Economic fortune-teller: interview with Jason Schenker
Where's the global economy headed? Which economic indicators should you be watching? What's the outlook for blockchain? Economic guru Jason Schenker has the answers.
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
As the president of Prestige Economics, an Austin, Texas-based financial market research and consulting firm, Jason Schenker acts as a sort of professional fortune-teller. By digging deep into government reports, federal statistics, and policy papers, Schenker charts the numbers that drive our stock prices, trading trends, interest rates, and economic booms ... or recessions.
Schenker also has a knack for bringing these dull spreadsheets to life, pointing out the specific figures that can move markets and pulling back the curtain on the way it works. His predictions hit their target so often that the firm is consistently ranked as one of the most accurate economic forecasters in the world. He also runs The Futurist Institute, which trains analysts to predict the future based on current trends and view business opportunities, risk management, markets, and the economy from a long-term perspective.
DC Velocity Senior News Editor Ben Ames caught up with Schenker in October at MHI's 2018 Conference and Executive Summit in Orlando, Fla., just after he delivered a keynote address about the economic prospects for the material handling, logistics, and supply chain sectors. The following is an edited version of his remarks; for the full version of the interview, check out the video on our website.
Q: What are some of the main themes that you've been sharing with attendees here at the MHI show?
A: Well, the main theme is that 2018 was a good year, and we see 2019 as a little bit slower. There are rising downside risks from tighter monetary policy and the ongoing trade war between the U.S. and China, and there are even more risks to the downside for 2020.
Q: Sounds like some challenges coming up. Could you tell us a bit more about what's in store for U.S. businesses in particular?
A: I think on the U.S. side, the biggest positive thing this year has been the tailwind from the corporate tax cuts and the ability to expense equipment. These things have been very positive.
But as I noted earlier, there are some dark clouds on the horizon. For one thing, we've seen rising wages. That has put pressure on company profit margins and raised the risk of overall inflation, leading the Fed to raise interest rates. That poses a downside risk for housing and autos, which in turn creates a risk of a slowing or even a modest contraction in business investment in the next couple of years.
Q: How does that affect the outlook for the supply chain, logistics, and material handling sectors in both the short and long term?
A: In addition to the headline, which is the downside risk from the monetary policy and the trade wars, there is also the trend line, which includes things like the growth of e-commerce and decline of brick and mortar stores .... That is going to be very important for logistics, supply chain, warehousing, and material handling as you continue to shorten the supply chain and cut out the storefront.
That has been going on for a number of years, but now we're really seeing e-commerce's share of retail sales rising. And that share is going to continue to grow. So I think that is a long-term opportunity, even in a downturn, while some of the more industrially exposed parts of material handling could face downside risks. But those that are tied to the almost-evergreen-like future of e-commerce could continue to see their business expand even if things slow a little bit in the overall economy.
Q: What are some of the key metrics you track in developing your forecasts?
A: The most important things, really, for the overall economy are the purchasing manager indexes (PMIs). In the U.S., it is the ISM's (Institute for Supply Management) PMI. In Europe, it is the IHS Markit Eurozone Manufacturing PMI, and in China, it is the Caixin Manufacturing PMI, which is a privately compiled survey of purchasing managers at small and medium-sized manufacturing companies. So those are the main data points I watch to track the global macro economy.
For the forecast we make for material handling, we watch a number of different things: the unemployment rate; the ISM, of course; the nonmanufacturing index; and the 30-year Treasury rate. We watch what's going on with the dollar, the stock market, and industrial production, among other factors.
Q: In your keynote, you mentioned that some of the PMIs are compiled from information provided by purchasing managers for manufacturing companies on the amount of raw material they need to fill orders they've booked.
A: That is right. So this is really interesting. The reason that the PMIs are important are these surveys. If you are in manufacturing, you're purchasing more this month than last month. Why are you buying more? Well, you're buying more because you have orders to fill. When your orders get filled, those finished goods become part of the GDP [gross domestic product], and this is why the [rising] purchasing indexes are a good indicator of economic growth.
