Is Ice Cream a Recession Indicator? What a Sanger Company Can Tell Us About the Economy - GV Wire - Explore. Explain. Expose
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Is Ice Cream a Recession Indicator? What a Sanger Company Can Tell Us About the Economy

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ADCO's Adrian Ochoa machines parts for a packaging device. Orders for ADCO equipment greatly reflect whether manufacturers are expanding. (GV Wire Photo/Edward Smith)
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You may not know it, but when companies need to put cereal, spark plugs, or frozen pizza into a box, they turn to a company in Sanger.

ADCO Manufacturing builds custom machinery for some of the biggest names in pre-packaged goods, from Kellogg’s, Kraft, and ConAgra to WeatherTech, Duracell, and AC Delco.

Ever since 2016, the need for flexible boxes has been “on fire,” said Kate King, CEO of ADCO.

“Purchases for capital equipment really depend on optimism in the country for everyone’s stomach for growth. Starting when Trump was elected, we’ve been on fire,” King said.

So many manufactured goods end up in a box that experts look to the industry for clues about the economy’s health. Production numbers can give hints about whether companies are expanding or hiring.

For the past two years, people needing a job had their pick as openings reached record highs and unemployment hit record lows. But as people on the sidelines of the job market appear to have begun looking again, clues from box manufacturing, food trends, and fuel consumption show that search may soon become harder.

Food Manufacturers Slowing Down

In the last four months, King said sales have “dropped off the side of the cliff.”

King said food manufacturers have been affected the most. Food prices have been creeping up and consumers are starting to feel the pinch. They have reached the point where the expansion phase has stopped.

“The whole food industry just kind of said, ‘OK, we’re good for now, we’ve bought a lot of equipment. We’ve, you know, taken on a lot of projects,’” said King. “And now you have to kind of breathe.”

Food manufacturers in Fresno County employed 14,300 people in August 2022, according to the Employment Development Department. Since then, the number of jobs in the industry has retracted to 13,200 in June.

Ryan Poulsen and Carlos Moreno work on a packaging machine headed for an Oregon company producing frozen macaroni and cheese and mashed potatoes. (GV Wire Photo/Edward Smith)

Food Inflation Down, Hiring May Be Hit Soon

A number of larger companies, such as Kraft, Kellogg’s, and General Mills have been pushing back payment terms to as far as a year, King said.

“We’re all financing them on top of their banks financing them, it’s pretty punitive,” said King.

In April, The Motley Fool reported that Kraft has been on a mission to reduce corporate debt. Since 2019, the company reduced its debt from highs reaching $30.9 billion in 2019 to $20 billion in 2023.

Food inflation over the past couple of years has fueled extraordinary growth in the sector, said Michael Swanson, chief agricultural economist with Wells Fargo.

As inflation has slowed, manufacturers have pulled back on spending. Margins are shrinking as companies work through expensive supplies they paid for and consumers aren’t willing to keep up with those high prices.

“They probably got ahead of themselves to some degree,” Swanson said. “Right now, they’re kind of consolidating what they need to do in a more normal kind of steady environment.”

Ice Cream Sweetens in Recession

However, King has seen booms in certain food areas.

Frozen Asian food and Mexican food has done well, but pizza and ice cream have really taken off. King said this is typical during downturns. People cut back on going out to eat, but ice cream is a small comfort that can fit in a tight budget.

Business Insider called the trend “flavor fatigue,” where when times become tougher, people turn to simpler comfort foods in a recession. During boom times, people will seek out more adventurous foods.

From 2009 to 2010, ice cream vendors saw sales increase by 25%.

“The ice cream guys, they really sell. They really go to town in big downturns,” King said.

New Positions Have to Pay for Themselves

Before the pandemic, wage growth in food manufacturing was stagnant, Swanson said. Employers then went on a hiring spree to keep up with profitability. But that labor is not cheap. King said a worker with a high school diploma and some experience in machining can make $70,000 to $80,000 a year.

