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Market Update: What Have You Done For Me Lately? Looking for Silver Linings
Economics signals paint a hard-to-figure out market according to pallet industry analyst, Jeff McBee. Many pallet companies are busy now, but uncertain about the future.
By Jeff McBee
Date Posted: 5/1/2011
The consumer confidence index is an economic indicator that I largely ignored over the years. I didn’t pay a lot of attention to it because it seemed like such an arbitrary, touchy-feely type of number. After all, it isn’t a truly measurable item. A person could feel differently about the economy from day-to-day.
In hindsight however, it is easy to see that it is a number that has validity. Consumer confidence began to trend downward late in 2007. Some of this was obviously due to then record-high gasoline prices. The economy didn’t actually reflect the downturn until June of 2008. Discretionary spending ground to a halt as fuel prices nearly doubled.
Then people who had gotten into houses that stretched their budgets with bargain basement mortgage rates began to default. Within a year of the soaring gas prices, our economy had come unhinged.
The rest is history – with a few exceptions.
If you look at a graph of the consumer confidence index over the past three years, you will see that it has plotted a slow, uneven upward trend. This is very much in line with what the pallet industry has seen in the way of pallet demand.
Consumer confidence has once again begun trending downward at about the same pace as oil and gas prices have trended upward. The Kiplinger Letter was predicting a return to four dollars a gallon for gasoline six weeks ago. It also predicted that this would not be an anchor for economic recovery. I struggle in separating the cause and effect in that equation.
However, it seems that Kiplinger may have a better view than yours truly. That’s how the pallet guys tell it, anyway.
As of press-time, there are plenty of pallet suppliers who are busy. In many cases it’s not busy compared to recent lackluster levels. There are some pallet manufacturers who are working Saturday to meet demand. Some suppliers are reporting running at 110% of capacity. That’s very good news – for the moment.
You see, their problem is – you guessed it – confidence. In a normal business environment, running at 110% of plant capacity, would prompt a company to add employees. That is the last thing on most pallet manufacturers’ minds in the current climate. The activity is good. It is the strongest some have seen in several years. Current activity levels are not the problem. The problem is confidence in the current economy to continue to provide growth that translates into a continuation of the strong activity.
So, right now we have a consumer confidence index that is sagging. Pallet supplier confidence is also shaky. With consumers, there’s no telling why that is sagging, but with the pallet industry, most of the lack of faith in the economy is directly tied to a lack of faith and/or trust that the government can or will take the steps necessary to keep the economy pointed in the right direction. Sometimes all it takes is for the government to get out of the way.
The lack of faith/confidence in the economy is understandable. Forecasts seem to be perpetually promising something “tomorrow.” A look back at forecasts for the housing market reveals that expectations of home pricing was about to bounce back.
There is no doubt in anyone’s mind that the housing market is key for not only for the pallet market, but the overall economy. The housing market is trending in the right direction but the climb is brutally slow – especially for those looking for its return.
Each week seems to bring some good news on the housing front, followed by some equally disturbing or disheartening news. This matches the overall economy.
We continue to see the signs of slow, uneven, economic growth. Yet, unemployment figures remain staggeringly high. Housing reports released in late March were disappointing to say the least, but according to Reuters, “economists do not believe a new downturn is underway.”
It is plainly evident that no one, including economists, have any long term confidence in the economy. Everyone seems to like most current trends, but there are too many ifs that muddy the waters. For now, we continue to plod along in a slow recovery mode, dealing with today, while hoping the housing market will show a pulse soon.
(Editor’s Note: Jeff McBee is an analyst who researches and writes about the pallet industry and its raw material markets for Pallet Profile Weekly and the Recycle Record, the only newsletters dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly or the Recycle Record, call 800-805-0263 and ask for Jeff.)