After two years of fluctuating pallet pricing and economic volatility, manufacturers and retailers are finding it understandably difficult to plan for what the recycled pallet market will look like in the coming year or even quarter. As pallet users and providers alike seek some semblance of market stability and an understanding of “the new normal”, seven key economic and industry indicators can help shed light on demand, supply, and pricing.
To help our customers better plan for what’s coming, PLA combined correlation trends with regression modeling for 14 different macro-economic and industry-specific indicators to pallet demand and pricing over the past seven years to separate signal from noise. The results offer a clearer picture of which factors truly move the market—and which just look like they do. Based on this analysis, a clear picture emerged of the seven economic and industry factors with the largest impact on the recycled pallet market:
- Manufacturers’ Inventories
- Retail Inventories
- Imports
- Consumer Spending
- OCC Pricing
- Lumber Pricing
- Retail Sales
Strong, Significant Predictors: Manufacturers’ Inventories, Retail Inventories, Imports, Consumer Spending, and OCC Pricing
Manufacturers' Inventories tracks the value of goods factories have in stock—raw materials, work in progress (WIP), and finished goods—at month’s end. This metric offers insight into how manufacturers are reacting to shifts in demand: rising inventories may signal slower demand or preparation for future sales, while falling levels can indicate strong sales or reduced production. In our analysis, Manufacturers’ Inventories emerged as the strongest positive predictor of pallet prices. This makes intuitive sense: as inventory levels rise, so does the demand for pallets to move and store goods, putting upward pressure on pricing.
The Real Imports of Goods and Services (Imports) metric measures the inflation-adjusted value of what the U.S. buys from other countries, capturing the true volume of imported goods and services. It’s a key signal of domestic demand and global trade flows: rising imports often reflect strong consumer or business activity, while declines may signal slowdowns or supply issues. In our analysis, Imports showed a moderately strong correlation and was statistically significant in the regression analysis, indicating that higher volumes of inbound goods tend to drive up pallet prices, due to increased demand for handling equipment at ports and warehouses.
While Old Corrugated Cardboard (OCC) is not used directly or indirectly to manufacture or recycle wood pallets, we hypothesized that changes in OCC (specifically, Recycled Paperboard) pricing would track very closely with changes in the recycled pallet market as the two markets share similar dynamics. Our analysis confirmed it: OCC pricing was both statistically significant and strongly correlated with GMA pallet pricing. This result reflects internal pricing structures and raw material costs that directly impact production economics, making changes in OCC pricing a good predictor of changes in recycled pallet pricing.
The Retailers Inventories metric tracks the value of goods retail businesses have in stock each month, offering insight into how well supply matches consumer demand. High inventories may signal slower sales or overstocking, while low levels suggest strong demand. We theorized that when retail inventories are high and goods are sitting in distribution centers on pallets longer, fewer pallets are exiting the retail supply chain as cores, driving up core prices and therefore recycled pallet prices. In fact, our analysis showed that Retailers Inventories have a significant but inverse impact on recycled pallet pricing—higher inventories were linked to lower pallet prices. This suggests that the downward pricing pressure caused by reduced inbound shipping activity when retail inventories are high is much greater than the upward pressure caused by fewer cores entering the market.
Consumer Spending, also known as Personal Consumption Expenditures (PCE), measures the goods and services purchased by people in the U.S. It's a major component of GDP and is often used to gauge the strength of the economy. As consumer goods are a huge driver of the pallet market, it follows that changes in this metric would track very closely to changes in pallet demand. Our analysis confirms this, but with a significant timing lag of seven (7) months. This means that, while not reliable enough for a near-term view of what’s happening in the pallet market, Consumer Spending is a very useful indicator of what we can expect in the mid- and long term.
Indirect Influence: Lumber Pricing and Retail Sales
The Producer Price Index (PPI) for Lumber (Lumber Pricing) measures wholesale lumber prices charged by U.S. producers. It reflects costs for raw or processed wood used in products like pallets, furniture, and construction. While lumber pricing directly affects new pallet costs, our analysis showed its impact on recycled pallet pricing is only moderately correlated and not statistically significant in the near term, but highly predictive with a 9 month lag. This confirms that, while rising lumber prices can lead shippers to switch from new to recycled pallets, boosting demand and prices, the effect is often delayed and influenced by other factors.
Each month, the U.S. Census Bureau surveys a sample of U.S. retail and foodservice firms to provide an early estimate of monthly Retail Sales. Our analysis showed a moderate positive correlation between the Retail Sales index and recycled pallet pricing, suggesting that as retail activity increases, so does demand for pallets to move goods through the supply chain. However, the regression analysis found this relationship was not statistically significant, indicating that while retail sales may influence pallet demand, the effect is likely indirect or overshadowed by other, stronger variables.
What surprised us: GDP, Wages, Freight, and Manufacturing Output
Gross Domestic Product (GDP), the value of all goods and services produced domestically, is the go-to gauge of our economy’s health. It would stand to reason that increases in GDP lead to higher recycled pallet demand and higher prices, but our analysis revealed weak correlation and, counterintuitively, significant negative impact on pallet demand.
The Manufacturing Wage Index measures how much employers are paying in wages and salaries to people who work in private manufacturing jobs across the U.S. As labor comprises a significant share of recycled pallet cost, we would expect to see pricing rise along with wages. This is not the case, as Manufacturing Wages showed a low correlation and also has a significant negative impact on pallet pricing.
Interestingly, Freight Pricing displayed a strong positive correlation with pallet pricing but had a significant negative coefficient in the regression model. This suggests that while freight costs and pallet pricing may rise together in broader economic cycles, higher freight rates may actually suppress pallet pricing in the short term by straining overall logistics budgets.
Manufacturing Output is a measure of the manufacturing industry’s sales in a given quarter. This indicator reflects the full value of the supply chain by including the B2B spending necessary to produce and deliver goods. It would make sense that higher output of goods would mean more pallets to ship those goods, but our analysis showed that Manufacturing Output has only a moderate effect on pallet pricing and, somewhat surprisingly, that effect is negative. This suggests that efficiencies in production alone do not drive pallet demand, making Manufacturing Output a poor predictor of pallet pricing.
These somewhat counterintuitive results point to a broader theme: macroeconomic pressures like general economic downturns or rising labor or transportation costs, while poor predictors of near-term shifts in pallet demand or pricing, are useful in understanding long-term trends.
Key Takeaways
Navigating the recycled pallet market amid ongoing economic fluctuations can be made easier by monitoring key indicators. By analyzing factors such as Manufacturers’ Inventories, Retail Inventories and Sales, Imports, OCC Pricing, Consumer Spending (with a 7-month lag), and Lumber Pricing (with a 9-month lag) pallet users can gain valuable insights into market dynamics. These indicators, though varied in their direct impact on pallet demand and pricing, collectively paint a clearer picture of near-term and mid-term trends. As the market begins to stabilize, increases in recycled pallet pricing and demand are expected, making it crucial for businesses to stay informed and adaptable as they plan for the future.
