Plastics Industry Faces Multiple Challenges in 2026 Construction Market

Key Takeaways

The correlation coefficient between the building materials manufacturing industry and plastic production reaches 0.90, indicating a very high degree of industry association.

- Residential construction investment has seen positive growth in only two of the past seven quarters, dragging down demand for plastics.

Mortgage rates have dropped back to 6.1%, which may gradually support the recovery of the real estate market and the growth of plastics consumption.

Dr. Perc Pineda, Chief Economist at the Plastics Industry Association (PLASTICS), has released an economic analysis report that, based on the latest U.S. Gross Domestic Product (GDP) data, examines its impact on construction activity and plastics demand, and forecasts the industry outlook for 2026.

Pineda wrote in his analysis: "The latest revision of the US Q3 GDP data confirms the economy's resilience, with output growing strongly at an annual rate of 4.4%. Market attention is currently focused on the preliminary Q4 GDP release on February 20, 2026. The consensus expectation is for a slowdown in economic growth in the fourth quarter compared to the second and third quarters, reflecting a gradual cooling of economic momentum rather than a reversal."

Continued decline in construction investment

Pineda pointed out that behind the impressive overall GDP figures, the industry showed familiar development trends: household consumption demand remained strong, with personal consumption expenditure growing by 2.5% in the second quarter and 3.5% in the third quarter. He explained: "Corporate fixed investment also achieved significant growth, increasing by 7.3% and 3.2% in the second and third quarters, respectively. These sectors continue to be the core drivers of overall economic growth."

However, the outlook for the construction industry, a core end market for plastic manufacturers, is challenging. Investment in non-residential construction, including commercial buildings, industrial facilities, and data centers, has contracted for seven consecutive quarters; residential construction investment has performed slightly better, but has only recorded positive growth in two of the past seven quarters.

Pineda stated, "It is highly probable that both types of construction investment will not resume growth in the fourth quarter, so the market outlook for 2026 is crucial for the plastics industry in construction-related sectors."

The long-term weakness in construction investment directly impacts plastic manufacturers. According to the "2025 U.S. Plastics Industry Size and Influence Report," 2.3 cents of every dollar invested in single-family home construction is used for plastic products. In 2024, the market size for plastic products in single-family home construction reached $10.1 billion, while plastic products in other residential construction amounted to $9.4 billion, and in commercial construction, such as farm buildings, it was $6.9 billion.

Residential and commercial buildings: different driving factors

The development trends of residential and commercial buildings differ significantly, and their impact on plastic demand also varies. The development of residential buildings is primarily determined by affordability, i.e., whether families can afford to buy or rent based on current housing prices, income levels, and borrowing costs. In contrast, the development of commercial buildings depends on financial viability, with factors such as capitalization rates and expected cash flows directly determining whether a project is feasible.

"This differing pace of development explains why residential and non-residential construction trends often move in opposite directions during economic cycles," Pineda explained. "For plastics manufacturers, this divergence means they must monitor market signals from these two sectors separately."

Plastic demand is deeply tied to construction activities.

While home sales data often grab headlines, they are not a core metric for plastics manufacturers. Plastic products are widely used in the upstream segments of the construction value chain, with pipes, insulation materials, siding, and flooring all relying on plastics. Therefore, plastics demand is more closely correlated with construction-related manufacturing activities.

Pineda emphasized the strong correlation between the building materials manufacturing industry and plastic production. He stated, "For every 1 percentage point increase in the industrial production index of the building materials manufacturing industry, the plastic production index increases by approximately 0.6 percentage points." This data highlights the close link between physical construction activity and plastic production, with a correlation coefficient of 0.90 between the industrial production indices of building materials and plastic product manufacturing.

Borrowing Costs and Labor Market Trends

The recent slump in the housing market is rooted in high borrowing costs. The 30-year fixed mortgage rate climbed from 2.67% at the end of 2020 to over 7% in 2022, significantly reducing housing affordability and dragging down residential construction investment. However, current financial conditions have begun to ease, with mortgage rates falling back to around 6.1% in January 2026. Pineda cautions that while lower borrowing costs may support housing demand, the recovery of the housing market will be a gradual process, and will be influenced by labor market conditions and price trends.

Labor supply and raw material costs remain key factors affecting the construction market. Even if demand recovers, the tight labor market will still constrain supply; and fluctuations in raw material prices will also affect the feasibility of construction projects. Pineda pointed out that as of November 2025, the Producer Price Index for building material and supplies dealers has seen a slight year-on-year decrease of 0.09%, indicating some stabilization in raw material prices after a significant drop at the beginning of the year.

Future development trends of the industry.

For plastic manufacturers, the industry outlook for 2026 hinges on the performance of the construction market. As plastic production is highly correlated with construction activities, a continued weak construction sector will drag down the plastics industry. However, Pineda also pointed out that a loosening financial environment and stabilizing raw material prices offer hope for a gradual recovery in the industry.

He stated: "The conclusion is clear: plastic production tracks the pace of construction activity, rather than real estate market sentiment."

From the demand side, a strong labor market with robust employment growth and low unemployment typically supports housing demand. In November 2025, the US unemployment rate slightly rose to 4.5%, then fell back to 4.4% in December. Non-farm job openings decreased from 8 million a year ago to 7.1 million in November. These factors will collectively determine whether construction activity and overall plastics demand can regain growth momentum in 2026.

Pineda concluded: "In 2026, the trends in borrowing costs, labor market conditions, and investment performance in the construction sector will determine whether the impact of the construction industry on plastics demand shifts from a drag to a driver."