[An index rating of] 50 is a break-even point, generally speaking. The Chinese number has recently fallen to 50, which means that in September 2018, manufacturing in China was at a standstill. So production has really slowed in recent months. While that is a low risk to the downside, it does present additional downside risk to commodity prices, oil prices, and things like that.
If we look at the U.S. and the eurozone, those indexes are well above 50. That is very good. Although the eurozone index slowed in recent months, the U.S. ISM PMI remains very strong. So these numbers are really important to watch because they provide a leading indicator of what's going to happen next.
As for the material handling equipment sector, Prestige Economics, my firm, produces the MHI Business Activity Index, the MHI BAI, and that is really important for getting an idea, month over month, of what's going on within the industry. We have seen some choppy moves in shipments and orders going into the second half of 2018. That's a little bit disconcerting going into 2019 because the survey cohort includes respondents from both the more recession-proof e-commerce automation side and the more industrial parts of the business.
Q: When it comes to forecasting, there is nothing like a little hype to stir things up and throw the projections off. Here, blockchain comes to mind. As a matter of fact, you have a book out called The Promise of Blockchain. Could you share some of the book's main points with us?
A: Sure. The full title is The Promise of Blockchain: Hope and Hype for an Emerging Disruptive Technology. So it is about the hope and the hype. The hype is really tied to what happened with bitcoin and other cryptocurrencies—the ability to move this money backed by nothing, supported by no one. It became a very big bubble that had implications beyond financial markets. There were nefarious bad actors and third parties using the money to do different illegal things, politically subversive things, and this is a really big problem. Regulators started clamping down at the end of last year and through this year, and that is likely to continue. So cryptos that want to work outside of the banking system, outside of regulation, are likely to wither on the vine and come under further pressure, whereas those that work within the SWIFT (Society for Worldwide Interbank Financial Telecommunications) banking system [a secure network used by financial institutions to exchange information about transactions] will have more potential to continue. But the hype bubble has very likely burst.
Now, in stark contrast to the bubble of the anonymous, subversive, and mobster-ish use of some of the cryptocurrencies, there is also the hope for blockchain. And that's as a factor for reducing the risk of a "central point of failure," something that in a supply chain is critical. It's also something that can add transparency of transactions, which is really, really good.
The Futurist Institute recently did an analysis that looked at different industries and their use cases. Freight transportation and logistics stood out as one of the areas that could most benefit from the use of blockchain because it involves high-volume transactions, you can have a closed blockchain [one that's restricted to parties that have been invited], and you can share more detail. That is really important because sometimes in the supply chain, you've got conflict minerals or chemicals restrictions or you might need to show the chain of custody. These are really important things to do... and that is the promise of it. That is the hope, against the hype that we see on the crypto side.
To put it in more simplistic terms, what this means is it's a more detailed kind of accounting software. It is database technology. It's actually not that exciting, right? In general, this is like, you know, when Lotus 123 was first introduced—that was a huge deal for folks in accounting. This is like SAP [a much more sophisticated type of enterprise software]—this level of data enhancing the richness, enhancing the transparency. That is all very good, but the hype makes it seem like a lot more than that, and I think we are moving now from a hype phase into implementation. I think what we will find is that the implementation, although useful in some cases, is not as crazy or as interesting as the hype has led some to believe.
Online merchants should consider seven key factors about American consumers in order to optimize their sales and operations this holiday season, according to a report from DHL eCommerce.
First, many of the most powerful sales platforms are marketplaces. With nearly universal appeal, 99% of U.S. shoppers buy from marketplaces, ranked in popularity from Amazon (92%) to Walmart (68%), eBay (47%), Temu (32%), Etsy (28%), and Shein (21%).
Second, they use them often, with 61% of American shoppers buying online at least once a week. Among the most popular items are online clothing and footwear (63%), followed by consumer electronics (33%) and health supplements (30%).
