The Top Economic Indicators Influencing Logistics Success
Economic indicators are used to predict future trends in many industries, and directly influence how and when businesses and consumers spend money. The logistics industry is no different.
Information about the economy can predict increases or decreases in manufacturing, thereby influencing the number of truckloads of product being moved; the health of the world economy influences imports and exports within the US and in turn affects what materials are hauled for shipping overseas. This information can be vital to the future success of businesses.
The economic outlook that will be shared today is based on both near-term information and trends predicted three to five years out. At Dupré, we utilize trend reporting from ITR Economics. Through our more than 15-year relationship with this organization, we’ve learned to trust their recommendations and in turn share information with customers based on their spot-on predictions.
Each month ITR provides us with the most up-to-date economic trends information. We apply their macroeconomic data to determine transportation/logistics capacity, pricing structure and driver hiring, retention and wages. This information is combined with projections from our customers about their individual business needs to determine the best logistics solutions.
Our usage of these reports has benefitted our business and our customers, and begs the question; what is the current economic outlook, and how can it provide our customers and other businesses with information to make the best logistics decisions?
Basic Economics and Industry Leading Indicators
First, a quick lesson in basic economics. Our analysis begins by looking at two different categories: the service industry, which encompasses banking, restaurants, retail, etc. and the industrial production industry, which includes manufacturing, oil and gas, etc. At the moment, the service industry accounts for 70% of our gross domestic product (GDP) and industrial manufacturing accounts for 30% of GDP.
ITR then delivers detailed, macroeconomic data to provide a picture of what the US Economy looks like at the moment, and what will most likely happen within the next five to seven years. This analytical data helps in assessing logistics and supply chain needs as businesses make short and long-term decisions.
In the logistics business, we pay close attention to what ITR economic analysts state about the following four leading indicators:
- Housing Starts– this leading indicators influences industrial production (which includes manufacturing, oil and gas, mining, etc.); when there’s the start of uptick in housing starts, 10 months later you will see an uptick in industrial production.
- Federal Reserve Bank of Chicago National Activity Index– this leading indicator influences industrial production by 6-10 months. The general rising trend at the moment, suggests an expanding economy in the first half of 2016.
- US Conference Board Leading Indicator – this indicator is in a downward trend right now that suggests a moderating growth in economy into the middle of 2016.
- US Purchasing Manager’s Index– this indicator leads the industrial production by 9-14 months depending on up or down business cycles; at the moment this indicator predicts slower growth for industrial production into the second half of 2016.
Based on this information ITR predicts there will be slow growth during the first half of 2016 and accelerated, stronger growth in the second half of 2016; additional growth continues in 2017 and 2018 and then an economic slowdown and recession at the end of 2018 into 2019.
The Impact on Logistics
These leading indicators can help predict the changes that affect industrial manufacturing and the service industry with much certainty. As an expert in the logistics business, we take this valuable information and work with our customers to make the best logistics decisions based on their industry.
For example: an area of stress for all trucking and logistics companies is the current driver shortage, and data proves that this is not going to get any better. There are many variables that affect the driver shortage – regulations, baby-boomer retirement, etc. – and supply and demand also affect how many drivers are needed at certain times. According to the American Trucking Association (ATA), the second largest factor contributing to the driver shortage will be industry growth, accounting for 33% of new driver hires.
The current economy as stated above, while slow right now, is predicted to grow mid-2016 for the next two years. Economic growth means increases in industrial production, which equals an increased need for product to be moved…and an upsurge in the need for drivers.
The businesses that we work with discuss these challenges on a daily basis. Do they take on the responsibility and additional cost of securing a private fleet of drivers and equipment right now? Or knowing that the economic outlook predicts a downturn in the economy in 2018, do they engineer a dedicated private fleet solution instead? In this example, our goal is to determine the balance between the number of drivers and trucks needed in the first half of the year, knowing that demand will increase, and then determine a strategy that allows for additional hiring and equipment as the need arises.
Clear data analyzation, a more than 15-year history, and a high level of trust with ITR Economics gives us the ability to provide an economic outlook for our customers that increases the likelihood of success. By working closely and thoroughly discussing best practices based on definitive economic data provides effective supply chain management solutions that benefit clients both short-term and long-term.
Our forward thinking process determines that we now focus on providing our customers with the data that relates to their specific business. We now work to gather information relative to their strategic business plan, and work in partnership to develop the most cost effective logistics solution. Key performance indicators (KPI’s) are discussed; macro and micro information (as needed) is infused to engineer a solution. Once a solution is determined, we execute.