Index Inching Close to 50

The Gardner Business Plastics Processing Index edged towards the 50 line in January, moving nearly two points higher from December to register 48.6. Recent months’ Index readings have come off the lows experienced during the second half of 2019, indicating that the rate of business-activity contraction is slowing. Should the Index continue in this manner, it could soon register above 50, indicating the end of a business-cycle contraction and beginning of a recovery. (Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the change in activity as compared with the prior month.)

FIG 1 The Plastics Processing Index for January signaled that the market is contracting more slowly now than at any time since August of 2019. The Index has moved above its 2019 lows.

An analysis of the underlying Plastics Processors Index data for the month found that production, employment and new orders all reported expanding activity. The Index was weighed down by contracting readings for supplier deliveries, exports and backlogs. All monthly component readings have been trending higher since the second and third quarters of 2019.

January’s data reported a combination of expanding total new orders and a quickening contraction in exports. Taken together, these readings imply that expanding domestic new orders more than offset January’s contraction in exports. Furthermore, expansionary new orders in recent months may in part explain the slowing contraction in backlogs since the third quarter of 2019.

FIG 2 The spread between new orders and exports widened in January, suggesting that domestic orders more than offset losses in exports. The three-month moving average of exports continues to indicate that export activity is still quite weak.

The Index is based on survey of subscribers to Plastics Technology Magazine.

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. Learn more about the Plastics Processing Index at gardnerintelligence.com.