Processing Activity Dips in May

The Gardner Business Index (GBI): Plastics Processing registered 47.8 for May, down 1.4 points from April’s 49.2. It was the the first appreciable downturn since November 2023. The index is based on survey responses from subscribers to Plastics Technology. Indices above 50 signal growth; below 50, contraction.

Accelerated contraction in new orders and production were the main reasons the index dipped in May. Contraction in exports and backlog was about the same in May as April. Employment was a component outlier in May, contracting a little slower.

Supplier deliveries lengthened at a faster rate for the fourth month in a row. In the absence of strong orders, it is not clear what is driving that trend unless there is delivery “catch-up” and/or lingering or new supply chain disruption affecting the segment.

Optimism about future business has been positive but trending ever so slightly downward each of the past three months. Overall business activity for custom processors dropped a 3.6 points in May.

FIG 1 Plastics Processing accelerated contraction in May, with custom processing activity in particular dipping by an even great margin.

FIG 2 New orders and production lead accelerated contraction in May.

Numbers in Perspective

Perc Pineda

The downward revision in U.S. real GDP growth from 1.6% to 1.3% in the first quarter is making many question the economic outlook. The reduction in Personal Consumption Expenditures (PCE) from 2.5% to 2% suggests consumer engagement has slowed. The retail trade and food services sector, which grew in February and March, flattened in April.

The pace of U.S. economic activity in the coming months will depend on household perception and income prospects. The University of Michigan’s Consumer Sentiment Index decreased to 77.2 in April from 79.4 in March. Real disposable personal income rose by $24.7 billion in March, but fell by $10.8 billion in April. The personal savings rate remained steady at 3.6% in both months. However, weaker consumption (lower PCE and retail sales)suggests mixed household sentiment. With most Americans relying on employment for income, labor market strength is crucial for the economy’s future. Total nonfarm job openings have decreased from 12.2 million in March 2022 to 8 million in April.

Whether these shifts in economic statistics mark a start of pronounced economic slowdown remains to be seen. The recent pullback in the GBI is unlikely to reverse improvements from prior months, suggesting that while some areas show signs of slowing, it is unlikely to indicate a broader economic decline.