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.