Cardboard Box Index: What It is, How it Works

What is the Cardboard Box Index?

The cardboard box index is used by some investors to gauge consumer goods production. The output of cardboard boxes is believed to be an indicator of future production of consumer goods, since cardboard containers are so common for packaging and shipping these goods. 

Understanding the Cardboard Box Index

The cardboard box index is considered a reliable measure of manufacturing by some investors because it may reflect aggregate business estimates of future consumer goods sales. It is estimated that close to 75–80% of all non-durable goods are shipped in corrugated cardboard containers. Therefore, the thinking goes, the greater the amount of cardboard boxes ordered, the greater the volume of production planned for goods that will be packed in boxes. Because companies need cardboard to package and ship goods, the production of cardboard boxes is thought to be a leading indicator of manufacturing activity.

Growth in gross domestic product (GDP) is the most common indicator used to measure economic growth, but it is published on a quarterly basis only and can be a lagging indicator. GDP can take months to calculate and is often revised. Investors can use leading indicators, such as cardboard box production, to improve their forward-looking estimates of the economy’s performance. Other related measures often used by investors include freight tonnage, metal production, urban area mass transit usage, entertainment expenditure, and household waste production. 

Performance as a Leading Indicator

The cardboard box index mainly functions as a rule of thumb or an informal indicator, rather than a reliable quantitative predictor of the size or timing of changes in economic performance. The U.S. Federal Reserve publishes official indexes of both cardboard box production and producer prices. Unfortunately, despite the popularity of the cardboard box index, neither of these indicators displays a consistently leading relationship to trends and movements in economic performance as measured by GDP, and sometimes even lag behind changes in GDP growth. Even as tools to improve near-term projections of unreleased GDP data, the data for cardboard box production and prices are too volatile to be reliable on their own. It may be possible to use these kinds of indexes alongside other indicators to gain some insight into economic trends, but in general, investors should take the usefulness of the cardboard box index with a large grain of salt.