Analyst: US in a ‘cardboard box recession’

During a typical global recession, all areas of the economy, such as manufacturing, services, retail, construction and trade, tend to have a downward turn at the same time; but, according to a June 5 report from Jeffrey Kleintop, managing director and chief global investment strategist at Charles Schwab & Co., only manufacturing and trade seem to be in a global recession.

Kleintop analyzed indicators such as industrial production, worldwide trade volumes, job growth by industry, surveys of purchasing managers at manufacturing companies, and others and refers to the phenomenon as a “cardboard box recession.”

Data from the Fibre Box Association suggest demand for corrugated linerboard has fallen similar to that of previous recessions and is in line with findings of other analysts who say that while North American containerboard producers predicted an uptick in box demand in the first quarter of this year, demand might not start trending up by the end of 2023.

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The Washington-based American Forest & Paper Association’s first-quarter boxboard report also reflects the low-demand trend seen this year. According to the AF&PA, total boxboard production in the first quarter was down 5 percent compared with the first quarter of 2022, while the boxboard operating rate was 87.8 percent, down 6.1 percent from last year.

Kleintop says evidence of the cardboard box recession suggests the mild recession in corporate earnings could continue. He notes the double-digit margin gap between earnings expectations for cardboard box-type industries and service industries. He says the earnings growth forecast for manufacturing companies is +3.8 percent compared with +14.9 percent for the services industry.

“The wide gap … highlights how the economists and analysts are aligned on the nature of the current economic environment,” Kleintop writes, adding that the global stock markets’ double-digit returns in the first half of the year could reflect expectations of an end to the cardboard box recession.

But as paper and packaging companies report first-quarter earnings, those results also are in line with Kleintop and other analysts' findings of continued low box demand.

Atlanta-based WestRock Co. and Memphis, Tennessee-based International Paper (IP) both reported economic downtime in the first quarter. WestRock reported a net loss of $2 billion that included 265,000 tons of economic-related downtime, and IP reported 421,000 tons worth of economic downtime—the third consecutive quarter the company has taken what it says is significant economic-related downtime.

In its second-quarter results released June 8, Delaware, Ohio-based packaging producer Greif says lower mill volumes continued to pressure results, though it did improve slightly from the 94,000 tons of downtime taken in the first quarter to 77,000 tons taken in the second quarter in its Paper & Packaging Services segment.

Writing on behalf of Vipa Group’s Marc Ehrlich in the late-May Bureau of International Recycling Paper Quarterly Report, Myles Cohen, principal of advisory firm Circular Ventures and a Vipa board member, says while domestic demand has shown an uptick at paper mills, it is not enough a significant change.

Cohen writes that while shutdowns mostly are occurring at containerboard mills, tissue mills have felt the effects of the demand downturn, too.

“In the past when the economy was soft and box demand was low, tissue mills would mostly be immune to these slowdowns, but not on this occasion,” he says.

“The bottom line is that the prediction of an impending recession seems to be gaining more steam.”