Supply Chain Managers Told to Prepare for Demand Surge in 2014

Improved economic fundamentals will drive an acceleration in 2014 growth, said IHS Global Insight economists.

By ·

Improved economic fundamentals will drive an acceleration in 2014 growth, said IHS Global Insight economists. In November’s “flash forecast,” supply chain managers were told to prepare for a surge in the demand cycle.

So far this month, there have been two positive surprises in the newly released economic data, said Chief US Economist Doug Handler.

“Third-quarter real GDP grew at a 2.8% annual rate—well above consensus expectations, although 0.8 percentage point of this growth came from increased inventories,” he said. “We believe at least some of these inventories were unplanned, triggering offsetting forecast changes in the coming months.”

The other surprise concerned employment, said IHS. In October, the month when the government shutdown occurred, 204,000 new jobs were created on top of strong upward revisions to the August and September data. The net findings are that the economy currently has an underlying trend growth rate of about 2.0–2.5% and that the shutdown had little effect on private sector hiring (i.e., indirect impacts) and probably little effect on spending and investment.

With the strong employment report, near-term growth prospects look good, but for the inventory-driven headwinds and the direct impact of October’s shutdown on federal government output. Once these headwinds dissipate, economic growth will accelerate from 1.7% in 2013 to 2.5% 2014, and even slightly faster in 2015.

Looking at the major sectors, consumers appear to be inured to the rancor coming from Washington. Over the past six quarters, consumer spending contributed between 1.0 and 1.5 percentage point to overall growth in each quarter—no more and no less. The unflappability of the consumer is probably one of the strongest and underreported aspects of the economy.

Another feature of the new third-quarter data is that the federal government’s contribution to GDP growth was minus 0.1 percentage point—also a very positive development. The October agreement to end the shutdown and temporarily suspend the debt ceiling also calls for negotiations on the fiscal 2014 budget. It is impossible to predict what the outcome will be, but for the time being, we continue to assume that a budget deal will replace the sequester with longer-term tax increases and spending cuts focused on entitlements. However, the ultimate content of this budget remains a risk factor for the first quarter of 2014 and beyond.

Once these short-term issues are resolved, economic growth should accelerate throughout 2014, led by an upturn in housing and equipment investment and the absence of any major government spending drag. Consumer growth also accelerates as a result of continued increases in employment. Improved employment reports such as October’s will become more the norm next year.

These demand conditions set the stage for a possible start to the Federal Reserve’s tapering of quantitative easing in January or March.

December remains a possibility, depending on the strength of the November data and the budget negotiations. This forecast also includes the unemployment rate hitting 6.5% in early to mid-2015, which the Fed has stated is a threshold for raising the federal funds rate, ostensibly considering other economic factors, too.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

All Topics
Latest Whitepaper
Digital Issue: The Current State of Third-Party Logistics Services
It has become quite clear that logistics professionals are now facing an unprecedented set of challenges. From tightening capacity, to ongoing regulation hurdles, to the complexity brought on by e-commerce, today’s shippers are transforming the way they manage their logistics operations.
Download Today!
From the June 2017 Issue
Here are five trends that every shipper­—and potential shipper—must watch as the demand for experienced logistics and supply chain professionals soars.
2017 Rail/Intermodal Roundtable: Volume stable, business steady
Cross-Border Logistics: NAFTA tune-up time
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Women in Logistics: Breaking Gender Roles to Win the War for Talent
In this session you'll hear from a panel of women who are now leading top-level logistics and supply chain operations. The panel will share their success stories as well as advice for women who are now making their way up the ladder.
Register Today!
EDITORS' PICKS
2017 Top 50 3PLs: Investment and Consolidation Maintain Traction
The trend set over the past few years for mergers and acquisitions has hardly subsided, and a fresh...
The Evolution of the Digital Supply Chain
Everyone is talking about terms like digitization, Industry 4.0 and digital supply chain management,...

2017 Salary Survey: Fresh Voices Express Optimism
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management...
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...