Tariffs, Warm Weather Weigh on US Output

Plastic resin production declined in March even as overall US chemical output edged upward, according to the American Chemistry Council’s (ACC) latest Weekly Chemistry and Economic Trends report.

Tariffs also have had an impact on chemical output, according to the report.

“Prior to the tariff announcements, there had been further progress on inflation,” the ACC said in its report. “Growth in consumer prices is now expected to accelerate in 2025 to a 3.1% pace before easing to a 2.7% pace in 2026.”

Tariffs introduced in early April, combined with retaliatory moves from China and Canada, are casting a long shadow over the second quarter, according to the report. Although a recession isn’t currently forecasted, the risk has escalated significantly.

ACC said it is "monitoring the tariffs situation and continuing to analyze it as the circumstances develop."

The ACC report, released April 18, indicated that oil prices moved higher compared to the previous week as new sanctions were put in place targeting Chinese imports of Iranian oil, while Iraq agreed to cut its oil imports.

The ACC’s latest Survey of Economic Forecasters shows that nearly all economic indicators have weakened since March. Industrial production, which fell 0.3% in 2024, is projected to grow by just 0.9% in 2025 and 1.0% in 2026 — sobering figures for plastics producers tied closely to US manufacturing output.

Housing starts fall

The ACC reported broader economic unrest that includes a sharp drop in housing starts, weakening manufacturing sentiment, and growing uncertainty that is tied to newly imposed tariffs on US imports.

Industrial production in the US slipped 0.3% in March after three consecutive monthly gains, with the decline largely driven by a sharp drop in utility output amid unseasonably warm weather. While the broader industrial sector faltered, manufacturing and mining managed modest gains ahead of the widely anticipated tariff announcements on April 2.

Overall for plastics processors and chemical manufacturers, the picture was mixed. Within manufacturing, aerospace, motor vehicles, electronics, and apparel posted strong output increases. However, these were undercut by notable declines in wood products, petroleum refining, and textiles.

Industrial production trends

On a year-over-year basis, overall industrial production rose 1.3%, though capacity utilization edged down 0.4 points to 77.8% — exactly where it stood one year ago. Total industrial capacity has grown by 1.3% over that same period.

Chemical output continued to climb, with the Federal Reserve’s index for the sector rising 0.2% in March to reach its highest level since July 2018. Gains in agricultural chemicals, coatings, synthetic rubber, manufactured fibers, and other specialties outweighed declines in plastic resins, inorganic chemicals, and consumer products.

Organic chemicals held steady. Year-over-year, chemical production was up 5.8%, and capacity utilization for the sector rose to 83.1%. However, it's important to note that capacity figures now reflect revised methodology from the Fed, making comparisons with earlier data inconsistent.

Despite the sector's resilience, regional indicators point to softening ahead. Manufacturing conditions in New York and Philadelphia contracted further in April, with the Empire State’s headline index remaining in negative territory and the Philadelphia Fed’s measure plunging to a two-year low of -26.4. Both regions reported falling new orders and growing concern about future conditions.

Housing data spark worry

Housing data also added to concerns. March housing starts dropped 11.4%, driven by a 14.2% decline in single-family construction — a sector with significant implications for demand in plastics-intensive applications like piping, insulation, and exterior cladding. Regional weakness was concentrated in the South and West, although the Northeast and Midwest posted gains. Building permits, a leading indicator of future construction activity, rose 1.6%, suggesting some forward momentum, but the gain was fueled by multifamily projects. Single-family permits continued to decline.

Consumer activity provided a rare bright spot in March, with retail and food service sales jumping 1.4%, according to the report. Analysts attribute this surge to consumers pulling forward purchases in anticipation of higher prices due to tariffs. Auto dealers saw sales rise more than 5%, while restaurants, sporting goods stores, and home improvement retailers also posted solid gains. Compared to a year ago, the ACC noted that retail sales were up 4.6%, despite ongoing weakness in furniture and home furnishings.

Business inventories remained on the rise, climbing 0.2% in February. Sales, however, rose even faster — up 1.2% — causing the inventories-to-sales ratio to dip slightly from 1.36 to 1.35. For plastics suppliers and converters managing raw material and finished goods inventories, this shift may offer some temporary breathing room.

Trade pressures continued to evolve in March, with import prices slipping 0.1% ahead of the tariff hikes. Fuel prices led the decline, while nonfuel imports saw a slight uptick. Export prices remained flat for the month, but have gained 2.4% over the past year. In the chemical sector specifically, import prices have now fallen for three straight months, down 1.3% year-over-year, while export prices rose 3.0% in the same timeframe.

Consumer spending to moderate

Consumer spending is also expected to moderate, while business investment is likely to slow to 1.7% growth in both 2025 and 2026, according to the ACC. Housing starts, another plastics-relevant market, are forecast to remain flat through 2025 before inching up slightly in 2026. Vehicle sales — a major demand driver for plastics — are expected to slide to 15.5 million units in 2025 before edging up again the following year.

Labor market dynamics are shifting as well. The unemployment rate is projected to rise to 4.3% in 2025 and 4.5% in 2026 as the economy softens and job growth slows, the report indicated. Inflation, which had shown signs of easing, is now expected to accelerate again due to cost pressures stemming from tariffs, with consumer prices forecast to rise 3.1% in 2025 before cooling to 2.7% in 2026.

Commodities and energy markets continue to react to global developments. Oil prices increased on news of sanctions targeting Chinese imports of Iranian oil and Iraq’s pledge to cut exports. US natural gas prices, by contrast, declined due to warmer temperatures. The oil and gas rig count dropped by eight to 577. For the plastics and chemical sectors, volatility in energy prices — and feedstock costs — remains a key concern.

Railcar data provided a modest silver lining: Chemical loadings rose 2.3% year-over-year on a 13-week moving average and have increased in eight of the last 13 weeks. This could indicate that, at least for now, demand for chemical intermediates and finished plastics continues to hold up.

As the second quarter unfolds under the weight of trade uncertainty and shifting consumer dynamics, plastics producers and processors are navigating a market marked by resilience in some segments and emerging risk in others. Strategic planning, inventory management, and close tracking of regulatory developments will be critical in weathering what is shaping up to be a volatile year.