By almost any measure, the U.S. economy posted a strong performance in the second quarter. Aggregate demand, corporate profits and employment levels were all robust. Confidence levels, as measured both by survey data and the price levels of the equity markets, remained elevated. Inflation and interest rates were low, and real GDP expanded at a rate that was well above the long-term trend.
It is hard for me to think of better macroeconomic conditions for U.S. businesses, and that includes plastics processors.
So imagine my surprise when I updated my spreadsheets with the latest data from the Federal Reserve Board that measures activity levels in the plastics industry. According to the Fed, the index for industrial production of plastics products in June was 111.2. This marked the fourth consecutive monthly decline, and the figure for June was 1 percent lower than it was in June of last year.
The June decrease pushed the total for the entire second quarter below the same period last year. And, as the chart illustrates, the slope of this recent downtrend appears to be steepening.
The capacity utilization chart is even more surprising. The rate was steady through the second half of last year and the first quarter of this year. The fact that production levels were rising while the utilization rate was flat is due to investment in new machinery, which has made the industry more productive.
This is great when demand is rising because it makes processors more profitable. But when demand slows, it pushes the capacity utilization rate lower. That's what has happened this year. Based on the current data and the fact we saw a strong upturn in the second half of last year, I have lowered my expectations for year-over-year comparisons for total output of plastics products in the second half of this year. I now expect the growth rates for both the third and fourth quarters of 2018 to be negative.
If this forecast holds true, it will result in a negative annual growth rate for this year. This would be the first time since 2009 that the total U.S. output of plastics products failed to achieve positive annual growth.