August 2024
Reflections on the First Half of 2024: Modest Recovery Fails to Move Needle for Pallet Market
While the economy showed signs of recovery at a macro level, it has failed to result in a recovery hoped for by the pallet industry. In this article we will review first half economic performance and pallet-related trends
US Economic Performance
The first half of 2024 was marked by steady economic growth in the U.S., although it wasn’t necessarily reflected in stronger pallet market performance. Driven by strong consumer spending and business investment, GDP growth averaged 2-2.5% annually, reflecting resilience despite concerns about a potential slowdown. Consumer confidence remained high, fueling demand in various sectors.
Inflation showed signs of easing, with the Consumer Price Index (CPI) settling around 3-3.5% by mid-year, a decline from the previous year's highs. This moderation was largely attributed to the Federal Reserve's aggressive rate hikes in 2023, though inflation remained above the Fed's 2% target.
The labor market continued to be tight, with unemployment rates between 3.6-3.8%. However, job creation began to slow as the economic expansion matured and businesses faced higher operational costs. Wage growth showed signs of stabilizing, though it remained positive. Certain sectors, such as technology and finance, saw layoffs and hiring freezes, but these were not widespread enough to disrupt the overall labor market.
The Federal Reserve paused further rate hikes in early 2024, adopting a more cautious stance to avoid over-tightening and potentially triggering a recession. This approach allowed the Fed to assess the impact of previous hikes on inflation and economic growth.
Financial markets experienced volatility but generally trended upward, with gains in major indices like the S&P 500 and Nasdaq. However, concerns about a potential economic slowdown and geopolitical tensions caused periodic sell-offs.
Overall, the U.S. economy in the first half of 2024 showed resilience with moderate inflation and steady growth, though risks such as geopolitical uncertainties and challenges in the labor market remained. Experts have cautioned that the economy may be slowing. “The I.M.F. (International Monetary Fund) now expects the United States economy to grow more slowly than it did previously as a result of weaker consumer spending and a softening job market,” the New York Times noted in July.
Pallet Market Still Waiting
While there have been some improvement reports, the pallet market has continued to sputter with irregular and often last-minute orders as more customers shop on price. The St. Louis FRED graph shows wood pallet prices dropping 2.9% over the first half of 2024. Some reductions have been more notable. For Example, Recycle Record’s California #1 recycled pallet price for January was $7.75, but had fallen to $6.50 by June, a drop of over 16%.
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In his recent WPA webinar, Chaille Brindley emphasized the difficult economic climate and the ongoing struggles many in the industry are facing. He highlighted that while there were initial hopes for economic improvements in 2023, these have not materialized, and many are now looking towards 2025 for potential recovery. "Inflation has been much stickier than a lot of people thought it was going to be," Brindley remarked, reflecting on the broader economic conditions impacting the industry.
Brindley noted that demand in the pallet market remains significantly down, with some companies reporting declines of 25% to 45% compared to previous years. He pointed out that the industry feels like it has been in a recession for the past year or more, even if official economic indicators do not reflect this. The inconsistency of orders and pressure to lower prices has made it difficult for businesses to plan and manage their operations effectively.
He also discussed the rising costs of various inputs, including labor, which has seen significant increases. "Wages rose by between 23 and 47% depending on the job and difficulty of filling that job," Brindley shared, emphasizing that these increases are now a permanent part of the industry's cost structure.
Despite the challenges, Brindley mentioned some areas of resilience, such as specialty pallets and packaging, which have proven to be more robust markets. However, he cautioned that companies must be strategic in managing their costs and pricing, especially given the ongoing pressures in the market.
Overall, Brindley’s comments paint a picture of an industry grappling with significant challenges, uncertain about when relief might come, but still finding ways to navigate the difficult economic environment.