Manufacturing jobs typically pay well above minimum wage, especially post-pandemic when employers were trying to get people to come back to work.

For those reasons, automation is ongoing. King said most of her orders have been for products that require less labor.

Swanson said the U.S. may be past the catch-up period of getting people back to work. During the pandemic, 20 million jobs were lost in three months. Employers went on hiring frenzies as demand for products reached record levels. Producers are seeing consumers tighten their belts and so hiring will have to make sense rather than simply trying to keep up with demand. New positions will have to pay for themselves, Swanson said.

More People Looking for Jobs as Employers Pull Back

But this comes as more people are coming back to the workforce.

In Fresno County, March saw the highest number of unemployed people since July 2021 at 40,300, according to the EDD. But that number more reflects people ready to look for a job, said Steven Gutierrez, labor market consultant with the EDD. Unemployment counts leave out people not looking for a job. By March, the total labor force had increased by 17,600 people since July 2021.

More recent data show the national labor participation rate in June the highest it’s been since the beginning of the pandemic, according to the Bureau of Labor Statistics.

At the same time, available jobs are shrinking. Openings in May decreased 14% year-over-year with 9.8 million openings reported.

Swanson even second-guesses that number. Employers don’t know what’s coming down the road. The number of job openings is based on a lot of assumptions about the state of the economy, Swanson said.

“Are those jobs really open?” Swanson asked. “How many times do you put out a double ‘help wanted’ sign when you really only want one person.”

Francisco Rodriguez with ADCO Manufacturing works on a machine for a Pennsylvania snack company. (GV Wire Photo/Edward Smith)

Economist: No Recession, But Tempered Growth

Swanson disagrees with a lot of experts who say a recession is on the way. There are a number of indicators showing activity that wouldn’t happen in a recession.

The Energy Information Agency reported gasoline consumption is up 5% compared to last year. Jet fuel demand is also up, showing people are on planes. Diesel demand, showing truck activity, is slightly weaker than a year ago, “but just slightly.”

“Here we are in the middle of July, we have not seen a single bad jobs report, the stock market has rallied considerably over the last couple of months, as people say, I think maybe we’re closer in seeing the Fed stopping interest rate hikes,” Swanson said. “So there’s a lot of nervous forecasters who said ‘recession’ are probably going to punt it into 2024.”

Numbers in the world of corrugated boxes have fallen off sharply since highs during the pandemic, according to Rachel Kenyon, senior vice president of the Fibre Box Association. Producers use the thicker, corrugated boxes for shipping, a good indicator of manufacturing demand.

Box production in the first quarter of 2023 is down 8.5% compared to the highs of 2021 and 2020. Kenyon said. Compared to a 20-year trend, the economy is dropping off to more pre-pandemic levels. Box production is off by 1% compared to 2019.

Have Something Lined Up Before You Quit

The rate at which people quit jobs also provides insight into how consumers view the economy. In boom times, people can leave jobs they don’t like with confidence they can find one more to their liking.

It was a common anecdote that employers would bring someone on for the morning shift and by the end of the first coffee break, they were gone, Swanson said. The rate of people quitting dropped 10% in the first three months of 2023 compared to 2022, according to research company ADP.

Pay gains for workers changing jobs was 13.2% in April, the lowest since November 2021.

Swanson said there are always jobs, but people may not be able to pick and choose exactly what they wanted as they have been able to over the past few years.

“It used to be if you started searching on Monday you’d be hired by Friday. Maybe it’ll take two or three weeks to find a job, how picky can you be?” Swanson said.

Edward Smith began reporting for GV Wire in May 2023. His reporting career began at Fresno City College, graduating with an associate degree in journalism. After leaving school he spent the next six years with The Business Journal, doing research for the publication as well as covering the restaurant industry. Soon after, he took on real estate and agriculture beats, winning multiple awards at the local, state and national level. You can contact Edward at 559-440-8372 or at Edward.Smith@gvwire.com.