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Stuff — Week of October 30, 2023

windmill

Transportation costs declining

Essential Economics

— Mark Frears

 

Here to there

When I was in college, I had a part-time job driving a truck around Seattle for the Washington Quilt Company. Picking up raw materials, dropping off finished goods to be shipped/sold, and anything else in between. Driving a stick in the city hills was no picnic, but I was able to hit my schedule most of the time.

You may have forgotten, but during the pandemic, we had a hard time getting things from point A to point B. How is the shipping industry looking now?

50,000-foot view

The N.Y. Fed has taken it upon themselves to measure the supply chain pressure, integrating manufacturing and transportation cost data. As you can see below, post pandemic, we corrected so well that we moved below the long-term average in the Global Supply Chain Pressure Index (GSCPI).

Line graph- Global Supply Chain Pressure Index (GSCPI) from 1998 to 2023

Source: NY Fed

Currently we are seeing an uptick, primarily due to continued demand and inventory building. This metric combines multiple inputs from around the globe and ties back to Producer Price Index (PPI) in the U.S. and Europe, due to contracting or loosening conditions.

Tonka

We corrected so well after the pandemic that now we are going in the other extreme. FreightWaves, a global provider of supply chain data, now estimates there are over 63,000 more trucking companies in business now than the market needs.

JB Hunt, out of Bentonville, Arkansas, announced earnings last week. In their call, they mentioned “freight recession” twenty times. Truckload rates are coming down and fewer companies will be in business before long.

Ships

While the global economy may be changing, there is still significant freight moved by ship around the world. The Baltic Dry Index is the primary sea freight index measuring the cost of shipping goods worldwide. As you can see below, this index has been dropping hard since October 18, reflecting a perceived weaker economy.

Line graph- Baltic Dry Index from 2018 to 2022

Source: Bloomberg

USD

If you are talking global trade, you have to consider the United States Dollar (USD). The strength of the dollar makes it more affordable for people using USD to buy goods from other countries. As you can see below, while off the peak, the USD is still in a very strong position.

Line graph- United States Dollar (USD) strength from 2018 to 2023

Source: Bloomberg

Even in the face of strong U.S. growth, the expected slowdown should not impact the strength of the USD; it still looks better than other major trading powers. Watch that deficit though.

Inflation impact

The mix change between goods and services is also helping to drive down demand and costs in this area. The desire to pursue experiences versus stuff drives increasing costs in the service sector and the opposite in the goods sector. Once goods became available, post pandemic, the means to get them to us improved to the point that it is so efficient that we now have too many providers. This will help overall inflation, but the percentage of GDP tied to goods is significantly smaller than services, so impact will be less.

Economic releases

Last week’s calendar showed a strong economy, yet consumer confidence falling. New Home Sales, GDP, Durable Goods and Personal Spending were all above expectations. UM Consumer Sentiment fell, driven by continued higher prices. The Fed’s favorite inflation measure, PCE, continued a slowing trend.

This week we have Consumer Confidence, ISM for manufacturing and services, payroll-related releases, and the FOMC on Wednesday. See below for details.

Wrap-Up

Driving batting and sleeping bags around town was kind of fun, and I still have a couple of those bags around. If I was looking for a job now, this would not be an area of strong prospects, but it could help lower some costs, helping out the FOMC.

 Upcoming Economic Releases:PeriodExpectedPrevious
30-OctDallas Fed Manufacturing ActivityOct(16.0)(18.1)
     
31-Oct

Employment Cost Index

Q3

1.0%

1.0%

31-Oct

FHFA House Price Index MoM

Aug

0.5%

0.8%

31-Oct

S&P CoreLogic 20-City YoY NSA

Aug

1.60%

0.13%

31-Oct

MNI Chicago PMI

Oct

45.0 

44.1 

31-Oct

Conf Board Consumer Confidence

Oct

100.0 

103.0 

31-Oct

Conf Board Present Situation

Oct

N/A

147.1 

31-Oct

Conf Board Expectations

Oct

N/A

73.7 

31-Oct

Dallas Fed Services Activity

Oct

N/A

(8.6)

     
1-Nov

ADP Employment Change

Oct

150,000 

89,000 

1-Nov

Construction Spending MoM

Sep

0.4%

0.5%

1-Nov

JOLTS Job Openings

Sep

9,265,000 

9,610,000 

1-Nov

ISM Manufacturing

Oct

49.0 

49.0 

1-Nov

ISM Manuf Prices Paid

Oct

45.0 

43.8 

1-Nov

ISM Manuf Employment

Oct

N/A

51.2 

1-Nov

ISM Manuf New Orders

Oct

N/A

49.2 

1-Nov

FOMC Rate Decision (Upper Bound)

1p CT

5.50%

5.50%

1-Nov

FOMC Rate Decision (Lower Bound)

1p CT

5.25%

5.25%

1-Nov

Ward’s Total Vehicle Sales

Oct

15,500,000 

15,670,000 

     
2-Nov

Challenger Job Cuts YoY

Oct

N/A

58.2%

2-Nov

Nonfarm Productivity

Q3

4.3%

3.5%

2-Nov

Unit Labor Costs

Q3

0.7%

2.2%

2-Nov

Initial Jobless Claims

28-Oct

210,000 

210,000 

2-Nov

Continuing Claims

21-Oct

1,780,000 

1,790,000 

2-Nov

Factory Orders

Sep

1.9%

1.2%

2-Nov

Factory Orders ex Transportation

Sep

N/A

1.4%

     
3-Nov

Change in Nonfarm Payrolls

Oct

190,000 

336,000 

3-Nov

Change in Private Payrolls

Oct

150,000 

263,000 

3-Nov

Unemployment Rate

Oct

3.8%

3.8%

3-Nov

Avg Hourly Earnings MoM

Oct

0.3%

0.2%

3-Nov

Avg Hourly Earnings YoY

Oct

4.0%

4.2%

3-Nov

Labor Force Participation Rate

Oct

62.8%

62.8%

3-Nov

Underemployment Rate

Oct

N/A

7.0%

3-Nov

ISM Services Index

Oct

53.0 

53.6 

3-Nov

ISM Services Prices Paid

Oct

N/A

58.9 

3-Nov

ISM Services Employment

Oct

N/A

53.4 

3-Nov

ISM Services New Orders

Oct

N/A

51.8 


Mark Frears is a Senior Investment Advisor, Managing Director, at Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Science from The University of Washington, and an MBA from University of Texas – Dallas.

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