Until recently, the recovery from the global financial crisis of 2008-09 was one of the most disappointing seen in the postwar period. Even as late as last year, many economists were convinced that the world had entered "secular stagnation"—a permanent downshift in economic growth. The anemic global recovery was powered primarily by moderate growth in only a few economies, including the United States, the United Kingdom, and Germany.
For its part, economic growth in the United States continues to strengthen. U.S. gross domestic product (GDP) grew at a 2.6 percent annualized rate during the fourth quarter of 2017, and the pace of inventory building was well below the sustainable level, which means that inventory investment will likely boost growth in the near term. In addition, employment markets are strong: job growth remains brisk, and average hourly earnings have accelerated, which bodes well for domestic consumer demand. Finally, the trade value of the U.S. dollar dropped at the beginning of the year, improving the outlook for U.S. exporters.
[Figure 2] IHS Markit materials price index ends a long rallyEnlarge this image
The near-term U.S. outlook has also strengthened thanks to the Tax Cuts and Jobs Act (TCJA), which, among other things, cuts personal taxes through 2025, allows full expensing of equipment through 2022 and partial expensing through 2026, and permanently reduces the corporate tax rate from 35 to 21 percent. Although there will likely be some payback when these provisions expire and the government faces a tighter fiscal situation, over the next couple of years, at least, the TCJA should result in increased personal income, which will further spur domestic consumer demand. Taken together, these improved conditions have caused IHS Markit to raise our forecast for U.S. growth in 2018 to 2.9 percent, which would beat each of the two previous years.
While the previous stages of the recovery were largely based on growth in a small number of countries, worldwide economic growth in the past year—the biggest improvement since 2011—was built on broader foundations. In particular, the economic prospects of the eurozone and Japan (shown in Figure 1), and some large emerging markets, such as Russia and Brazil, have turned around.
We estimate that the eurozone economy expanded 2.5 percent in 2017 to achieve its best year of growth since 2007. Labor markets in Europe continue to improve; with inflation falling back in recent months, the weak wage growth that has been seen in some countries will take less of a toll on real household incomes. The European business climate is likely to remain favorable, and a still-competitive euro should help exports, although political uncertainty related to Italy's elections, the possibility of Catalonian independence, and ongoing Brexit negotiations remains high.
As of the third quarter of 2017, Japan had experienced its longest stretch of economic growth since 2001. As a consequence, Japan's unemployment rate fell to a 24-year low of 2.7 percent in November. And despite major structural challenges that are likely to drag down growth in the medium run, the Chinese economy is still showing resilience, with retail sales, exports, and housing starts all making strong showings at the end of 2017.
As the United States' outlook has improved, that of its northern neighbor has, too. The Canadian economy likely roared ahead in 2017 at a 3 percent rate, and given advances in the labor market and a resilient housing sector, domestic demand looks likely to maintain much of its momentum. Output continues to trend upward, consumer sentiment is climbing, and Canada's consumers do not seem bothered by existing debt burdens.
The outlook for emerging markets continues to improve as well. Commodity prices are still rising strongly, which has stabilized the economies of commodity exporters, and the fall of the U.S. dollar is removing a major source of downward pressure on the currencies of developing economies.
Whereas much of the global economic recovery had been characterized by strength in a few key countries, global growth is now becoming more harmonized. Consequently, world growth is likely to remain robust for at least most of the coming year and probably through 2019. Interrupting this global expansion would require a large shock. Recently, U.S. and international equities markets have been hit with a wave of selloffs and volatility, but market declines of 10-20 percent are not unusual; historically, they occur every two or three years. On their own, these declines should not be enough to trigger contraction in the broader economy.
Emerging price pressures on supply chains?
For years, the slowness of the economic expansion kept inflationary pressures at bay. But now that prices have gained traction, inflation anxiety is on the rise. The 10-year break-even point—a measure of inflation expectations based on the U.S. bond market—rose 2.0 percent for the first time since last March. These inflation expectations fell to around 1.7 percent last summer but rebounded sharply in January of this year. With U.S. growth strengthening and the unemployment rate expected to approach 3.5 percent in the next couple of years—well below most estimates of "full employment"—inflationary risks are overwhelmingly on the upside. Japan, Brazil, and India are seeing a quickening of inflation as well. The major exception is the eurozone, where the indolence of prices can be attributed to a strengthening euro and still-significant slack in the labor market. Commodity prices, as measured by the IHS Markit Materials Price Index, have risen steadily since early November 2017 and, although they have begun to slip a bit, still stand at close to their highest level since November 2014. (See Figure 2.)
What does this mean for inflation? Despite the rally in commodity markets at the end of last year, IHS Markit expects commodity prices to remain within a moderate range. Recent price increases in many sectors are the result of attempts to control supply or of special factors that have disrupted supply chains, such as China's effort to improve air quality and limit waste-material imports. Additionally, in the last week of January commodity markets saw their first decline in 12 weeks.
Still, a sharper-than-expected hike in inflation rates could interrupt the trajectory of economic growth and disrupt global supply chains. If central banks tighten more aggressively than financial markets expect, the damage to confidence and the expansion could be substantial.
The next year could be a turning point for many of the world's major central banks, including the European Central Bank and the Bank of Japan, which will take their feet off the accelerator and may even start to touch the brakes. After raising the federal funds rate by 25 basis points at its December 12-13, 2017, meeting (an expected move), the U.S. Federal Reserve Bank's Open Market Committee is poised to hike interest rates three times in 2018. IHS Markit believes that the Fed will raise interest rates in March. This means that short-term interest rates will be a little higher for the next couple of years, but that inflation is unlikely to spiral out of control.
At present, inflation is still modest, albeit rising, so any scenario in which central banks are forced to suddenly apply the monetary brakes seems at least a year or two away. We therefore judge it unlikely that any major central bank would raise interest rates high enough in the next year to derail the global recovery. In short, the global economy is open for business—and we should have at least a few good years ahead of us.
Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”
As the final hours tick away before a potential longshoreman’s strike begins at midnight on the U.S. East and Gulf coasts, experts say the ripples of that move could roll across the entire U.S. supply chains for weeks.
While some of the nation’s largest retailers were able to pull their imports forward in recent weeks to soften the blow, “the average supply chain is ill-prepared for this,” Tom Nightingale, the former CEO of AFS Logistics, said in a panel discussion today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Despite that grim prognosis, a strike seems virtually unavoidable, CSCMP President & CEO Mark Baxa said from the stage. At latest report, the White House had declined to force the feuding parties back into arbitration through its executive power, and a voluntary last-minute session had failed to unite the International Longshoremen’s Association (ILA)’s 45,000 union members with the United States Maritime Alliance that manages the 36 ports covered under their expiring contract.
The ultimate impact of a resulting strike will depend largely on how long it lasts, the panelists said. With a massive flow of 140,000 twenty foot equivalent units (TEUs) of shipping containers moving through the two coasts each week, each day of a strike will require 7 to 10 days of recovery for most types of goods, Nightingale said.
Shippers are desperately seeking coping mechanisms, but at this point the damage will add up fast, whether a strike lasts for an optimistic “option A” of just 48 to 72 hours, a pessimistic “Option B” of 7 to 10 days, or even longer, agreed Jon Monroe, president of Jon Monroe Consulting.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan “Nearest” Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of Uncle Nearest—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.