Personal Incomes Inch Up – Consumer Demand Remains Steady
RedStone Resource
February 1, 2023
Inside This Edition
Industrial Production Slips in December, But Remains Higher Year-over-Year
When stripping out all but manufacturing, industrial production for manufacturing was down 1.3% M/M and was 0.5% lower year-over-year. Within manufacturing, durable goods were down 1.1% M/M but were 0.8% higher vs. 2021. Nondurable manufacturing as also 1.5% lower M/M and was 1.7% lower Y/Y.
Global Goods Not Moving Quickly According to Oldest Index
The BDI has been falling recently, a sign that global bulk materials are not moving as they have in recent years. Some of the strongest movement of bulk goods was just prior to the Global Financial Crisis in 2008 when the index hit 11,482 points. During the height of the global supply chain crisis in September of 2021, the index hit 5,129, the highest reading in the 13 years since 2008. Today, the index has plummeted to just 680 points (the all-time low was 305 points in 2016 and it remains off those lows).
Global Supply Chain Pressures Index Update: Still Higher Than Expected
The Global Supply Chain Pressures Index from the New York Federal Reserve was at 1.18 in December. A reading below zero is considered to be more favorable (less volatile) for supply chain managers.
ECONOMIC BRIEFING
Personal Incomes Inch Up – Consumer Demand Remains Steady
US GDP is still driven heavily by consumer spending; approximately 70% of GDP is driven by US consumers doing what they do best: consuming. The latest figures for income and spending show that both continued to be strong through December. Consumer incomes were 0.2% higher in December (just slightly weaker than the 0.3% growth rate in November). When stripping out taxes and, disposable income was up by 0.3%.
Personal spending, when adjusted for inflation, dipped slightly month-over-month by 0.3% but it remains historically at the top end of the historic range. In other words, despite some slight softening month-over-month, overall consumer spending was still above the twenty-year trend. Pressure is certainly building, and consumer use of credit is surging at the same time that consumer credit card interest rates are near all-time highs and credit card balances are also elevated. This pressure could impact spending later in 2023, but consumers continue to be resilient amid inflationary pressure, propped up by a good labor environment and steady increases in wages.
Industrial Production Slips in December, But Remains Higher Year-over-Year
One of the key factors that drive freight volumes is the role of industrial production. Industrial production has three components to it, manufacturing, utilities, and energy. When stripping out all but manufacturing, industrial production for manufacturing was down 1.3% M/M and was 0.5% lower year-over-year. Within manufacturing, durable goods were down 1.1% M/M but were 0.8% higher vs. 2021. Nondurable manufacturing as also 1.5% lower M/M and was 1.7% lower Y/Y.
But there were highlights in the report. Aerospace, nonmetallic mineral products, and primary metal manufacturing were all higher month-over-month and fabricated metals, automotive, aerospace, and apparel were all higher year-over-year.
Utilities pushed overall industrial production higher, rising by 3.8% M/M and 9.7% Y/Y. Mining activity was down 0.9% M/M but was 5.8% higher Y/Y. Overall, industrial production was slowing in December.
TRANSPORTATION BRIEFING
Global Goods Not Moving Quickly According to Oldest Index
The Baltic Dry Index (BDI) is one of the oldest indexes in the world. It measures the index for general cost to move bulk goods in the world’s busiest trade lanes. When the index is higher, demand is typically outpacing supply and vice versa. Many industries use the BDI to understand early-stage changes in global manufacturing activity. Not all of the products measured in the BDI are solely manufacturing related, there are some other bulk items measured that flow more into food production and other economic measures.
The BDI has been falling recently, a sign that global bulk materials are not moving as they have in recent years. Some of the strongest movement of bulk goods was just prior to the Global Financial Crisis in 2008 when the index hit 11,482 points. During the height of the global supply chain crisis in September of 2021, the index hit 5,129, the highest reading in the 13 years since 2008. Today, the index has plummeted to just 680 points (the all-time low was 305 points in 2016 and it remains off those lows). But there is no doubt that it remains largely at the bottom-end of some of the long-term downturns, and it continues to go lower. Again, this sends a signal that global commodity movement is lower than we have seen in some time and many manufacturers are not getting raw materials staged for future demand. If the BDI continues to provide us with upstream visibility into the global movement of key inputs, this sends a worrisome signal.
Global Supply Chain Pressures Index Update: Still Higher Than Expected
The Global Supply Chain Pressures Index from the New York Federal Reserve was at 1.18 in December. A reading below zero is considered to be more favorable (less volatile) for supply chain managers. The index largely remained below zero for much of the 25 years prior, spiking in 2004, 2008, and 2011 prior to the pandemic.
During the height of the global supply chain challenge in 2021, the index hit 4.30 in December 2021 which was an all-time high. It has slowly started to improve since, falling to an index reading of 1.18 as mentioned. Again, if the world were perfectly in balance, the index (which measures nearly two dozen global supply chain metrics) would be at zero.
Continuing challenges stemming from the War in Ukraine is a factor as are some supply chain challenges across Asia. In fact, issues across Asia were the fastest contributing factors to global instability and those factors pushed the index “above normal” according to the Federal Reserve report.
