At its highest levels since September 2022, the October Logistics Managers’ Index (LMI) is at 58.9, up (+0.3) from September’s reading. This increase continues the eleventh consecutive months of increases.
The index was released on November 7th by researchers at Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
The report found that transportation prices were up (+5.7) to 64.1, which is the fastest rate of growth for this metric since May of 2022. Capacity in this industry increased slightly (+0.8) to 50.8. “It is possible that as transportation prices continue to rise more idle capacity will come off the sidelines to take advantage of the increased opportunity, leading to the somewhat counterintuitive situation that we now find ourselves in where both transportation prices and capacity are increasing,” the report noted.
In contrast, the three warehousing metrics have remained fairly stable as capacity grows at a steady rate (-0.1 to 55.8) and warehousing utilization (+1.9 to 62.9) and warehousing prices (-1.1 to 65.8) are relatively consistent with the changes observed in September.
Underlying all of this is the continued expansion of inventory levels (-0.4 to 59.4) and inventory costs (-5.5 to 65.8). As compared to the last six months, more inventory level expansion is now coming from downstream retailers (65.7) than from upstream firms (56.3), suggesting that retailers are stocked up, and will likely continue to stock up, for the holiday shopping season.
The authors provided this analysis of the results:
The sustained growth in the LMI over the last few months is reflected in the steady growth of the U.S. economy throughout Q3. The 2.8% growth was driven largely by consumer spending, which was up 3.7% year-over-year (up from the 2.8% y-o-y growth in Q2), as well as an 8.9% growth in exports. The increased consumer spending in Q3 was likely one of the signals firms have relied on in their decisions to increase exports throughout the second half of 2024. Spending may have been driven by the continued deceleration of inflation, as the PCE was only up 1.5% year-over-year in Q3, which is the lowest quarterly rate of inflation growth in four years.
Core PCE inflation, which excludes food and energy, read in at 2.2%. Drilling in to a more micro level, core September PCE was up 2.1%, down from the 2.7% growth seen a year ago and essentially in line with the Fed’s stated target of 2% annual growth. There are also some indicators that inflation will continue slowing, as wholesale prices in the U.S. were unchanged month-over-month in September – standing in contrast to the 2.8% increase seen over the same period in 2023. Because wholesale price increases are generally passed down to retailers and consumers, this stabilization may represent some price relief yet to come. In the last week of October, The Conference Board reading of U.S. consumer confidence jumped up to 108.7. This is an increase of 9.5-points which is the largest jump since March of 2021. The proportion of respondents anticipating a recession in the next year also fell to its lowest level since July of 2022 (which was the first month the question was included in the survey).
It was not all positive news in October. The U.S. added only 12,000 jobs which was significantly below expectations and is down from previous months. Transportation and warehousing jobs remained essentially unchanged in October, which is not what one might expect heading into the traditional peak season. This low number was at least partially due to strikes at Boeing, and the aftermath of the two hurricanes that hit the East Coast early in the month and may have cost the economy around 100,000 jobs.
However, even with those anomalies, job growth has been slowing over the last three months, providing another indication that the level of economic growth in the U.S. has moved to a more sustainable level and that interest rates can continue to come down. A big reason for the slowing rates of inflation is how well supply chains are working right now. According to the San Francisco Fed, supply-driven inflation was negative in September, meaning that the abundance of goods such as fuel, consumables, and groceries drove prices down. This marks the third time in the past 10 readings that supply has been deflationary for the U.S. economy. Taken altogether, the news on inflation has caused analysts to expect that the Fed will cut interest rates by another quarter point at their meeting this week and several more times in 2025.
The slowing rate of inflation is likely behind the continued strength of the American consumer. Consumer spending is highlighted by Amazon’s robust Q3 numbers, in which they reported $158.9 billion in sales, with much of it driven by greater-than-expected activity in its retail business. Amazon expects continued growth, predicting sales of $188.5 billion in Q4. The retailer’s October Prime Day can be a canary in the coalmine for holiday ecommerce sales. The numbers for the 2024 event were the largest in firm history, suggesting that more consumer activity may be on the horizon in Q4.
Read the Logistics Managers' Index for October for more details.
