June 2022: Quarterly Economic Update

Mixed Economic Trend: Growth or Recession

The most current economic data suggested inflation was not transitory. Instead, the data showed rising inflation. It suggested a continuation of volatility and uncertainty. And recession now seems likely.

The Russo-Ukrainian war remains a significant bogeyman. However, the war is moving closer to an outcome depending on how you interpret events.

Whether that outcome is positive or negative for the world remains to be seen. Regardless, you can take steps to avoid the worst of these events.

KEY ECONOMIC INDICATORS

Economic indicators and data we’ll explore include:

Besides these indicators, tracking the Fed’s intent for raising, lowering, or maintaining interest rates is essential. That’s usually a guessing game until the Fed announces its decision.

Currently, the Fed is telegraphing an aggressive rate hike of 0.75 percent, according to the Cleveland Fed President Loretta Mester. Fighting inflation is the Fed’s main priority. But in fighting inflation, the Fed risks running the economy into a recession.

At the latest Congressional hearing, Fed Chairman Powell admitted a recession is possible. He further stated that achieving a “soft landing” would be “very challenging.” Against that backdrop, teetering between inflation and recession, let’s dive into the data.

General Macroeconomic Indicators

Inflation RateCurrent data as of May 2022 shows inflation at 8.6 percent. Inflation hasn’t been this high since 1981. Here’s how inflation affected various sectors of the economy.

Energy increased the most. It had the largest impact with a price increase of 34.6 percent. That measure includes gasoline, fuel oil, electricity, and natural gas prices.

Food costs were next with an increase of 10.1 percent. Food costs increased in the prices of meats, poultry, fish, and eggs.

Significant increases occurred in other sectors. Housing showed a rise in inflation at 5.5 percent. Household furnishings and operations increased by 8.9 percent. Used cars and trucks increased 16.1percent, and airline fares rose 37.8 percent.

Bucking the trend, new vehicle costs decreased to 12 percent from 13.2 percent.

Gross Domestic Product (GDP)—On June 29, 2022, the Bureau of Economic Analysis (BEA) reported that GDP contracted by 1.6 percent from the fourth quarter of 2021.

The decline reflected decreases in six categories. They were exports, federal government spending, private inventory investment, and state and local government spending.

Meanwhile, the economy saw increases in four other categories. Imports increased, which are subtracted from exports. Nonresidential fixed investment, personal consumption expenses (PCE), and residential fixed investment rose.

The Bureau of Labor Statistics (BLS) will release June’s GDP, the 2nd Quarter, on July 28, 2022.

Atlanta Fed uses a real-time tracking model called GDP Now model, which says the economy is in a recession. The BLS’ latest report revision shows second-quarter GDP falling 1 percent.

If that happens, it would be the second consecutive quarter of negative GDP growth. That would result in the second consecutive quarter of negative growth in real GDP. And that means we are in a recession.

Given the Atlanta Fed’s GD Now report, a recession seems likely. If the data holds up as projected, the only question now is how long and how deep a recession will be.

Consumer Price Index (CPI)As of May, the CPI was 8.6 percent. June’s data becomes available on July 13, 2022). May’s increase was 1.0 percent compared to an increase of 0.3 percent in March 2022. The causes for the increase are discussed in the GDP update above.

The Bureau of Labor Statistics (BLS) will release June’s data on July 13, 2022.

  •       Producer Price Index (PPI)May’s PPI data revealed a rise of 0.8 percent. On an annual basis, demand prices rose 10.8 percent for 12 months, ending in May 2022.

The Bureau of Labor Statistics (BLS) will release June’s data on July 14, 2022.

  •       UnemploymentMay’s unemployment data did not change, remaining at 3.6 percent. However, drilling into this metric shows some encouraging signs.

The Bureau of Labor Statistics (BLS) will release June’s data on July 8, 2022.

First, the number of long-term unemployed (27 weeks or more) dropped slightly to 1.4 million. While that is below February’s level by 235, 00, May showed a welcome decline.

Second, teleworking employees dropped to 7.4 percent from 7.7 percent in April 2022.

Third, the number of people unable to work because of the pandemic declined. That number dropped to 455,000 compared to 586,000 last month.

Overall, the various economic reports show mixed—not clear-cut— indicators.

Tracking macroeconomic data gives us a perspective of the economy as a whole. In assessing the logistics industry’s health, we need relevant industry indicators. Those indicators must drill down and measure industry-specific performance.

We find that with the Logistics Manager’s Index.

May 2022 Logistics Manager’s Index (LMI)

As a refresher, the LMI Index comprises eight unique metrics that reflect the health of the

logistics industry. To determine the industry’s health, the LMI measures eight key categories. Those elements include inventory costs and levels, prices for inventory, warehouse utilization and prices, and transportation capacity and utilization.

