After weathering nearly two years of wild fluctuations in pallet pricing, manufacturers and retailers are finding it understandably difficult to plan for what the recycled pallet market will look like next year or even next 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.
PLA recently undertook a project to analyze 14 different macro-economic and industry-specific indicators to determine their relationship to pallet demand and pricing. After statistical analysis of over five years of monthly data, a clear picture emerged as to which macro factors have the largest impact on the recycled pallet market and which industry indicators give us the best insight into our own.
GDP, the value of all goods and services produced domestically, is the go-to gauge of our economy’s health. It’s no surprise that increases in GDP lead to higher recycled pallet demand and higher prices, but the impact is less direct than other factors because GDP includes all goods and services, not just those products shipped on pallets. In addition, GDP is reported quarterly. For these two reasons, GDP forecasts aren’t reliable indicators of near-term pallet demand or pricing but are useful in understanding long-term trends.
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. Similar to GDP, Consumer Spending includes services, so it is better understood as an indirect impact on pallet demand, but 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, and our analysis confirms it. While not reliable enough for a near-term view of what’s happening in the pallet market, Consumer Spending is still a very useful indicator of what we can expect in the mid- and long term.
Each month, the U.S. Census Bureau surveys a sample of U.S. retail and food service firms to provide an early estimate of monthly sales. Retail Sales and Consumer Spending, both track closely with pallet demand and pricing. However, Consumer Spending also includes sales of services, making Retail Sales a clearer picture of sales of palletized goods and therefore pallet demand.
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. Manufacturing output tracks closely to both pallet demand and pricing, and combined with Retail Sales, gives a reliable view of near-term changes in the pallet market.
While transportation costs certainly factor into recycled pallet (and all other goods’) delivered pricing, changes in Freight Pricing also track exceptionally closely with changes in recycled pallet prices ex transport costs. Many of the same macroeconomic factors that impact pallet pricing impact freight pricing in the same way. Because these two correlate highly, forecasts for Freight Pricing can be useful in understanding recycled pallet pricing as well.
Lumber Pricing is, of course, a significant driver of new pallet pricing, but its relationship to recycled pallet pricing isn’t so straightforward. At a high level, as lumber costs increase, new pallet prices increase, so some shippers will switch to a recycled or combo pallet to reduce costs. This increased demand for recycled pallets would then increase recycled pallet pricing. The impact is delayed, of course, and there are many other factors that often mitigate the magnitude and timing of this impact.
In fact, changes in Lumber Pricing do not track closely to changes in recycled pallet demand at all, but they do track closely to changes in recycled pallet pricing. This is because, similar to Freight Pricing, Lumber Pricing is impacted in the same way by many of the same macroeconomic factors that impact recycled pallet pricing. The two correlate highly, making forecasts in Lumber Pricing useful in understanding recycled pallet pricing despite not having a cause-and-effect relationship.
Unlike Freight Pricing and Lumber Pricing, OCC Pricing (specifically, Recycled Paperboard) does not factor into recycled pallet pricing, but changes to its pricing do track very closely with changes in recycled pallet pricing. Both products are impacted in the same way by many of the same macroeconomic factors, making Recycled Paperboard Pricing another good gauge of changes in recycled pallet pricing.
Navigating the recycled pallet market amid ongoing economic fluctuations can be made easier by monitoring key indicators. By analyzing factors such as GDP, Consumer Spending, Retail Sales, Manufacturing Output, Freight Pricing, Lumber Pricing, and OCC Pricing, 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, modest 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.