From an economics perspective, now is my favorite time of year. This is the start of the planning and budgeting cycle for 2018.
It is the time when requests from business owners and senior managers for data, charts and forecasts for the plastics industry increase substantially. For my line of work, it is the time when (I couldn't think of an appropriate plastics metaphor to use here) the rubber hits the road.
Because the uses in our economy for plastics are so diverse, these owners and managers will ask for a wide variety of data. But there are two charts they universally want to share with their respective investors, boards of directors and other senior management. These graphs are derived from data provided by the Federal Reserve Board every month. They are the charts for U.S. industrial production and the capacity utilization rate for plastics products.
These charts are always interesting, but this year they are more interesting than usual. To provide some historical context, I have included the past decade's worth of data, but the portions of these charts I want to focus on is the past 2½ years — from 2015 through the present.
If you look closely at the industrial production chart, you can discern that the slope of the graph during this period is slightly upward. More specifically, the annual growth rates were 1.9 percent in 2015, 0.5 percent in 2016 and 0.9 percent for the year-to-date in 2017. That works out to an average annual rate in the range of 1 percent. Certainly not as fast as we would like, but that's how the overall industry performed.
Typically, one would expect capacity utilization to correlate with production. In other words, if output levels increased moderately, then the utilization rate should also increase modestly. And, most of the time, this relationship shows positive correlation.
But not this time, and that is what's interesting about the data. The trend in the rate of capacity utilization since the beginning of 2015 is clearly downward by about three percentage points — from approximately 83 percent to about 80 percent. Now a word of caution is in order here: do not get too hung up by the actual figures. These are overall averages for the industry, and they do not accurately represent any particular industry segment. It is similar to the idea that the average American family has 2.5 children.