Economic Outlook

Staff -- Converting Magazine, 7/1/2002

The estimated dollar value of manufacturers' shipments of consumer nondurable goods fell 0.4% between March and April, following a 1.8% increase the month before. The total dollar value of consumer nondurable goods shipped during the first third of 02 fell 5.4% short of the total for Q1 01. During April 02, total nondurable shipments were worth 4.9% less than during April 01. The value of food products shipped fell by 0.3% between March and April, following declines during both March (-0.2%) and February (-1.3%). Orders and shipments trends for consumer goods should improve in the second half of this year. But gains will be limited by continued slow growth in both employment and disposable household income,

Converting's exclusive packaged goods price index (PGPI) rose 0.2% between March and April. Average prices for 8 of the 16 components that make up the composite PGPI increased over the month, five categories declined and the remaining three were flat. Between April 01 and April 02, average prices increased for 12 of the 16 PGPI index components. Although prospects for economic growth have improved in recent months and consumer demand remains healthy, there's still plenty of market competition given the low level of capacity utilization. Consequently, producers have real pricing power in only a small number of markets, and overall inflation for packaged goods products should remain low throughout 02.

Paper Packaging Product Transaction Prices

	March 2002	Q4/01	Q1/02	Q2/02*	Q3/02*
Diffusion Index (% Increasing)	37.5	38.0	36.8	41.7	46.9
Transaction Prices	($/ton; % change from year ago)
Unbleached kraft—Grocery sack (70 lb.)	480	-4.5	-5.2	-3.4	-1.0
Unbleached kraft—Shipping sack (50 lb.)	700	-3.6	-2.8	-1.8	-1.3
Bleached kraft—Folding carton	820	-5.0	-3.5	-1.2	1.2
Corrugating medium—Semichemical (26 lb.)	360	-17.8	-22.6	-19.6	-18.4
Recycled boxboard—Chipboard rolls	420	-5.3	-6.1	-4.2	0.2
Recycled boxboard—Clay-coated rolls	570	-2.3	-1.2	-1.9	-1.2
* Forecast Value Source: Purchasing magazine

Behind The Numbers

Average prices for paper packaging products and materials continued to move lower between Q4 01 and Q1 02. Prices have been trending downward for the better part of two years. The sharpest price declines were recorded during the second half of last year. But average prices for five of the six paper packaging product groups that we follow recorded some further erosion in average prices during Q1 02. The Purchasing magazine monthly diffusion index of paper product prices declined by 3.0% between Q4 01 and Q1 02. And, most significantly, it remained well below the "break-even" reading of 50. At an average index level of 36.8 during Jan.-March of 02 (a diffusion index of more than "50" represents—on average—escalating prices), the paper price diffusion measure was a sharp 25% lower than during the first three months of 01. The diffusion index has proven itself to be a reliable indicator of both the relative direction and relative magnitude of price movements, so the current low reading clearly signals that inflationary pressures will continue low-to-nonexistent through at least the summer of 02. Continued weak demand from a slowly-recovering U.S. economy makes any run-up in paper packaging product prices almost inconceivable for the balance of 02. Consequently, average prices for paper packaging products as a group should be less than 2% higher this year than during 01, even with the firming in prices that we expect to be in evidence over the final third of 02.