By Chris Kuehl, managing director, Armada Corporate Intelligence
In my misspent youth, I engaged in activities that probably were ill-advised, such as white-water canoe trips when my skill level was not up to the challenge. There is nothing quite so disorienting as hurtling down a raging river with only minimal knowledge of what is ahead. This is how it feels when trying to navigate the current economy (only without the immediate threat of drowning). What can be projected for the remainder of the year and into 2026? Are there any trends that can be counted on?
To some degree, there always are constants in the economy – reactions that generally can be counted upon; the challenge is what the triggers will be. For the plastics industry, the economic factors are familiar as they affect the projects engaged in – including inflation, supply chain and workforce, among others.
Inflation
Inflation has been trending lower over the last few years, following a surge that coincided with the pandemic. The rate climbed to as high as 8.0% for a few months, and it took several years for the factors driving inflation to fade. For the past year, the rate has been dropping closer to the level preferred by the Federal Reserve (around 2.0%). That trend now is reversing, as inflation is sitting at 2.7%, which equals the rate set in February 2025. This is not a crisis level to be sure, but it is heading in the wrong direction, and the reason for the shift has been obvious.
In February, the rate climbed to 2.7% due to concerns related to the imposition of tariffs, and that is what currently drives it. By now, the industry is weary of the constant uncertainty over tariffs, but there is no sign of stability and that has affected price stability. Companies had tried to beat the tariff hikes earlier in the year by loading up on inventory, but that surplus largely has vanished and reorders are much more expensive. The bottom line is that inflation likely is to get worse – maybe around 3.5% to 4.5% by year’s end. If this rate climbs as expected, there likely will be a reaction from the Federal Reserve but not the one advocated by the White House. A hike in inflation will push the Fed to raise rates rather than lower them.
What does the economic growth situation look like? The first-quarter numbers were recessionary, and some even went so far as to assert that a full-blown downturn was taking place. By the second quarter, these numbers bounced back and growth sat at 2.1% – nearly back to the level at the end of last year. That first quarter decline was largely attributed to a huge influx of imports (as businesses attempted to beat projected tariffs). Imports pulled away from gross domestic product, and by the second quarter, that surge had calmed.
The next question is what to expect in the third quarter, and the news is not good. Most projections are for growth of less than 1.0% (between 0.5% to 0.75%). This is attributed to the slowdowns that occur as supply chains are disrupted by tariff uncertainty. Consumer confidence also has been falling, which is bad timing for the retail sector. The plastics sector has been affected by slowdowns in construction as there has been immense price volatility in everything from steel, aluminum and copper to cement, lumber and so on. Third-quarter numbers look weak, and the fourth quarter is not shaping up well either.
Oil has been steadier but this has been a shock given all the turmoil in the Middle East. Expectations had been for per-barrel prices in the 90s or higher, but they have been in the 60s and 70s. Reactions to the Middle East have been muted thus far, and that has kept feedstock levels relatively stable.
Supply Chain
This brings us to the supply chain, an issue that has been vexing for several years now. It was a major problem during the pandemic recession as goods were not produced and/or shipped. That was something of a man-made disaster stemming from the decision to try a global quarantine.
Now there’s another man-made crisis as the tariffs/trade wars have completely altered the supply chain. Businesses have been locked in a battle to rethink the way they supply, and all of the options have been more complex and expensive. Projects are on hold pending some price stability, and there has been no sign of this.
The tariffs have been used as negotiating tools rather than for economic development, which makes them even more unpredictable. Tariffs have been used to urge stricter immigration policies, influence the Ukraine war, pressure Brazilian courts and expand control of fentanyl. Most companies assert they can manage tariffs if they know what they are but uncertainty has made that management nearly impossible.
Workforce
A consistent issue for those in the plastics industry is workforce, a problem shared with almost everybody in manufacturing, construction and transportation (or just about every other business). There may be some 6 million people ostensibly available to hire, but the vast majority of them lack the skills needed in these sectors.
This creates delays, as there are chronic labor shortages and significant wage inflation in most parts of the country. This issue will get steadily worse by 2030, when every single Boomer will have reached retirement age – not that these Boomers will all leave at once, but attrition already has been a factor. Many in the industry have been working hard to develop the needed talent, but the demand for these trained individuals has been growing exponentially. The general education system devotes very little attention to training for jobs in construction and manufacturing, which has been an issue for many decades.
Consumer Outlook
One final trend to consider is based on the consumer’s mood and attitude. The level of consumer confidence is lower than it has been in many years, but it is important to understand that these surveys are extremely volatile. Consumer attitude can radically swing from one week to the next based on the latest news and reports. Right now, the message from the media is downbeat – featuring inflation threats, tariff threats and hints of unemployment. Consumers worry, and generally that makes them frugal – not what the retailers want to hear at this point in the year. Will the consumer mood improve? That is anybody’s guess at this point. n
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