barring any black swan events, to see a continued normalization of material markets overall.
Should an unexpected event occur, NBP is ready to mitigate the impact to our customers as we did during the widespread material shortages during the pandemic. Over that period, members of NBP’s engineering and purchasing teams worked to identify at-risk materials and proactively offered alternates to our customers. These efforts avoided costly shutdowns for some of our major OEM customers including industry leading manufacturers of motorcycles, outboard motors, and heavy off-highway equipment.
Economic experts largely agree that there will be a mild recession during the first half of 2024, with overall minimal GDP growth at year-end. This lukewarm forecast, as well as concerns of strong inflationary pressures returning, has led to a standoff between those who believe the FED will cut rates quickly and significantly in 2024, and those who believe rates will remain higher for longer. As of writing this, it seems the most likely outcome is one or two small rate cuts later in 2024. Why? While the relatively high interest rates are painful for some, a return to red-hot inflation will be painful for all. This creates real risk throughout supply chains, regardless of industry, as many companies are forced to refinance debt at much higher levels compared to the prior ~20 years.
We expect to see a slow increase throughout the year of companies struggling due to poor cash flow and an overreliance on debt. Already, we have heard from two major customers that have each had a significant injection molding supplier wind down operations due to financial distress. At New Berlin Plastics, we have worked hard over the years to maintain a strong balance sheet and manage our financials responsibly as shown by a strong Z-Score of 4.75 as of November 2023. We’re proud to say we operate essentially debt-free and operationally will see no or minimal impact from the increase in interest rates.
What does this mean for our customers? We are a strong performing, low-risk, proven supplier that can help mitigate risk within your supply chain.
The Future Looks Bright
As with any year, there will be known and unknown challenges to manage. For well positioned companies, those challenges may be turned into opportunities. Regardless of what occurs, New Berlin Plastics is well prepared to manage them for ourselves and our customers.
Cheers to 2024!