Traditional Statistics as Market Indicators: Do they still work? 

Mar 20, 2023 | Supply Chain Problems, Transportation and Supply Chain News

The February 2023 jobs report showed some serious job growth, estimating that over 300,000 new jobs were added to the economy. During an average year, that would be tremendous; during a period of economic hardship, like the current global marketplace is still struggling through, you would typically expect those numbers to be big news. Job growth (or the lack of it) is one of the most commonly used statistics economists look at to make their projections and otherwise assess the health of the economy, because the number of employed people impacts everything else—for example, consumer spending

But, for some reason, other current statistics aren’t showing that much of an increase at all, which is odd. Not all of the stats correlated to job growth are necessarily positive ones, either—for example, increased inflation usually correlates with increased employment numbers. That aside, the majority of other economic metrics are typically the ones associated with healthy, growing economies. 

Think about everything that happens when someone is hired as an office worker, for example. Not only does that person get added to payroll and begin drawing a paycheck (and paying taxes, and often receiving benefits—health insurance premiums, 401k contributions, etc.), there are countless other small economic activities that take place from this new hire. The business will often purchase their equipment, like computers, possibly office furniture; coffee in the office will be consumed a bit faster and need to be purchased more often or in greater volume; and frequently (though less typically than a few years ago) that new employee will have some type of commute. A generously short 10-mile commute will consume a gallon of gas every day, and that’s assuming the new employee never makes any stops along the way at a coffee shop. 

The point here is that additional jobs correlate with additional economic activities, and those other activities have historically increased right alongside job growth statistics.  

So why isn’t the shipping market bouncing back alongside these statistics? 

  1. We’re still in a strange economic situation 

Consumer spending habits have changed so dramatically that traditional data analysis methods may not be viable, at least until things change. Think back to the early days of Covid, back when toilet paper and hand sanitizer was next to impossible to find, but think about everything else that went on, too. There was a huge spike in consumer purchasing for all sorts of products, not just consumable or wellness products, partially fueled by stimulus distributions.  

A significant chunk of the middle class kept their jobs and shifted to remote work. That meant they still received their paychecks, but also received “unexpected” (at least at the beginning of 2020) windfalls from these stimulus checks. A surprising number of these people used that money not just for maintaining their standard of living, as you normally expect (covering housing payments, putting food on the table, paying bills, etc.) Many used those checks ($1,200, $600, and $1,400 per eligible person, plus additional funds for dependents; the maximum benefit for a married couple with three child dependents totaled $13,900 between April of 2020 and March of 2021) to make purchases they otherwise might have put off. These are long-term, durable purchases—recreational vehicles, televisions, living room furniture, and other high-ticket items that will last for years before they need to be replaced. 

But… how many couches does someone need to buy? Not one every few months for the next ten years. The same goes for RVs, televisions, and more of these types of durable goods. But for a few quarters, demand skyrocketed for those types of items. In response, businesses started ordering more of their products, just as you’d expect them to. The problems began when factories started getting overloaded and ports saw significant slowdowns in their turnaround time for unloading. The shipping backlog dragged on for months—but demand started slowing down as the market cooled off from that flurry of stimulus activity. So businesses suddenly woke up one day and realized that they had (in some cases) doubled up on their inventory, and slowed down or stopped their ordering activity in favor of inventory liquidation. 

To summarize: a surprising number of long-term, high-value products saw a tremendous spike in demand and sales, businesses overordered to meet that demand, and when the pendulum swung back in the other direction, they dropped their high volume and began selling what they already have. Businesses are now making much smaller, more tightly focused orders for these types of products, rather than focusing on stocking up ahead of time. 

Basically, the United States economy packed in a few years’ worth of purchasing activity into one year, and it’s going to take some time before demand rebounds. But that’s compounded by other unusual circumstances: 

  1. Economic uncertainty has changed public psychology 

For the first time in many years—for some in the younger generations, maybe the first time in their professional lives—interest rates are no longer at fire sale rates. Interest rates were cut way back and kept low for years, which meant one thing for lots of people: very cheap financing. That’s part of what was fueling big ticket sales like RVs during the Covid demand spike: buyers were able to finance it at extremely low rates. Cheap, low-interest loans are much harder to find. In Q1 of last year (2022), the average 30-year fixed mortgage rate in the United States was just over 3%. This week, it’s 6.5% (source).  

This is intended to reduce inflation, and it will, but it will also make consumers less likely to spend money on unnecessary items even if they have it. Everyone who’s been to the grocery store in the past few months has noticed how much prices have gone up across the board. For some items, even sale prices are higher than their old regular price—certain types of coffee, for instance. Add on rumors of issues with some banks and whispers of “recession” in hushed voices, and you have consumers wary of overextending their budgets.  

