Plastics Processing Activity Contraction Continues in August

Numbers in Perspective

Perc Pineda, Ph.D., Plastics Industry Association

The GBI Plastics Processing Index in August, at 42.2, continues to indicate below-growth levels. The index has yet to reach the growth threshold of 50 or above, with the last occurrence in July 2022. Additionally, with the future business outlook at its lowest in the past six months, it raises the question: When will plastics processing turn around?
Plastics processing is part of the ongoing interest-rate-driven manufacturing slowdown in the U.S. economy. Higher borrowing costs weigh on the business sector’s risk-taking behavior. New products that require plastics processing are being put on hold until there is more certainty the required rate of return on capital will be achieved.

While the economy continues to report strong output — such as 3% GDP growth in the second quarter — plastics demand appears to have been sufficiently met by the current level of production. Strong household consumption expenditures on services have tempered goods consumption. With plastics and rubber products manufacturing capacity utilization at 75.2% in July — down from 78.3% in the same month last year and 82% two years prior, based on data from the Federal Reserve — there seems to be little urgency to ramp up processing or increase capacity.

However, it is unlikely the current softness in plastics processing will continue indefinitely. Baseline demand for plastic products has been stable, consistently exceeding
$22 billion monthly over the last 12 months, based on PLASTICS’ monthly Plastics Demand Estimate. As inventories clear, plastics conversion will need to pick up, particularly when the Federal Reserve starts cutting interest rates. 

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.