Steven Kline Jr. is part of the fourth-generation ownership team of Cincinnati-based Gardner Business Media, which is the publisher of Plastics Technology. He is currently the company’s director of market intelligence. Contact: (513) 527-8800; email: email@example.com; blog: gardnerweb.com/economics/blog.
With a reading of 52.1, Gardner's Plastics Processors’ Business Index recovered from a lackluster April and showed growth for the fourth month out of the last five. Of those four months of growth, May grew at the second fastest rate.
After a flat April, new order activity recovered nicely in May. The rate of growth in production picked up significantly as well, hitting its second-fastest bump in the last five months. The same can be said for employment. Supplier deliveries lengthened more in May. Each of these four sub-indices contributed to the significant improvement in the Processors’ Business Index in May.
Another reason for the improvement in May is that the smallest facilities, those with fewer than 19 employees, showed growth for the first time since July 2012.
However, two factors are combining to keep the overall index below the levels of the first half of 2012: backlogs and exports. Backlogs, in fact, have contracted since May 2012, though they contracted at slower pace last month. (Index values under 50 indicate contraction; values over 50 indicate expansion.) Processors likely have more capacity this year because of their capital-equipment investments in 2012. So even with new orders increasing recently, processors are able to meet demand.
Exports continue to hold the overall index back, too. The dollar has been appreciating against world currencies for some time. This is putting pressure on exports. Further hurting exports is the weakness of most world economies.
Material prices continue to increase, but the good news for processors is that rate of increase was the second slowest in May over the last six months. Prices received by plastics processors for their products increased in May after decreasing in April. Processors also seemed to be more optimistic in May; future business expectations are at their second highest level since March 2012.
Both the New England and Pacific regions grew for the fourth consecutive month, with the strongest growth in New England. The East North Central region has grown for four of the last five months, while the South Atlantic region has grown in three of the last four months. The Middle Atlantic region grew in May after contracting in the previous two months. The West North Central region contracted for the second month in a row.
Processing Still Flat
After strong growth in the first three months of 2013, the industry has leveled off.
For the last several months, larger plastics processors have experienced better business conditions than smaller ones. However, the discrepancy between the two has narrowed.
Processors with more than 50 employees registered a lower index level in July than in June. Processors with more than 250 employees still grew at a significant rate; processors with 100-249 employees moved from expansion to contraction; and those with 50-99 employees saw accelerating contraction. Smaller processors experienced better business conditions, though. Plants with 20-49 employees expanded for the first time since March 2013, while the smallest facilities contracted at a slower rate and saw their second-highest index level since September 2012.
New orders contracted for the first time since December 2012. Production grew for the seventh straight month, but the growth rate was the second slowest in 2013. Since production has remained noticeably stronger than new orders in 2013, backlogs continue to contract at a significant rate. Employment expanded in July, as it has for every month but two since December 2011. Exports remain mired in contraction. Supplier deliveries lengthened but at the slowest rate since December 2012.
Material prices continue to increase, but the rate of increase has moderated since the first quarter of 2013. Prices received have increased at a faster rate in each of the last three months. Future business expectations have remained fairly constant in 2013 and are comparable to the level seen in the second quarter of 2012.
Regionally, business activity expanded significantly in New England. This has been by the best performing region in 2013, growing every month this year. The West South Central was the fastest growing region in July, growing for three consecutive months. Also expanding were the West North Central, Mid-Atlantic, and South Atlantic. The East North Central region moved from expansion to contraction, while the Pacific contracted at a faster rate.
Processing Flat, But Looking Up
With a reading of 49.3, Gardner’s Plastics Processors’ Business Index was virtually flat in September. After fairly significant growth in the first five months of 2013, the industry has been level since.
The good news is that the rate of contraction in September was slower than in the prior few months. New orders began growing again after two months of contraction. Production grew at its fastest rate since May, continuing its string of expansion to nine months. Backlogs contracted at a slower rate but are still well below 50 (the dividing line between growing and contracting). After a very slight pause in hiring in August, employment expanded in September. Exports continue to contract, but at their slowest rate since October 2012. Supplier deliveries continued to lengthen, although at a slower rate than in the first half of 2013.
Material prices increased at a slightly faster rate, while prices received grew at their fastest rate since February. Future business expectations improved marginally in September.
Small processors have held back the index throughout 2013. However, processors with fewer than 19 employees registered their second highest index level since July 2012. Their business activity was markedly better than in August. This was one the most significant reasons for the improved Plastics Business Index in September, as the other plant sizes saw virtually identical business conditions from August to September.
The Mid-Atlantic region had the most improved index, moving to 50.5 from 41.7. The region has grown in four of the last five months. East North Central was the fastest growing region (highest index value) in September, ending two months of contraction. New England, Pacific, and South Atlantic regions moved from growth to contraction.