There is a lot of pessimism about the prospects for the coming peak season. In global logistics markets, airfreight seems to be drifting downwards in terms of volumes carried, but container seafreight is showing signs of real weakness with a growing number of blanked services.
However, it might be unwise to overdo the gloom.
Figures from the US Bureau of Economic Analysis show that consumer spending is growing at a reasonable pace. Month-on-month spending by consumers has increased steadily over second quarter and into the third, with July seeing an 0.8% rise. Since April, consumer spending in the US has been growing at an annualised rate of 6.6%. Of course, not all of this is spent on physical products, yet the ‘personal consumption index’ compiled by the Bureau of Economic Analysis shows that spending on ‘goods’ increased at 0.9% month-on-month, whilst services only grew by 0.4% over the past few months.
Admittedly the average American’s income is not growing quite as fast, with the month-on-month increase in average income having averaged slightly more than 0.3% over the past five months. This latter figure has led to suggestions that Americans level of spending is being supported by debt and is not sustainable.
It is also the case that monetary environment is fairly hostile. The US central bank, the Federal Reserve, has indicated that it is willing to continue to increase interest rates if inflation does not fall. It is quite possible that this will tip the US economy into a recession. Certainly, if monetary economists are to be believed, this will happen later this year. Yet so far, interest rates have not suppressed consumer spending. This is convincingly explained by high levels of employment and rising wages.
The rest of the world is different. China is suffering from the effects of a changing economic model, as are some European economies such as Germany. Yet consumer demand in many other economies, especially emerging economies, is strong.
There may be a recession later in the year in the developed economies, driven by overly-tight monetary policies. However, at present, this is not the case and demand for the movement of goods into the US especially looks robust. If logistics service providers are worried about weakening freight rates, perhaps a better explanation ought to be sought in the supply of ships and aircraft rather than the level of demand.
Author: Thomas Cullen
Source: Ti Insights
Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.
Visit GSCI subscription to sign up today or contact Michael Clover for a free demonstration: [email protected] | +44 (0) 1666 519907
