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Big Drop in Cardboard Box Sales Scream Recession

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Good news. The looming US recession has been canceled.

Or has it?

Just a few weeks ago, Treasury Secretary Janet Yellen said that while economic growth has slowed, “our labor market continues to be quite strong — I don’t expect a recession.” Meanwhile, Federal Reserve Chairman Jerome Powell said staff economists at the central bank now project a noticeable slowdown in growth starting later this year, “But given the resilience of the economy recently, they are no longer forecasting a recession.”

In fact, with much stronger-than-expected second-quarter GDP growth and continued labor market strength, a growing number of people in the mainstream now think the US has escaped the clutches of a recession despite the Fed driving interest rates to the highest level in 16 years.

Perhaps the optimism is premature.  And maybe we shouldn’t put too much stock in the current official government numbers.

In the first place, it seems unlikely the US economy can avoid a significant downturn given the fact that the Fed has taken away its lifeblood – easy money. The economy was built on artificially low-interest rates and quantitative easing. Taking that away is like draining half the oil out of an engine. It might run for a little bit, but eventually, that engine is going to seize up.

It’s just a matter of time.

Remember — everybody thought the economy was fine in 2007 too, even though the housing market had already cracked and the Fed was cutting interest rates. In fact, GDP in the third quarter of that year was 3.9%.

Second, it’s hard to reconcile the veracity of the government numbers when there are so many other data points indicating recession, including 15 consecutive drops in the Index of Leading Economic Indicators (the most consecutive negative prints since 2007-2008), an inverted yield curve, and a rising number of corporate defaults.

And here’s another off-the-beaten-path metric that is screaming recession — a big plunge in the sale of cardboard boxes.

Earlier this month, Packaging Corp. of America reported that cardboard box sales fell 9.8% in the second quarter. That ranks as one of the biggest slumps on record when you combine it with the 12.7% drop in Q1. According to a report by FreightWaves Research, the combined six-month decline ranks as the biggest plunge since early 2009.

Now, you might wonder, ‘What do cardboard box sales have to do with the economy?’

Stop and think about it. Stuff gets shipped in boxes. Everything from raw materials to final products arriving at your door is packaged in boxes. If there is less stuff produced and sold, an economy will need fewer boxes. So, cardboard box sales serve as a pretty good indicator of real economic activity — production, buying, and selling.

And the box barometer is not subject to government accounting tricks.

The FreightWaves Research report said there isn’t anything indicating the sale of cardboard boxes will increase anytime soon.

With regional banks cutting back on lending out of necessity, the emergency government food stamp (SNAP) benefits a thing of the past, federal student loan payments set to resume in October and the Federal Reserve continuing to tighten monetary policy to combat inflation, we’re unsure what would lead to improved box demand.”

So, while the GDP and job numbers may make you think the Fed can control price inflation without driving the economy into the ground, I wouldn’t get too giddy. The box barometer is flashing “worry,” and that metric seems a whole lot more connected to reality than numbers pumped out by the Bureau of Labor Statistics or the US Bureau of Economic Analysis.

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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