Processing Growth Continues as Backlogs Contract
November 2018’s Index of 51.9 brings year-to-date average to 55.7, strong growth by historical standards.
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The expansion of the plastics processing supply chain has allowed the industry to respond to new orders as well as begin clearing prior quarters of backlogs.
Growth in supply chains and production earlier this year have since allowed the industry to reduce the backlogs accumulated earlier in the year.
The Gardner Business Index for Plastics Processing dipped to 51.9 in November, though a closer analysis yields a more positive view. The latest reading brings the average year-to-date level to 55.7, a strong expansionary reading by historical standards. (Values over 50 indicate expansion; values below 50 indicate contraction; 50 = no change.) Of the six components that determine the Index, supplier deliveries and production lifted the overall Index higher. Conversely, contractionary readings for exports and backlogs pulled the Index’s performance lower. New orders and employment had minimal influence on the Index’s performance during the month.
Recent data illustrate the important dynamics between supplier deliveries, production and backlogs. Strong new-orders demand over the last two years resulted in backlog growth at record rates during the first-half of 2018. In response, processors bolstered their supply chains, causing supplier deliveries to become the leading driver of the Plastic Processors Index since May. With the industry now able to handle larger volumes of production, recent months of slower new-orders expansion—which have expanded for a record 23 consecutive months through November—has likely allowed the industry to reduce the backlogs that accumulated quickly during the first half of the year.
As processors work off this backlog it has resulted in contractionary values for the backlog component of the Index, thereby lowering the overall Index. However, this alone should not be considered an indicator or predictor of weakness in the industry.
The index is based on monthly surveys of Plastics Technology subscribers.
ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Intelligence, a division of Gardner Business Media, Cincinnati. He has performed economic analysis, modeling, and forecasting work for nearly 20 years among a wide range of industries. He received his BA in political science and economics from Kenyon College and his MBA from Ohio State University. Contact: (513) 527-8800; mguckes@gardnerweb.com. Learn more about the plastics processing Index at gardnerintelligence.com.
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