What Is A Cardboard Box Recession?

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A cardboard box recession is an anecdotal way that some analysts predict a recession. While the term is not commonly used, it has been resuscitated in 2023 by Charles Schwab analyst Jeffrey Kleintop, who in early June proclaimed that the U.S. was already in a “cardboard box” recession, in spite of the fact that traditional indicators have yet to announce an existing recession.

But what exactly is a cardboard box recession, and is there a way it might actually be good news for the economy? Read on to learn more.

What Is a Cardboard Box Recession?

Simply put, a “cardboard box” recession is a period of slowing demand for actual cardboard boxes. This isn’t a scientific term used by economists, but many in the financial services industry refer to it as an informal indication of a coming (or current) recession. The concept behind the term is that cardboard boxes are one of the primary delivery mechanisms of goods in American society. Thus, when demand for cardboard boxes shrinks, it’s reflective of slowing purchase orders by businesses and/or consumers.

Reduced spending not only shrinks corporate earnings but is also indicative of a less-confident consumer. As roughly two-thirds of U.S. GDP is based on consumer spending, when Americans are less willing to spend, it can spell weakness for the economy. 

What Is the Extent of the Current Cardboard Box Recession?

According to Charles Schwab analyst Jeffrey Kleintop, the U.S. is currently in a cardboard box recession, but it’s only affecting the manufacturing and trade industries. However, if it continues, it could increase earnings pressure on corporations, which in turn tends to reduce wages and employment levels. This can lead to an impacted American consumer, leading to something of a death spiral in terms of compounding recessionary factors. Reduced earnings for corporations and a weakened consumer can also lead to falling stock prices.

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Could There Be a Silver Lining in a Cardboard Box Recession?

One of the reasons that many economists have been predicting a recession in late 2023 or early 2024 is that inflation and interest rates both remain high. The Fed may be nearing the end of its rate-hike cycle, but it has aggressively pushed up rates throughout 2023 to the point where everything from credit cards to home mortgages to auto loans are becoming prohibitively expensive for American consumers. Meanwhile, inflation, which is the target of these interest rate hikes, has remained stubbornly high, and well above the Fed’s ultimate goal of a 2% rate. 

A cardboard box recession may actually end up helping out the Fed and its inflation mandate, however. If reduced demand for cardboard boxes does lead to lowered corporate earnings and reduced consumer spending, both inflation and interest rates are likely to fall more rapidly. As the price of cardboard boxes actually makes up part of the manufacturing prices in the Purchasing Managers’ Index, falling prices will tend to drag down the PMI. Historically, changes in the PMI have led U.S. inflation rates by about six months, meaning inflation should be much more in hand by the end of 2023 if current box trends continue. 

What’s the Risk of a Cardboard Box Recession?

As Schwab analyst Kleintop points out, the current cardboard box recession isn’t a “real” recession just yet. But if box prices fall further, or simply sustain their drop for a continuing period of time, it’s entirely possible that slowing economic conditions will spread throughout the entire economy.

While this fall in prices will ultimately succeed in dragging down interest rates and inflation, a broad-based recession could inflict significant pain on American businesses and consumers. In a typical recession, wages stagnate, jobs are lost and consumer spending goes on hold, all bad things from an economic perspective. But if the current cardboard box recession remains constrained to the manufacturing and trade industries, it’s possible that the economy as a whole can avoid a “real” recession while still enjoying falling inflation and interest rates. 

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