By Perc Pineda, Ph.D.
Chief Economist, PLASTICS

The Federal Reserve raised the fed funds interest to the 3.75% - 4.00% target range earlier this month with additional rate hikes expected ahead, as the Fed tightens monetary policy to bring inflation down towards the 2.0% inflation target. Earlier in October, headline and core inflation as measured by the year-over-year change in the Consumer Price Index (CPI), were 7.7% and 6.3%, respectively. The Fed's preferred measure of inflation when making monetary policy decisions—the core PCE Index (personal consumption expenditure excluding food and energy)- was up 5.1% in September.

Stable prices and full employment are the Fed’s mandates

As stable prices are one of the Fed's mandates, maximum employment is the other. Tightening monetary policy is expected to cause a slowdown in the economy and consequently will generate an increase in unemployment. The rate hikes, however, are still to result in a significant loosening of the U.S. labor market. When the Fed started hiking rates up in March of 2022, unemployment was at 3.6%. This month, after a fifth-rate hike, the unemployment rate was 3.7%, exhibiting what looks like an economy still at full employment. Beyond the unemployment rate numbers, however, the number of unemployed increased by 306 thousand in October. Moreover, the total non-farm job openings seemed to have peaked in February at 11.9 million, downward trending to 10.1 million in August, with an uptick in September to 10.7 million.

Plastics and rubber products manufacturing unemployment increased to 2.0% in October from 1.8% and plastics and rubber products manufacturing added 3,000 jobs. While there are signs that the labor market is cooling, the plastics industry continues to add jobs. Over the past ten months, plastics products manufacturing added 17.5 thousand jobs. While jobs increased, plastics manufacturing employment remains low compared to previous years. Down from 744.7 thousand employees in February 2000, the Bureau of Labor Statistics estimates plastics products manufacturing employment totaled 616.1 in September of this year. In between those estimates, plastics products saw the number of employees fall to 490.0 thousand as of October 2009—immediately after the Great Recession. Employment eventually increased to 589.0 thousand by August 2019 but decreased to 532 thousand in April 2020 as the U.S. faced the COVID-19 pandemic.

Plastics products manufacturing adds jobs

The monthly unemployment rate for plastics products manufacturing continues to fluctuate. Over the past five years, employment has fluctuated between 10.54% and 10.4% year-over-year. Over that same period, plastics products manufacturing monthly output, as measured by the change in the Industrial Production Index in plastics products manufacturing, fluctuated between -11.9% and 11.5% on a year-over-year basis. While these fluctuations are not significantly different, from the end of the U.S. COVID-19 recession in April 2020 through September 2022, plastics product output increased by 22.1% while employment only increased by 15.8%.

Output outpaced employment gains -  Why?

Innovations in plastics manufacturing explain why output has outpaced employment gains as illustrated in the chart above. Plastics products manufacturing is less labor intensive compared to previous years—a logical outcome of ongoing labor supply constraints in manufacturing. Innovations in plastics manufacturing equipment such as automation and the use of robotics have provided solutions to the shortage of skilled labor. Advances in technology explain the increase in productivity or output, per worker. The plastics industry was founded on innovation providing utility to consumers, and the pandemic increased the overall demand for plastics, particularly in the medical and healthcare and consumer packaged goods end-markets. As the plastics industry responds to increasing demand for plastics, despite low labor supply, it must keep up with demands. For September, the unemployment rate in plastics and rubber products manufacturing was 1.8%—at that rate, the industry was hiring.