Plastics Processing Activity Continues to Contract

Numbers in Perspective

The U.S. plastics industry, boasting more than 1 million employees and $548 billion in shipments in 2022, faces the challenge of stagnant growth in 2023 due to the manufacturing sector's slowdown that began in August 2022. In September, the GBI plastics processing index plunged to 41.8, well below its growth benchmark of 50. The Federal Reserve’s monthly Industrial Production Index for plastics product manufacturing also reveals a consistent downward trend since August 2022.

By Perc Pineda

Many economists predict a slowdown in 2024 due to the Federal Reserve Board’s interest rate tightening, which reached 550 basis points after starting last year. Although a 2023 recession is unlikely, the yield curve has been inverted for more than a year, contrary to the typical pattern where long-term interest rates are higher than short-term rates. It's worth noting that the effectiveness of monetary policies depends on initial economic conditions. While there's been a delay in the impact of the Fed’s rate tightening due to the healthy balance sheets of households and businesses, an inverted yield curve can still be seen as a signal of an impending economic slowdown.

Historically, recessions have had varying effects on plastics production. Data from the Fed's Industrial Production Index for plastics manufacturing since 1973 shows different outcomes during economic downturns. The Great Recession of 2008-09 had the most significant impact, with a substantial 16.4% decline in plastics production. Three other recessions also resulted in notable reductions — the 1974-1975 recession led to a 15.5% reduction, the 1980 recession caused a 10.5% decrease, and the COVID-19 recession in 2020 saw a 6% reduction. In contrast, the 1982 and 1991 recessions had minimal effects, with plastics production decreasing by only 1.7% and 1.1%, respectively.

While the 2008-09 recession heavily affected the plastics industry due to its ties to key end markets such as home construction and automotive, the current situation lacks a specific plastics end market directly linked to economic contraction. However, it's important to note that the economy is still adjusting to clear excess inventory and capacity accumulated during the post-COVID-19 pandemic period, and household spending on goods has slowed.

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.