Processing Activity Challenged by Production ‘Deficit’

The Gardner Business Index (GBI) for plastics processing dipped by less than one point in August to settle at 59.6. Custom processors, however, realized a two-point gain in overall activity in August. Both custom and captive processors have reported slowing production activity in recent months, in part a result of sustained supply-chain problems.

As expected, this slowing expansion in production activity has weakened hiring activity since its recent June high. All processors reported a widening “production deficit,” resulting from production activity slowing more quickly than new orders.

FIG 1 The GBI for plastics processing overall dipped by less than one point in August vs. July. Custom processors, however, saw their Index reading increase by two points.

Since the end of the first quarter of 2021, a decreasing proportion of processors have experienced month-over-month increases in new orders and production. However, the pace at which these proportions are changing has not been equal, especially during the third quarter. The relatively quicker softening in production has resulted in this deficit. The consequences are multifaceted and include both rising backlog activity and strengthening pricing power among companies producing plastic parts. It will be important for processors to take advantage of their increased price-negotiating power in order to offset their rising production costs and to protect margins.

FIG 2 Ongoing supplier delivery challenges contributed to a near seven-point decline in production activity. This, coupled with strong demand, has pushed backlog activity in recent months to unprecedented highs.

EDITOR’S NOTE: Finding reliable and relevant data to help guide your business is always important, but especially so during challenging economic times. For this reason, the GBI Plastics Processing and Custom Processing Indices serve as a great tool for making data-driven decisions. Thank you to everyone who has previously completed GBI surveys. Your participation helped increased response counts by 15% in 2020, making the GBI better than ever because of your involvement. Thank you for your time and efforts and for trusting us to provide you with the latest industry and business insights both in the past and in the future.

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ABOUT THE AUTHOR: Michael Guckes is chief economist and director of analytics for Gardner Intelligence, a division of Gardner Business Media, Cincinnati. He has performed economic analysis, modeling, and forecasting work for more than 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.