November 11, 2021
Consumer spending has been in the headlines of economic news since the COVID-19 pandemic caused widespread shutdown and social distancing in February 2020. Keeping consumer spending going while incomes were reduced has been the key strategy to help the economy get through the pandemic. Government stimulus measures, in the form of direct payments to consumers and expanded and extended unemployment benefits, were the major tools used to keep U.S. consumers spending while the pandemic threatened to stall economic growth.
The chart above shows how consumption of all types of goods has grown since 2009. Inflation adjusted consumer spending has been converted to an index that was assigned a value of 100 in 2017. Production growth has also been indexed. Production of goods accounts for only about 30% of the nation’s output. The service sector makes up the rest. However, almost all boxes are consumed by producers of goods, and to some extent by wholesalers and increasingly by retailers. Online sale of goods is now the largest retail distribution channel for goods.
As the chart above shows, goods consumption has grown steadily since 2009. On average over the past 10 years, consumption of goods grew at 3.8% per year. Last year’s data is particularly interesting. During the pandemic, consumer spending grew even faster than the 10-year average. It rose by 4.6% amid the worst months of the pandemic, evidence that the government stimulus was doing the job.
However, independent corrugated converters sell boxes to producers of goods and further forward in the supply chain, but not to consumers directly, with very minimal exceptions. The chart above shows just how large the disconnect is between consumption growing at a 3.6% rate over time and production of these goods, which has averaged a scant 0.1% growth per year. And last year during the pandemic, despite consumption growing by an elevated 4.6%, domestic production sank by 4.3%. What that means is that imports supplied all the growth of goods consumption and more.
Although some of the durable goods still being manufactured in the U.S. need corrugated packaging, few of those segments are in the fast-growing category. Less than 10% of U.S.-made corrugated goes to protect domestically manufactured durable goods. To sharpen the focus on where boxes are consumed, it helps to zero in on nondurable goods. They consume some 75% of all boxes, whether those boxes are shipped to manufacturers, wholesalers, or retailers.
The second chart above compares the domestic consumption and production of these fast-moving goods. Consumption has grown at a relatively steady 2.4% per year over the past 10 years. Over that time period, however, domestic production of nondurable goods has eroded by an average of 0.6% per year. Even though government stimulus provided enough funds for consumers to increase their purchases of nondurable goods at a more rapid pace of 3.1%, none of the benefits of that growth went to domestic manufacturers or to those supplying them with boxes. Domestic production of nondurable goods declined by 4.6%, in part because the COVID-19 pandemic depressed domestic output.
However, despite the pandemic’s restrictions, foreign producers were still able to ship enough goods into the country to capture more than all that growth.
The most corrugated-intensive manufacturing sector is food production. Purchases of food for consumption off-premises or grocery store sales amounted to slightly more than $1 trillion last year. The final chart above shows the growth of these goods during the 10 years ending last year. Over that decade, on average, food consumption grew by 2.6% per year, after adjustment for inflation. That was advancing faster than the U.S. population, meaning that per capita spending has been rising steadily, showing a bias for more costly foods (e.g., prepared scalloped potatoes instead of the ingredients to make scalloped potatoes at home).
Domestic production of food did increase over the past decade, albeit at a fractional 0.5% pace per year, not nearly fast enough to keep up with growing demand. And last year, purchases of food accelerated to 7.6%, reflecting the shutdown of eateries of all types and substitution of eating at home during the pandemic’s worst months. Production of food, however, decreased by 2.6%, as imports again provided all the increased food products and more.
It is important for independent corrugated converters to realize how significant a share of market is being supplied by imports.
Even though U.S. producers of packageable goods exported $311 billion of goods during the first half of this year, an increase of 17% over last year’s first six months of exports, imports amounted to more than double that ($658 billion) and grew at a faster rate (20.5%), resulting in a deficit of $347 billion. In short, during the first half of this year, consumers purchased nearly $350 billion of products that were unlikely to be packaged in U.S.-made corrugateds.
Dick Storat is president of Richard Storat & Associates. He can be reached at 847-867-1521 or storatre@aol.com.