Many consumers have begun questioning what constitutes a “necessary” expense for themselves. Remote work, for example, means that many employees aren’t stopping for a coffee on their way into the office, buying less gas, eating out less often, and a thousand (or more) other small (but, combined, significant) purchases that they have decided they can live without.  

  1. We need new types of data 

All of this combined means that old indicators of economic strength (or weakness) may no longer be as accurate as we’re accustomed to. Jobs reports like February’s are still great news to hear, but they no longer mean that we can necessarily look forward to increased consumer spending anymore. Enough consumers are being cautious and keeping an eye on their spending habits closely enough that the data we used to rely on may no longer be viable. This means economists will need to start looking for new sources of information to make their predictions.   

Until we have methodology that’s as solid as we’re used to, it might be hard for some businesses to accurately anticipate the demand for their products. That means that the current state of freight shipping and inventory ordering will likely remain as it is for at least a while longer. Currently, many businesses are on a beak-to-trough system, ordering only what they know they’ll need—and will be able to sell. That’s perfectly understandable. In short: when consumers are watching every penny they spend, businesses would be smart to match their caution, and keep a close eye on their own inventory practices. Too many overextended and found themselves in tricky situations—full warehouses with too few customers to sell to—and were seriously damaged as a result. 

Businesses should work with a partner who can help them manage their ordering processes step-by-step, from factory floor to last-mile delivery. The more efficient you can make these processes and the more agile you are with your operations, the better you’ll be able to respond to a rapidly shifting market landscape. 

Sign up for The Saturday Shipper

It’s a weekly newsletter that breaks down all of what’s happening in the shipping industry. We promise to only send it out once on Saturdays!

Take me there!

Imports from China now face tariffs of up to 245%, White House says

The U.S. is imposing tariffs as high as 245% on Chinese imports due to national security concerns and China's retaliatory actions, including rare earth export restrictions. These tariffs include a 125% reciprocal...

Trump tariffs on China will soon bring ‘irreversible’ damage to many American businesses

President Trump’s decision to exempt Apple’s iPhone and other tech products from new China tariffs offered limited relief, as the broader U.S. economy, especially small businesses, faces growing strain from a sweeping 145% tariff...

China strikes back with 125% tariffs on U.S. goods as trade war intensifies

China has sharply raised tariffs on U.S. goods to 125% in retaliation for President Trump's recent tariff hikes, which now bring the total U.S. tariff rate on Chinese imports to 145%. Beijing criticized...

Trump temporarily drops tariffs to 10% for most countries, hits China harder with 125%

President Donald Trump announced a 90-day pause on new tariffs, reducing them to 10% for most U.S. trade partners to allow for trade negotiations. He also raised tariffs on Chinese imports to 125%, citing disrespect towards global markets. Following the announcement,...

Trump’s reciprocal tariffs plan kicks in; China vows again to impose countermeasures

President Donald Trump's tariffs are now in effect, including a projected 104% tariff on imports from China. On Tuesday, U.S. Customs and Border Protection announced that it was ready to start collecting country-specific tariffs from 86 trading partners at 12:01 a.m....

Tariff Update – April 3

April 3rd: Section 232 tariffs apply to all imported passenger vehicles and light trucks as classified below - 22.01, 8703.23.01, 8703.24.01 31.01, 8703.32.01, 8703.33.01 40.00, 8703.50.00, 8703.60.00 70.00, 8703.80.00, 8703.90.01 21.01, 8704.31.01, 8704.41.00 51.00,...

Trump to impose tariffs of at least 10%, higher reciprocal rates for some countries

President Trump announced that the U.S. will impose a minimum baseline 10% tariff on all imported goods and higher "reciprocal" tariffs on countries that impose tariffs on U.S. exports. These tariffs, set to take...

Trump Tariff Updates

President Trump is due to hold an event in the White House Rose Garden on Wednesday, April 2nd at 4 p.m. ET. to announce his plans for reciprocal tariffs on countries around the world.  These tariffs are expected to be applied to every country that taxes U.S. imports,...

Trump slaps 25% tariffs on auto imports, warns EU and Canada will face ‘far larger’ levies if they ally

President Trump is reshaping US trade policy with new tariffs, including a 25% levy on foreign-made vehicles starting April 2. While he has promised the tariffs will be "fair," Trump warned...

Trump says any country that purchases oil from Venezuela will have to pay 25% tariff on trade with U.S.

President Trump announced that starting April 2nd, any country buying oil and gas from Venezuela will face a 25% tariff on trade with the U.S. After the announcement, U.S. crude rose by 1.13% to $69.05 per...