After reading the article from Packaging Digest below, I wanted to share some potential good news with the current state of our economy.
Is a recovery near? Jump in box orders raises hope
By CHRISTOPHER LEONARD and MIKE OBEL, AP Business Writers -- Associated Press Financial Wire, April 22, 2009 Wednesday 10:01 PM GMT
Packaging Corp. of America is hardly an economic bellwether, but a boost in orders at the box maker might be among the early signs that the recession is easing.
The company reported this week that orders for boxes jumped sharply in the first 10 days of April. Chief Executive Paul Stecko told analysts that it seemed as if "somebody turned the light switch on," with new orders arriving at a pace the company hadn't seen in months.
But Packaging Corp.'s sales are just the kind of obscure data that economists tend to look at to gauge the economy's health. A jump in orders for boxes could mean consumer demand is finally starting to edge up, with shoppers drawing down inventories and manufacturers shipping goods to fill demand.
"Certainly this is a good sign, and we've seen some other good signs," said Gus Faucher, director of macroeconomics at Moody's Economy.com. "That's an indictor that the free fall is coming to an end."
The economy is hardly out of danger. Faucher said it's all but certain the recession will last through at least this fall, with the economy continuing to shrink, though at a slower rate. And joblessness is expected to worsen into next year.
But a smattering of signs lately suggest the bleeding has begun to slow.
The pace of new-home construction seems to be nearing a bottom. First-time jobless benefit claims have fallen more than expected for two straight weeks. The stock market has risen well off its lows. And auto sales in the U.S., while still at depressed levels, jumped nearly 25 percent last month from February.
Also, Federal Reserve Vice Chairman Donald L. Kohn said this week that steadier consumer spending and home sales, together with favorable earnings results from some banks, pointed to a gradual recovery by year's end.
Rays of hope are clearly evident for Lake Forest, Ill.-based Packaging Corp., after a dismal first quarter when profits fell 19 percent. In the first 10 days of April, orders for corrugated boxes surged nearly 15 percent over March levels and about even with levels of a year earlier.
Stecko said he couldn't predict how long the uptick would last. But he said he thought it signified rising demand for goods across the economy.
"We're just going to have to wait and hope this is the beginning of the pickup," he said.
Packaging Corp.'s orders are the kind of indicator William Poole said he used to study when he was president of the Federal Reserve Bank of St. Louis, before retiring last year.
Poole said he and other Fed presidents called friends in the private sector about details of their operations before attending meetings at which the Federal Reserve sets interest-rate policies. He said he usually called manufacturing and shipping companies because they tended to provide the best gauge of economic health.
"If you want to look at where the action is, you concentrate on the goods economy" rather than service-sector industries like health care or education, Poole said. "Manufacturers, home builders, commercial builders as well those things fluctuate a lot more over the business cycle."
Packaging Corp.'s surge in orders could mean that a host of industries, from retail to manufacturing, could finally be seeing an end to falling demand and shipping more goods. That happens when more customers are making purchases.
For an ailing economy that depends on consumer spending for growth, that's welcome news. Consumer goods, from tubes of toothpaste to washing machines and breakfast cereal, tend to be shipped in boxes.
"This is really the first big pickup in demand that we have seen since September," Stecko said Tuesday.
"It's like somebody turned the light switch on," he said of the rise in orders. "It has been a big, big change. There is nothing we can see except that (demand) is pretty broad-based."
Longbow Research analyst Joshua Zaret noted Packaging Corp.'s figures and said he is studying similar companies to see if their results suggest a trend.
One of them, Temple-Inland Inc., a rival maker of cardboard box materials, indicated its April box volumes rose about 4 percent over March, when it reported earnings Wednesday, Zaret said. Normally, April volumes rise about 2 percent over the previous month due to seasonal factors, the analyst said.
"The big issue for us is, does (Packaging Corp.'s) increase represent a true and sustainable increase in end-user consumption or is it a temporary inventory rebuild?" Zaret said in a phone interview.
So far, Zaret said, Longbow's survey of packing-materials companies indicates that Temple-Inland's more modest increase is closer to the norm than Packaging Corp.'s recent jump in orders.
But Faucher of Moody's Economy.com said he expects consumer spending to rise slightly this spring.
"Consumers were very nervous, and they pulled back very quickly" at the end of last year, he said.
Some consumers might be feeling more confident now with extra cash from new tax breaks and lower mortgage payments from refinancings into lower rates.
If spending holds up, it could slow the economy's contraction. The GDP shrank 6.3 percent during the fourth quarter of last year, the biggest decline in a quarter-century. But Faucher said he expects GDP to decline 2 percent this quarter and 1 percent in the third quarter, eventually rising 1 percent in October-to-December quarter.
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