Declining Prospects for Bellwether Companies
Certain lines of business have become important to gauge the overall strength of the economy because their products overlap with other forms of economic activity. Companies that make cardboard boxes, for instance, can help you understand the market for consumer goods.
Fewer people buying things means less shipping and less packaging, meaning the bottom line for cardboard companies takes a hit.
There are certainly other companies that can have a similar effect — each in what are considered “cyclical” industries that will boom and bust along with (or just ahead of) the broader economy. Caterpillar, for instance, produces heavy equipment used in construction.
When their sales fall — and their stock slumps with it — many view it as a potential red flag for a slowing economy.
