Economics and Logistics Quarterly Update—June 2023

Uncertainty in economics is a given. Uncertainty in logistics is also a given.

The pandemic increased the inherent uncertainty in the economy and the logistics industry. That led to the move to transformation, which further contributes to uncertainty.

Understanding the underlying data and their trends can influence how you run your business and your supply chain.

In times of uncertainty, it pays to track key economic and logistics indicators. Doing so can lead to a competitive advantage.

That’s why it’s important to steer your business on a steady course. Routine monitoring of key economic and logistics indicators will help your business survive amid uncertainty.

With that follows our quarterly economic and logistics update, focusing on key indicators.

These indicators provide insights into the health of the economy Supplementing that is the monthly Logistics Managers’ Index (LMI). This report features logistics-specific indicators critical to your business.

We’ll start with the key economic indicators. Then we’ll analyze the LMI index.

Key Economic Indicator #1: Gross Domestic Product (GDP)

As of June 2023, the U.S. GDP has been expanding at an estimated annualized pace of 1.5% to 2.0% in the first half of the year. However, despite consumer spending boosting economic growth, the economy is predicted to face a mild recession by the end of 2023.

This is because of downward business sentiment and slowing business investment. The Federal Reserve expects to stop its hiking cycle after a 500-basis point rise. But quantitative tightening will continue at roughly $100 billion per month.

Inflation has been gradually improving, but it may take until late 2024 to reach the target of 2%. The labor market is cooling, and US consumer tailwinds are fading. In contrast, household balance sheets remain secure.

The Federal Reserve's tightening measures are likely to continue. The FED projects inflation to improve gradually. Despite a cooling labor market and fading consumer tailwinds, household balance sheets remain stable.

In addition, fewer supply chain issues remain. Furthermore, we see reduced federal spending and slower loan growth from regional banks.

Overall, the U.S. economy is facing a mixed outlook. Both positive and negative factors are influencing its growth trajectory.

The latter two could negatively affect economic activity in the future.

In conclusion, the U.S. GDP has been growing at a moderate pace in the first half of 2023, driven by consumer spending. However, economists expect a mild recession due to declining business sentiment and investment.

That’s the current national production outlook. Now we’ll look into the prices of those goods and services captured in the GDP.

Key Economic Indicator #2: Consumer Price Index or Inflation

The CPI serves as a measure of the average change in prices paid by urban consumers for a market basket of goods and services.

June's Consumer Price Index (CPI) data for All Urban Consumers (CPI-U) rose by 0.2 percent. That is on a seasonally adjusted basis. This increase followed a 1 percent rise in May.

Specifically, the index for all items, excluding food and energy, also increased by 0.2 percent in June. This is the smallest-to-month in that category since August 2021.

That covers the snapshot of rising prices.

Key Economic Indicator #3: Recession–Business Cycle Contraction

Now, let’s look at the prospect of a recession or a period of temporary economic decline. It results in negative growth that occurs in two consecutive quarters.

As of June 2023, the likelihood of a recession in the US economy is fading. Many economists who had previously predicted a recession are now reconsidering their forecasts. They cite the strength of the jobs market and the resilience of the economy for their revision.

Despite predictions of a recession, the U.S. economy has not cooperated. The economy has experienced strong job growth and consumer spending. Both factors make a recession unlikely this year.

Goldman Sachs revised its prediction down to a 25% chance of a recession in the next 12 months. However, some economists caution the economy is losing steam. They refer to factors such as weaker business and slowing construction activity.

That brings us to the next key economic indicator: national employment.

Key Economic Indicator #4: Employment or the National Employment Report

The ADP National Employment Report is a monthly economic data release by Automatic Data Processing (ADP), a leading payroll services company. The ADP National Employment Report is a crucial resource that provides up-to-date employment statistics, analysis, and trends to understand the health and direction of the U.S. labor market.

Its comprehensive breakdowns and close alignment with official figures make it an essential tool for assessing employment conditions and making informed decisions. This report provides valuable insights into the levels of nonfarm private employment.

This report previews the more detailed employment situation report issued by the Bureau of Labor Statistics. The ADP report covers around 20% of all privately employed individuals in the country. That makes it a reliable indicator of overall employment trends.

According to June's ADP National Employment Report, private businesses added 497,000 jobs. That is the highest number since February 2022.

The services sector led the way with 373,000 jobs, while the goods-producing industry added 124,000 jobs, primarily because of construction and mining. Small establishments created 299,000 jobs. Medium-sized businesses added 183,000 jobs. By contrast, large firms shed 8,000 jobs.

