Capital expenditure has increased in the plastics industry in recent years because businesses have realized the benefits of using it over operational expenditures. U.S. businesses in plastics spent $4.1 billion on CapEx in 2015 and $7.4 billion on CapEx in 2019. That’s an average growth of $900 million per year. Here are some reasons why more businesses in the plastics industry have increased investments into capital expenditure.
What Is CapEx
Capital expenditures refer to spending used to buy, update, and maintain buildings, equipment, and other physical assets. They are often contrasted with operational expenses such as labor costs. CapEx is essential because this type of spending is an investment that helps businesses expand. While capital expenditures can promote growth, tangible assets also depreciate over time. Capital expenditure matters when talking about the plastics industry because spending on equipment and other tangible assets affect manufacturing demand.
To Support Innovation in Manufacturing
CapEx has increased in recent years because manufacturers have become more innovative, and companies have had to spend money to upgrade equipment and manufacturing processes to facilitate this innovation. Organizations have also had to spend more on research and development, which drives new manufacturing techniques. As technology becomes more inventive, more investments are needed in plastics. More and more products are made using plastic materials because it is durable, strong, and versatile.
To Meet the Needs of the Household Sector
The household sector is one area of the economy that is driving CapEx spending right now. Personal consumption remains the most significant part of the economy, and it continues to grow. As the population grows or the health of the economy improves, households buy more goods. Manufacturing must increase to account for the demand for consumer goods. This leads to increased capital spending on plastics because plastics and resin support the manufacturing industry, particularly in the household sector, where many consumer goods are made from plastic.
CapEx and Hiring
Throughout the year, CapEx spending has been used in a variety of ways. The pandemic forced many companies to delay plans to upgrade their facilities and equipment while disrupting critical supply chains that slowed down growth in the manufacturing sector. However, many of the best companies used parts of their CapEx budget to hire for specific projects. This allowed them to increase ability and capacity while not impacting their bottom line or operating budget. Between the increase in vaccinations and the fact that the economy has had time to adjust to the pandemic, companies will resume plans they had to buy and upgrade assets, which could help increase spending on capital investments even more during the second half of 2021.
Throughout the past few years, CapEx spending has increased in the plastics industry. Growth in manufacturing has spurred many of these investments, especially in areas such as technology and hiring. Recently, COVID-19 has slowed some of this growth because it disrupted supply chains and business operations. Yet, CapEx spending is back on track and is likely to continue to increase in upcoming years.
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