Because the market changes over time, details discussed in these monthly updates may look different today. All information was accurate at the original time of publishing.
What’s been going on with supply chains?
It’s no secret the economy has shown signs of weakening over the past few months. The Fed has continued to raise rates in an effort to bring down inflation. Mortgage rates are at their highest level in 20 years, leading to a significant decline in home sales. Manufacturing, as measured by PMI, has decelerated significantly, although it remains in growth territory at the time of publishing. The personal savings rate is at its lowest point since 2007.
This paints quite a negative picture for the economy — especially for the logistics industry that relies heavily on consumption. Despite this, there are still signs of strength in consumer demand that seem to bode well for freight.
Let’s take a look at Real (adjusted for inflation) Personal Consumption Expenditures, or PCE, to get a better view of where consumer demand stands currently. In Figure 1 below, Real PCE is displayed for goods (red line) and services (blue line). The level of PCE is displayed as an index where the January 2020 level is equal to 100.
Figure 1
Over the past 10 years, PCE on goods and services has followed a very steady trend until the Covid-19 pandemic severely disturbed that trend. The dotted lines in Figure 1 display a simple linear trend based on the pre-pandemic data from 2012 through 2019. We extended this trend through 2023 to provide a view of where PCE likely would have been had the pandemic not occurred, allowing the long-term trend to continue.
While PCE on services is still working back towards the level of the long-term trend, PCE on goods is significantly above the long-term trend. This shows that while PCE on goods is slowing, it is still above the long-term trend which indicates there is still strength in consumer demand. The question then becomes when will PCE return to the long-term growth rate? Will it fall in line with the long-term trend line in Figure 1? Or will it settle in higher or lower?
This will be a difficult but important question to answer as we move into 2023. Uncertainty in the market is high right now, and likely will be for the next several months. With inflation still running hot, and the Fed continuing to raise rates to combat it, it is impossible to predict where the economy will go.
Many experts believe the most likely scenario is a mild recession in early 2023 but recessions are notoriously difficult to predict. With PCE on goods still so far above the long-term trend, could it have the strength to weather a mild recession without too much detriment to the freight industry?
It is incredibly difficult to know what will happen in our current economic environment, especially when we try to predict the severity of the impacts of high inflation and the Fed’s continued interest rate hikes on consumer demand. Shippers need to be prepared for any situation that might arise in these unpredictable times. ArcBest is well positioned with solutions to fit any need, whatever the future holds.
As a logistics company with owned assets, we’re able to offer solutions through ABF Freight® and our Panther Premium Logistics® fleet in addition to our network of more than 80,000 capacity providers. With a combination of advanced supply chain technology and an experienced customer solutions team, ArcBest is equipped to solve even the toughest logistics problems.
