By Chris Kuehl, managing director, Armada Corporate Intelligence
To be fair, there likely are many additional drivers depending on the industry and line of business, but for this article, the focus is on the four drivers that stand out for the economy as a whole. These four drivers include:
- Inflation and the reactions to it.
- The impact of ongoing trade and tariff issues.
- The influence of a political year.
- Ongoing workforce concerns.
In many cases, there isn’t much a business can do about these drivers other than try to be prepared for potential impacts. The good news is that the plastics industry touches nearly every other industry – but that also is the bad news. If there is something positive happening in the economy, some plastics operations will see that expansion as well.
On the other hand, a dip in business in a particular sector will impact the plastics operation tied to it. As the old saying goes, “It is an ill wind that blows nobody good!”
The good news is that growth was solid in 2025, and momentum remains strong heading into the coming year.
First Driver – Inflation
Inflation is the first driver to consider. The past year has been something of a surprise, as inflation has been more subdued than expected. The impact of the tariffs and trade disputes faded quite a bit by the summer, but there still was considerable volatility in key areas. Inflation is tricky to compute because so many products and services are involved. Gasoline prices fell, but food prices rose sharply. Housing prices fell, but rent increased. Education went up, medical care fell. The core rate of inflation excludes food and fuel because these prices are notoriously volatile and distort the models. The “real” rate includes these prices.
Currently, the core rate is 2.6%, and the real rate is 2.7%. This still is above the Fed’s target of 2.0% but less than the 3.0% that was predicted just a few months ago. Economists assess four levels of inflation in terms of their seriousness:
- The least threatening is “creeping” inflation, and that is under 3.0%. This is the current level globally.
- The next level up is “walking” inflation, and that is between 3.0% and 10.0%. It was visited a few years ago during the pandemic, though visits are rare. The unfortunate reality is that food and rent inflation already are in that “walking” category.
- Next comes “galloping” inflation, and that is 10% to 50%, and the US almost has never hit this level (only during wartime).
- Finally, there is the truly dreadful “hyper” inflation of over 50% a month. The US has never been in that position but many nations have experienced it, and this turns them into barter systems as the currency loses its value.
The expectation is that inflation will reach 3.0% early in 2026. Will that be enough to pull the Federal Reserve back from its policy of cutting rates by another quarter to a half point? Much will depend on the position of the new members of the Open Market Committee. Three of the four are hawks and favor higher rates, including Beth Hammack from Cleveland, Lorie Logan from Dallas and Neel Kashkari from Minneapolis. The fourth new member is Anna Paulson from Philadelphia, a moderate dove.
Second Driver – Tariff and Trade
Tariffs and trade wars are back in the news and are more confusing than ever. Ostensibly, a tariff is deployed to protect some elements of the domestic economy. Tariffs are placed on imports that challenge US producers and are supposed to level the playing field against countries that can produce less expensively or are manipulating trade advantages. They work when there is a US-made good that consumers can turn to. Lately, the tariff has been used as a purely political weapon. Tariff pressure has been applied against India to get it to quit buying Russian oil, and pressure has been applied to Brazil to force the government to cease attacks on Trump’s ally, former President Jair Bolsonaro.
The most recent example of a political tariff has been the threat issued against Europe for not backing the US takeover of Greenland. That was supposed to be 100% but has since been reduced or eliminated. The financial community has taken to referring to these tariff policies as Trump Always Chickens Out (TACO) tariffs. This is not a fair assessment, as Trump uses tariffs as a political weapon as much as an economic tool. When he gets the reaction or concession he was seeking, he often removes or reduces the tariff. The problem for businesses is the uncertainty. They have to react to the existing tariff, even if they suspect it will change. Some can delay purchases of imported goods while others can’t. That means some will pay much higher prices than competitors who waited.
Third Driver – Politics
The impact of a political year is well known. Every politician seeking to hang on to his or her seat wants to deliver something that will curry favor from constituents. This leads to big financial giveaways and a wide range of efforts best described as pandering to voters. They can be good or bad, depending on who the recipients may be. One political move from last year will figure prominently in 2026. There is a provision in the BBB legislation that offers a major tax deprivation on construction projects started in 2025 and will be completed by 2030 (and put into use). These specifically are for industrial and manufacturing projects, and that legislation set off a scramble to get these projects underway – most of this activity will show up in 2026.
The challenge now is that these companies will be competing with one another for materials, machines and workforce. Is there enough available for all of these proposed projects?
Fourth Driver – Workforce
The final driver is the workforce, and the US has been pounding away on this topic for years. By 2030, the entire Boomer generation will have reached retirement age. Most of these Boomers are staying in the workforce longer than they have to – either because they need the income or because they don’t want to quit, but sooner or later, they elect to leave, and there are no ready replacements. There also is no simple solution. Immigration was once an answer, but the need is for trained and skilled workers – neither of these is coming to the US. Technology has been called upon to fill the gap but robots and AI can’t do everything a skilled worker can do. Many describe 2030 as the year of the demographic collapse, and some equate this with a recession.
The fact is that economists are doing well to predict to next Tuesday, much less to 2023, but that demographic collapse is simple math – over 20,000 people are made eligible for social security every day. There is no simple solution for an aging population – certainly not in the short term. Birth rates in the US are low, and that will not change soon. Training takes time and money. Immigration means attracting the skilled people from around the world that every nation covets, and that is expensive.
These are the challenges facing 2026. The good news is that growth was solid in 2025, and momentum remains strong heading into the coming year. None of these situations is dire enough to guarantee a significant slowdown, but they cannot be ignored.
Chris Kuehl is managing director of Armada Corporate Intelligence. Armada executives function as trusted strategic advisers to business executives, merging fundamental roots in corporate intelligence gathering, economic forecasting and strategy development. Armada focuses on the market forces bearing down on organizations.
More information: www.armada-intel.com