Leading Indicators: What Cardboard Tells us

There’s a leading economic indicator (one of many) called the ”Cardboard Box” index. The cardboard box index refers to the idea that an increase in the production of cardboard boxes is a leading indicator that goods manufacturing will increase, or that a decline in cardboard box production signals a manufacturing slowdown.

It’s not foolproof in the slightest but it is typically used with other indicators to make assumptions.

The cardboard box index is considered a reliable measure of manufacturing by some investors because it may reflect aggregate business estimates of future consumer goods sales.

It is estimated that close to 75–80% of all non-durable goods are shipped in corrugated cardboard containers. Therefore, the thinking goes, the greater the number of cardboard boxes ordered, the greater the volume of production planned for goods that will be packed in boxes.

However, Axios reported corrugated box sales have declined in the past two years.

Source is pulled FBA as of Jan ‘23.

"The shift of consumer buying preferences, more towards service-oriented spending, persistent inflation, and higher interest rates continued to negatively impact consumers' purchases of both durable and nondurable goods."

- Thomas Hassfurther, an executive VP at Packaging Corporation of America.

Packaging Corp of America (PKG) has seen its shares tumble >12% since its recent April peak and UPS has dropped >14% in the same timeframe.

We saw a shift in consumer spending. Disposable income is shifting away from goods to services." - UPS chief executive Carol Tomé

While services still make up over 70% of US GDP, the shift from goods to services might not be as bad of news but that doesn’t mean that money moving from one category to another won’t mean it won’t slow down overall.

Something to keep an eye on.

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Until next time,

Paul Cerro | CIO of Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

HoldCo Twitter: @cedargrovech

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