Plastics Processing Business Index Contracts Further
All components dip as index hits low point of 2023.
The Gardner Business Index (GBI): Plastics Processing closed July at 44.3, the lowest in 2023. The index is based on survey responses from subscribers to Plastics Technology. Indices above 50 signal growth; below 50, contraction.
All six components contracted in July, marking the first time that’s happened since February 2020. Backlog, new orders and production contracted in tightly parallel form, which is not surprising given the inherent relationships between those metrics.
FIG 1 GBI: Plastics Processing activity contracted in July for both total plastics processing and custom processing in particular.
Exports added another month of “same,” remaining the only component contracting for months without falling victim to accelerating rates (or enjoying slowed rates).
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 July, it showed an uptick, suggesting more processors have “better” than “worse” business expectations for the next 12 months.
Overall business activity for custom plastics processing contracted faster again in July, dropping just over 2 points.
FIG 2 Backlogs, new orders, and production contracted in tightly parallel form in July.
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 has a BA in psychology from Purdue University and 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 first half of 2023, the U.S. economy experienced strong growth, maintaining full employment despite high interest rates, and showing resilient household consumption with moderating inflation. However, it's unlikely that this growth can be sustained at or above the 5.5% benchmark interest rate for the rest of the year. Many claim the U.S. economy has become insensitive to higher interest rates. Not just yet, if I may say so.
Concerns arise about the reliance on debt for household consumption, especially as student loan payments resurface in September. This could lead to increased debt service payments and impact consumer spending, affecting industries like plastics.
By Perc Pineda
The GBI plastics processing index fell to 44.3 in July, suggesting low confidence among plastics processors for the second half of 2023. The manufacturing sector, a key customer for the plastics industry, seems to have reached its growth peak. Since the end of the COVID-19 recession, the Industrial Production Index for manufacturing hit highs in April and October last year, then fluctuated between -2.2% and 1.6%.
Considering higher capital costs and slowing demand, investing in manufacturing expansion requires careful consideration. The inverted yield curve, signaling higher yields on long-term bonds compared to short-term ones, suggests a potentially slower economic growth ahead. Additionally, the global economic landscape and U.S. structural limitations, like labor supply, will play a role. The recession in Germany and the economic slowdown in the European Union and China will likely impact the U.S. economy growth trajectory.
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.
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