Published 9/21/2023

Plastics Processing Activity Held Steady in August

Monthly index indicates overall plastics processing activity stayed on its path of contraction.

economics

Director of Market Research

All six components contracted again in August, half contracting faster and the other half contracting slower than July. New orders, production and supplier deliveries slowed or stabilized contraction in August. While not yet expanding, it is encouraging if new orders are picking up. Supplier deliveries had been lengthening for so long that the August turnaround from shortening may be the start of a return to normal.

FIG 1 The Gardner Business Index (GBI): Plastics Processing

FIG 1 GBI: Plastics Processing activity contracted in August at about the same rate as July for both total plastics processing and custom processing.

In all, the component activity mixed bag is more encouraging than not given the nature of the components that are faring better this month. Employment, exports and backlog all contracted faster in August, reinforcing that they lag or are less dependent on new orders and production.

GBI’s “future business” metric is a sentiment question that solicits a 12-month business outlook. It is not part of the GBI calculation. In August, this metric stayed steady with July (which had shown an uptick), suggesting there are more “better” than “worse” business expectations for the next 12 months. Overall business activity for custom plastics processing contracted faster again in August, dropping another two points like it did in July.

FIG 2 Mixed Bag for Components Activity

FIG 2 Some components contracted slower, others faster, in August. Components that contracted slower make for a more “hopeful” picture.

ABOUT THE AUTHOR: Jan Schafer is director of market research for Gardner Business Media, parent company of both Plastics Technology magazine and Gardner Intelligence. She has led research and analysis in several industries for over 30 years. She earned a bachelor’s degree in psychology from Purdue University and an MBA from Indiana University. She credits Procter & Gamble for 15 years of the best business education. Contact: 513-527-8952; jschafer@gardnerweb.com.

Numbers in Perspective

In the recent third-quarter survey by the Federal Reserve Bank of Philadelphia, forecasters, including myself, have revised GDP growth expectations to 2.1% this year and 1.3% next year, up from prior forecasts. These changes hold significant implications for the plastics industry, with three key considerations.

By Perc Pineda

First, the sustainability of the robust labor market is in doubt. The 0.8% unemployment rate in plastics and rubber products manufacturing noted in April surged to 5.6% in August, signaling a slowdown in production, including a loss of 3,700 jobs. This mirrors the overall U.S. unemployment rate’s increase from 3.5% in July to 3.8% in August, with 514,000 more people unemployed. While the labor market remains strong, sustained full employment is uncertain, especially as job additions in July and June were downwardly revised by 30,000 and 80,000, respectively.

Second, household spending resilience is questioned. Despite a strong labor market, signs of cooling persist. Concerns arise about the sustainability of consumer spending, given potential higher debt service payments as student loan repayments resume and interest rates remain high. Retail trade and food services’ average growth in the first seven months of the year was a modest 0.5%.

Lastly, the plastics industry's growth may not align with the optimistic economic outlook for 2023. Plastics production this year is expected to lag last year, making a shift from a decrease to an increase in prior forecasts unlikely. Plastics production serves as a leading indicator of manufacturing and retail activity, reflecting production, delivery lead times and inventory levels. Retailers have been building inventory since December 2022, growing from $768.2 billion to $782.8 billion in June this year. Strong household spending prospects for the remainder of 2023 will likely deplete existing inventory before translating into new orders and shipments. Any upswing in plastics production in the remainder of 2023 must be substantially high to exceed 2022 production. But then again, there’s production and delivery lead times to consider.

ABOUT THE AUTHOR: Perc Pineda, Ph.D., chief economist of the Plastics Industry Association (PLASTICS), is an industry thought leader and PLASTICS’ primary expert and spokesperson on the U.S. and global economy, industry research, statistics, trends and forecasts. He produces PLASTICS’ two annual flagship publications — Size & Impact and Global Trends — and trademarked the Global Plastics Ranking. Read his views and insights on the economy and the plastics industry at plasticsindustry.org.