FreightWaves has written extensively in recent weeks and months about the weakness in U.S. box demand, an indication of the poor state of the goods economy as Americans are increasingly cash-strapped even amid ongoing debt forbearance. The three largest North American containerboard/box producers reported box demand declines ranging from 8%-13% in Q1, and demand has been consistently worse than they expected over the past three quarters. The third-largest producer, Packaging Corp. of America, reported a historically large 13% shipment decline in Q1, though it said on its earnings call April 25 that it had seen a “big turnaround” starting in April, with bookings in the first 13 days of the month 11% higher than those in March. Two weeks later (Tuesday), the Tri-City Herald reported that Packaging Corp. is indefinitely idling one of its seven containerboard mills (in Wallula, Washington) that produces about 1,800 tons of paper a day, a decision that will result in hundreds of layoffs.
Why would the company be indefinitely idling a sizable mill when demand is improving? The answer to that question isn’t clear to us. Based on several economic indicators that we track (of which the freight market is one), there’s no reason to expect improvement in box/goods demand anytime soon. Just Wednesday, in fact, the Bureau of Labor Statistics released April real (inflation-adjusted) earnings; real average weekly earnings have been falling for two years, a trend that continued in April. Bank lending standards are tightening and loan demand is weakening, facts made clear in the April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices that was released on Monday. And small business confidence hit a 10-year low in April, according to a report from the National Federation of Independent Business on Tuesday.