A rating above 50 percent indicates that the logistics industry is expanding. A reading below 50 percent suggests that the logistics industry is declining.

May’s rate dropped 2.6% from April’s index of 69.3%. That indicates continuing growth, but at a lower rate. The eight key categories representing logistics industry health are below.

Five metrics indicate growth occurring at an increasing rate compared to March’s performance data. The only exception is Transportation Utilization.

  •         Inventory Costs—increased to 88.1% up from 87.7% or a 0.4% increase.
  •         Warehousing Utilization—increased significantly to 45.9% from 40.8%.
  •         Warehousing prices—increased marginally by 1.7% to 87.5% from 85.8%.
  •         Transportation Capacity—increased markedly by 7.8% to 64.7% from 56.9%.
  •         Transportation Utilization—This metric remains unchanged at 64.3%.

These two metrics indicate a slowing growth rate.

  •         Inventory Levels—decreased 3.0% to 69.3% from 72.3%.
  •         Transportation Prices—decreased decidedly by 8.7% to 65.3%, down from 73.9%.

These metrics show a slowing rate of growth. Growth is still above historical averages and suggests slow growth, not no growth.

Only one key metric is contracting: Warehousing Capacity.

May’s LMI Index declined 2.5 percent from 69.7 to 67.1. This snapshot indicates gradually improving logistics conditions. It implies a state of slow growth, not no development.

The combined metrics suggest easing supply chain pressures on prices, capacity, and delivery time. Only warehousing capacity is diminishing.

These improvements are occurring against a backdrop of sustained volatility. That said, uncertainty seems to be waning as China recovers from its Covid lockdowns. The pace of manufacturing and shipping should increase.

China’s lockdown has benefited, as companies have used shipping slowdowns to work off bottlenecks at ports.

Also, as the war drags on, businesses adapt to economic sanctions against Russia. And businesses are still flush with inventory because of the surge coming out of the pandemic. The inventory data suggest businesses are slowly drawing down their stocks.

In sum, the snapshot of logistics industry health shows a decline in growth, but it is still growing.

To compete successfully, you can take several steps to keep your business running through any turmoil.

Mitigation strategies to keep your business running

The economic data continue to suggest a future of volatility and uncertainty. However, the severity of impacts and risks to global supply chains appear moderate.

Contain costs by maintaining cost consciousness without shortchanging customer service

To prosper in these times, your business must be cost-conscious, being mindful of eliminating wasteful spending. But not all spending is wasteful, as external events drive some costs affecting your supply chain.

To address externally-generated costs, you should have as many workable options as possible.

Identify and exploit unplanned opportunities

You should look for opportunities to increase your options to avoid supply chain uncertainty.

Adjust your inventory product mix

You can reduce supply chain friction by changing your product mix by matching supply to demand. That’s a temporary measure. But it might get your business through tough times.

Future-proof your supply chain through strategic planning

Here, you can make some headway. You can build resilience, speed, and risk mitigation into your supply chain. This proactive step can serve you well in the short- and long-term.

As the New Normal takes shape, it is clear that business as usual is over. Re-calibrating your strategy to address increased volatility and uncertainty can boost your competitive edge.

Future-proof your supply chain with agility

Besides resilience, speed, and risk mitigation, agility is another key driver of competitive supply chains. Static, set-piece processes will break under today’s pressures. Hence, the future belongs to nimble organizations.

Competing in a high-risk environment is possible. The best way to do that is to adapt your business processes. They must be adaptive at the strategic and tactical levels. You need new business processes to address new challenges because the old ones don’t work.

Legacy processes are ineffective in today’s marketplace. The alternative is to change, to adapt.

Next Steps: Positioning Your Business for the New Normal

The industry is not returning to business as usual. So, staying abreast of the latest economic trends is more critical than ever.

Today’s marketplace has more risks with greater severity than in pre-pandemic times. That’s especially true for economic risks, which can have long-lasting consequences.

Tracking key economic events and indicators can result in significant benefits.

At American Global Logistics, we track whatever affects your business. We track trends, including key economic indicators. We do that because that can make the difference between success and failure.

Tracking economic performance is only one aspect of identifying trouble before it occurs. We track critical data to identify trends. As a data-driven 3PL, we identify trends as a matter of routine.

The AGL Team looks for patterns to see what they tell us. We are proactive in avoiding supply chain disruptions. More importantly, we also identify opportunities that can arise from supply chain disruptions. That’s how we drive a competitive advantage for our partners.

Contact us today to find out how we can drive competitive advantage for your business.