July 9, 2021
Source: Bureau of Economic Analysis
Looking back on consumer spending patterns last year reveals unique and sometimes unexpected shifts in behavior as Americans responded to the pressures of the COVID-19 pandemic. Amid these consumer responses, corrugated box shipments grew by a surprisingly large 3.4%, their most rapid annual growth in more than a quarter century. Now that near-final economic data of last year’s consumer spending patterns is available, a look at how consumers reacted to the coronavirus offers some insight into why box shipments grew so rapidly last year.
Source: Bureau of Economic Analysis
Overall inflation-adjusted consumer spending declined by 1.2% last year, as the top chart at right shows. After a strong start, spending dropped by record amounts in March and April during the severest economic lockdown in recent memory. By the end of the first half of 2020, outlays had dropped by 3.1%. Then, overall spending recovered slowly during the second half of the year.
The most significant shift in consumer spending was toward spending on goods and the punishing decline of service-sector spending. Normally, consumers spend around 70 cents of every dollar on services, and only 30% of outlays go for goods. Last year spending on goods rose to 38% of total outlays, while spending on services dropped to 62% because of the disproportionately large impact on service-sector industries such as restaurants, entertainment, and travel.
Source: Bureau of Economic Analysis
As the second chart above shows, spending for services started out at a near-trend growth rate of 2%. There was some rebound from the disastrous decline in March and April, but not nearly enough to erase the contraction. From midyear on, service-sector spending languished at a rate of nearly 8% below prior-year spending. As mobility restrictions diminish, the service sector will regain strength rapidly and return to become the main engine of economic growth during the second half of 2021.
Purchases of durable goods (those intended to last for more than three years) started last year at a 7% growth rate but saw the steepest decline during March and April. However, recovery didn’t take long, as much of fiscal stimulus benefits were spent on these goods. Already in May they had recovered to more than prior-year levels, as the third chart above details. This growth only accelerated during the remainder of last year, with full-year growth reaching 6.3%, in stark contrast to the 7.3% drop in service-sector sales. However, less than 10% of box shipments go to package these goods, reducing the overall benefit to boxmakers of last year’s ultrarapid growth.
Source: Bureau of Economic Analysis
Domestic nondurable goods production consumes some three-quarters of annual U.S. box production. Spending for these fast-moving goods started off the year at a typical pace, near 2%, as the chart at left depicts. However, there was a strong purchasing surge in March as the economic lockdown took hold. Consumers hastily overstocked on basic food and household supplies in the face of an uncertain future. The result was a 5% monthly jump in March, from which domestic boxmakers benefited. However, the ensuing drop in April purchases was even larger. Starting in May, growth resumed, and by June, spending for nondurable goods surpassed the prior-year sales. That trend continued for the remainder of the year, with annual growth of 2.6% recorded, providing a strong source of market strength for boxmakers.
Another way of looking at consumer spending is by the type of store or distribution channel. The chart below shows, the changes in retail sales for last year broken down by type of business. Overall, retail sales grew by a fractional 0.4% last year. However, the sales changes by types of business were anything but fractional. At the head of the growth list was sales by nonstore retailers. Stay-at-home consumers sharply increased their online purchases as a way to deal with pandemic restrictions on mobility. When the smoke had cleared at the end of last year, that category of retail sales had grown by 21.3%, almost doubling the double-digit rate of growth that had already become the norm for online sales growth. Rapidly growing packaging of online sales was the primary propellent that boosted box shipments last year.
As people spent more time at home, including the sharply rising number of employees working from home, spending at building supply stores rose by more than 13% to provide the tools and materials needed for growing home improvements and remodeling. Box demand benefited from growth in this sector, as well.
Source: Census, RSA, INC.
Grocery stores also received a sales windfall as consumers changed how they got their nutrition—away from restaurants to cooking at home. At the other end of the spectrum, though, was the painful 19% decline of sales at restaurants, taverns, and other eateries. The shift from packaging restaurant supplies to more box-intensive grocery store goods provided another leg of support for last year’s strong box demand.
Furniture, electronics, appliance, and clothing stores were other large business sectors that saw substantial sales declines as a result of the pandemic.
Overall, box shipments saw windfall growth from record-breaking online sales growth, as well as from the above-average growth at building supply and grocery stores, both of which sell products requiring above-average amounts of corrugated packaging per unit of sales.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
