Many economists and politicians levy theories about potential recession indicators across the economy. But what if the key to finding the right economic indicator is to stop thinking outside the box and to start thinking about the box itself?
This is the approach taken by Virginia Tech economist Jadrian Wooten, who believes that the so-called cardboard box index may carry with it a warning sign for today.
Box utilisation rates — essentially how much a factory is producing versus what it could produce if it were running full capacity — are significant for understanding the manufacturing business.
During the 2008 recession, cardboard-box manufacturers’ operating revenues fell by more than 50%
“Once used by former Federal Reserve Chairman Alan Greenspan, the metric gauges the production of corrugated cardboard boxes – in which more than 75% of all non-durable goods are shipped – to presage the upcoming packaging and shipping demands of the economy,” explains Wooten.
This approach runs: The economy of corrugated cardboard box production is influenced by consumer demand, which is a major economic indicator. Since the industry relies on a circular model, using a mix of new wood fibre and recycled paper to produce boxes efficiently, this can be used to signal the outlook for both the broader manufacturing sector and consumer spending.
Sensitivity
Changes in box demand can be seen more quickly than traditional indicators like GDP, which are only reported quarterly.
Amid recent cuts, U.S. box makers have scaled back operations, with 9% of domestic production capacity set to shut down. In terms of impact, Wooten says that will put thousands of workers out of jobs, and is the biggest such pullback since the Great Recession of 2008.
Other factors besides a general recession are affecting the cardboard box industry, including changes in consumer spending habits (more on services than delivered goods), e-commerce innovations (smaller boxes, reusable packaging), and supply chain issues
“If we’re to assume that cardboard boxes are a leading indicator, it could be a bad sign of what’s ahead,” he explains in a guideline. “If they’re cutting back on capacity, it likely comes as a response to fewer orders. That would suggest weaker demand in the broader economy. If shipments keep falling, other indicators like GDP or unemployment may eventually catch up.”
Wooten is keen to emphasise that no single statistic is foolproof when trying to make broader predictions, however he makes the claim that the approach he describes could be a leading indicator of where the consumer economy is headed.
