Off topic - WSJ article about (weak shipments of) corrugated boxes.
Attn : pinheads at Federal Open Market Committee -- if interest rate increases take 12 to 18 months to affect the economy, then recent data seem to indicate that you were just as @&*%$^! stupid as a lot of us said you were.
June 8, 2000
Shipments of Corrugated Boxes Slow,
Suggesting the Economy Is Cooling
By DEAN STARKMAN
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- As corrugated boxes go, so goes the economy?
If that's true, those ubiquitous, mostly brown boxes are confirming other
recent economic indicators suggesting that U.S. manufacturing growth may be
cooling.
Shipments of corrugated boxes, which rise and fall in sync with demand
across broad sectors of the economy, rose a tepid 0.9% in the first quarter to
100.52 billion square feet.
A continuation of that sluggish pace would represent a fairly sizable slowdown
from 1999, when shipments rose 2.4%, according to the Fibre Box
Association, a Rolling Meadows, Ill., trade group.
What's more, inventories of box materials have been piling up at mills and box
plants, rising more than 470,000 tons over year-earlier levels to more than three
million tons as of April 30.
"Boxes reflect the industrial economy, and that clearly has slowed," says Mark
Wilde, a Deutsche Banc Alex. Brown analyst. The Federal Reserve has raised
interest rates six times since June 1999, including an aggressive half-point
increase last month, in an effort to slow the rapidly growing economy.
As an economic indicator, boxes are
far from an exact barometer, but they
aren't bad. After all, as much as 90%
of goods manufactured in the U.S.,
from food to auto parts, are shipped in
a corrugated container at some point in
their manufacturing cycle, according
to an industry estimate. Demand for
corrugated boxes (and for that matter,
for paper products generally)
traditionally has closely tracked gross
domestic product growth. In the
decade ended in December, real gross
domestic product grew 3% a year on
average on an inflation-adjusted basis,
while corrugated box shipments
increased an average of 2.63%, according to the Fibre Box Association.
While the correlation has slipped somewhat in recent years as a greater
segment of the country's economic output has shifted to service industries
from manufacturing, it still holds, in part because of the growth of Internet
commerce.
"We still get our things in boxes," says Randell E. Moore, executive editor of
Blue Chip Economic Indicators, an Alexandria, Va., newsletter. "It doesn't
matter whether we buy it at a Sears store or get it over the Internet. It's still in
a box from Sears."
To be sure, too much can be made of box-shipment data, particularly in the
short term because the numbers can fluctuate significantly month to month. "It
bounces all over the place," says Bruce Benson, the Fibre Box Association's
president. Average April shipments, for instance, rose on an adjusted basis,
boosting year-to-date growth to about 1%.
Still, the first quarter's sluggishness was notable in size and it appears to
coincide with other economic data that point to slower economic growth. On
Friday, for example, the Labor Department reported that private-sector
employment declined by 116,000 jobs on a seasonally adjusted basis last
month, the first decline in four years. In addition, home sales are off, orders
for durable goods fell and the construction industry is slipping.
"The box shipments data reinforce the notion that the U.S. economy has
slowed from its recent red-hot pace," Mr. Moore says. "The big question is: Is
this slowdown temporary?"
Some analysts are downgrading paper stocks, partly on the logic that a
slower-growing economy won't be able to sop up paper supplies, hurting
prices down the road. Analysts attributed the demand slowdown to higher
interest rates and a strong dollar, which damped exports and boosted
manufactured imports.
Corrugated-box materials prices have also slowed. The price of linerboard, the
outside layer of a corrugated box, rose 22.6% to about $475 a ton through
April 30, but has since stabilized. That's also true of the wavy layer inside,
known as corrugating medium, which rose 39% in the period to $460 a ton,
but has also leveled off, according to Deutsche Banc Alex. Brown. Mr. Wilde
says there is "very little prospect" for further price boosts this year.
Typically, board and paper prices have far less to do with demand than supply.
After all, paper prices remained depressed in the early 1990s, spiked as
inventories tightened in 1995, then crashed as the industry cranked up capacity
-- all while the economy grew smartly.
For the medium and long term, however, the pricing picture is less clear.
Analysts believe the paperboard industry has consolidated to the degree that its
largest players, Smurfit-Stone Container Corp., Chicago, and International
Paper Co., Purchase, N.Y., may now be able independently to influence prices
by curbing production. After last month's completion of an acquisition of
Montreal's St. Laurent Paperboard Inc., Smurfit-Stone has capacity to make
about 7.5 million tons of corrugated-box board annually. That's about 19% of
the North American market, up from about 7% before a 1998 merger created
the company. International Paper will have about 12% of the market after its
planned acquisition of Champion International Corp., Stamford, Conn.
That consolidation was at least partly behind the price increases of the past
year, and bodes well -- for the box industry, at least -- in the longer term.
"Better times are ahead, but it's been a painful process to get there," says
Patrick J. Moore, Smurfit-Stone's vice president and chief financial officer.
The only question is whether the economy's growth will cooperate in the
scenario.
Write to Dean Starkman at dean.starkman@wsj.com
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