Plastics Index Shows Supply Chain Improvement Despite Production Slowdown

Numbers in Perspective

Perc Pineda, Ph.D., Plastics Industry Association

Interest rates remain pivotal for the plastics industry’s recovery from ongoing production lows. The GBI Total Index, hovering around 43.0 for three consecutive years, underscores the impact of the high-interest rate environment. The Federal Reserve began tightening monetary policy in March 2022, raising the Fed funds rate target to 0.25%–0.50% to combat runaway inflation. Subsequent rate hikes brought the target to 3.75%–4.00% by November 2022 and 5.25%–5.50% by July 2023.

In September 2024, the Fed began easing rates with a 50-basis-point (bps) cut to 4.75%–5.00%, followed by a 25-bps cut in November, reducing the target to 4.50%–4.75%. Despite these reductions, rates remain cost prohibitive for the manufacturing sector, which operated under 2.0% for many years. Rates above 4.0% have been a barrier to new manufacturing investments that could expand plastics conversion capacity. The November GBI for plastics processing, at 41.0, reinforces this concern.

Looking ahead, the plastics industry finds some solace in the low unemployment rate in plastics and rubber products manufacturing, which fell to 0.3% in November — down from 5.9% in September and 2.2% in October. However, unemployment in this sector fluctuated between 0.1% and 5.9% as interest rates stayed above 4.0%. High borrowing costs have increased uncertainty and dampened investment spending.

The Federal Reserve is expected to cut rates by another 25 bps this month, bringing the target range to 4.25%–4.50%. Further reductions in 2025 to below 4.0% could alleviate pressure on the manufacturing sector, including the plastics industry. Industry sentiment appears to anticipate this relief, as evidenced by the GBI Future Business Index jumping to 64.0.