Tue August 29, 2017

Industrial production increased 0.2 percent in July—a 2.2 percent increase from July last year, according to the latest report from the Federal Reserve. The manufacturing output of plastics products actually edged down 0.8 percent when compared to June 2017, but held steady on a year-over-year basis—increasing 0.02 percent from July 2016.

Neither the minor decrease in the output of plastics products last month, nor the weak increase in industrial production should be major concerns for the plastics industry. On a quarterly basis, the figures for the manufacturing output of plastics products paint a much brighter picture, having increased 0.4 percent in the second quarter of this year from the previous quarter and 1.5 percent from the same period in 2016.

Industrial production remains on the strong side from a historical perspective. To put it in context, U.S. industrial production in July was 21.1 percent higher since the end of the Great Recession in June of 2009. If we look at the cycle, it appears that industrial production is shifting away from the long-run mean—an indication that an upward trend is more likely to continue.

In July, total capacity utilization was 76.7 percent, which was unchanged from June, but 1.1 percent higher than July 2016, according to the Federal Reserve. In plastics (and rubber products), however, capacity utilization was 80.1 percent and, by comparison, 80.9 percent in June.

While it is difficult to project the U.S. economy’s total capacity utilization to reach as high as 85.0 percent as it has in some previous years, given the fact that modest economic growth is expected to continue this year and the next, the latest July number indicates that there is room for higher capacity utilization in the U.S. economy. The current path of both industrial production and capacity utilization does not suggest an inflection point or a downturn, and that’s positive for the plastics industry.