However, the report also noted wage increases slowed for job changers and job stayers. ADP’s chief economist, Nela Richardson, reported that consumer-facing service industries had a strong June. That said, economists expect hiring to slow down after a late-cycle surge.

That’s the national labor snapshot for June. With that let’s turn to and analyze PMI-Manufacturing.

Key Economic Indicator #5: PMI-Manufacturing

The S&P Global US Manufacturing PMI for June 2023 reached a six-month low of 46.3 points. That indicates a second consecutive monthly decline in the PMI. This decline was primarily because of a drop in output, new orders, and suppressed demand. The decline resulted from inflationary pressure and higher interest rates.

Backlogs decreased, but employment increased as manufacturers aimed to fill vacancies. Input buying contracted significantly due to a lack of new orders. Also, cost burdens fell at the fastest pace in over three years.

Meanwhile, output charges remained unchanged. That was due to weak demand, and business expectations were the lowest recorded so far this year.

June's data suggest the manufacturing sector faces several challenges. They include various factors, such as inflation and interest rates. That said, the PMI’s contraction may have implications for the broader economy.

That wraps up our key economic indicators. Now we’ll look at a key logistics industry indicator.

Key Supply Chain Indicator #6: Global Supply Pressure Chain Index (GSCPI)

The Global Supply Chain Pressure Index (GSCPI) is a new measurement. Created by the Federal Reserve Bank of New York, GSCPI seeks to measure global supply chain conditions. It assesses supply chain conditions by integrating transportation costs and manufacturing.

The GSCPI combines variables from several indices in transportation and manufacturing. This helps to provide a comprehensive summary of potential supply chain disruptions.

This index helps to isolate and understand the impact of logistics challenges on several fronts. It considers trade, inflation, and other global business trends.

June’s reading of the GSCPI (GSCPI) increased to -1.20 from a revised -1.56 in May 2023. Although this is an increase in pressures from May, the largest contributors to this rise came from the Euro Area and Great Britain. The latter came in above its historical average previously registered in February 2023.

During the pandemic, supply chain pressure skyrocketed, causing significant disruptions. The latest updates suggest pressure is easing. Even so, the GSCPI is higher than historical norms.

The New York FED has been tracking the global supply chain since 1999 on a monthly basis. It is important to note that the data is subject to revision.

The GSCPI gives us valuable insights into the state of global supply chains. Tracking GSCPI can aid you in making informed decisions to adapt as needed. And that can improve your business’s agility.

That brings us to the Logistics Managers’ Index. Its purpose is to track and compile predictive indicators.

Logistics Manager's Index (LMI).

First, let’s refresh our memory with a definition of LMI. Then, we’ll review June’s LMI Report.

“The Logistics Managers Index (LMI) is a tracking metric of logistics activity in the United States.  Specifically, it is a bi-monthly measure of activity, as measured by a survey of supply chain professionals.”

In June 2023, the LMI is at an all-time low of 45.6. This marks the fourth consecutive month of decline. This decline resulted from reduced inventory levels and increased inventory costs. The LMI score aggregates a combination of eight components within the logistics industry.

Warehousing and transportation capacity showed signs of improvement, indicating an increase in resources. However, transportation utilization and prices continued to contract, but at a slower pace.

These factors suggest the industry is expanding in certain areas. Yet it still faces challenges in terms of demand and profitability. That gives us a mixed result for June 2023.

Overall, economic data for the second quarter remains strong. That mainly reflects positive consumer sentiment. Because inflation remains high, the FED intends to raise interest rates two more times. This decision aims to curb inflationary pressures.

In summary, the June 2023 LMI shows a shrinking logistics industry. Contributing to shrinkage are declining inventory levels, increasing inventory costs, and contracting transportation and prices. The broader economy shows strength but has yet to rebound fully.

Conclusion

If you take away one thing from this post, this is it. Since the pandemic, the world has changed.

That makes dealing with uncertainty especially important. And the logistics industry is at a turning point. Transformation is underway, contributing to uncertainty.

The economic and logistics indicators provide a mixed picture. That fosters uncertainty.

Taking a historical perspective, year-over-year, and month-over-month, put the data into context. So, tracking these key indicators can help you navigate uncertainty with confidence. 

At American Global Logistics (AGL), we take a proactive approach by anticipating change.  We do that to alert our customers of upcoming changes.  

It’s riskier to not track these indicators because it would put them in a reactionary position.

As a forward-looking 3PL, we take a strategic approach informed by data. We believe mixed data is better than no data. When looked at holistically, these indicators lead to better decisions. And better decisions can give you a competitive edge.

Contact AGL if you want to make better decisions that can give you a competitive edge.