Third, delivery is a crucial aspect of making the sale. Fully 94% of U.S. shoppers say delivery options influence where they shop online, and 45% of consumers abandon their baskets if their preferred delivery option is not offered.
That finding meshes with another report released this week, as a white paper from FedEx Corp. and Morning Consult said that 75% of consumers prioritize free shipping over fast shipping. Over half of those surveyed (57%) prioritize free shipping when making an online purchase, even more than finding the best prices (54%). In fact, 81% of shoppers are willing to increase their spending to meet a retailer’s free shipping threshold, FedEx said.
In additional findings from DHL, the Weston, Florida-based company found:
43% of Americans have an online shopping subscription, with pet food subscriptions being particularly popular (44% compared to 25% globally). Social Media Influence:
61% of shoppers use social media for shopping inspiration, and 26% have made a purchase directly on a social platform.
37% of Americans buy from online retailers in other countries, with 70% doing so at least once a month. Of the 49% of Americans who buy from abroad, most shop from China (64%), followed by the U.K. (29%), France (23%), Canada (15%), and Germany (13%).
While 58% of shoppers say sustainability is important, they are not necessarily willing to pay more for sustainable delivery options.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”
Economic activity in the logistics industry continued its expansion streak in October, growing for the 11th straight month and reaching its highest level in two years, according to the most recent Logistics Managers’ Index report (LMI), released this week.
The LMI registered 58.9, up from 58.6 in September, and continued a run of moderate growth that began late in 2023. The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.
October’s reading showed the fastest rate of expansion in the overall index since September of 2022, when the index hit 61.4. The results show that the industry is continuing its steady recovery from the volatility and sluggish freight market conditions that plagued the sector just after the Covid-19 pandemic, according to the LMI researchers.
“The big takeaway is that we’re continuing the slow, steady recovery,” said LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University. “I think, ultimately, it’s better to have the slow and steady recovery because it is more sustainable.”
All eight of the LMI’s indices grew during the month, with the Transportation Prices index showing the most growth, at nearly 6 points higher than September, reflecting increased activity across transportation markets. Transportation capacity expanded slightly during the month, remaining just above the 50-point threshold. Rogers said more capacity will enter the market if prices continue to rise, citing idle capacity across the market due to overbuilding during the pandemic years.
“Normally we don’t have this much slack in the market,” he said. “We overbuilt in 2021, so there’s more slack available to soak up this additional demand.”
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.
Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.
“The Canadian port strike is a microcosm of many of the issues that are impacting Western economies today; protection against automation, better work-life balance, and a cost-of-living crisis,” Russell Group Managing Director Suki Basi said in a release. “Taken together, these pressures are creating a cocktail of connected risk for countries, business, individuals and entire sectors such as marine insurance, which help to mitigate cargo exposures.”
The strike is also sending ripples through neighboring U.S. ports, which are hustling to absorb the diverted cargo, according to David Kamran, assistant vice president for Moody’s Ratings.
“The recurrence of strikes at Canadian seaports is positive for U.S. ports that may gain cargo throughput, depending on the strike duration,” Kamran said in a statement. “The current dispute at Vancouver is another example of the resistance of port unions to automation and the social risk involved with implementing these technologies. Persistent disruption in Canadian port access would strengthen the competitive position of US West Coast ports over the medium-term, as shippers seek to diversify cargo away from unreliable gateways.”
The strike is also affected rail movements, according to ocean cargo carrier Maersk. CN has stopped all international intermodal shipments bound for the west coast ports of Prince Rupert, Robbank, Centerm, Vanterm, and Fraser Surrey Docks. And CPKC has stopped acceptance of all export loads and pre-billed empties destined for Vancouver ports.
Connected with the turmoil, Maersk has suspended its import and export carrier demurrage and detention clock for most affected operations. The ultimate duration of the strike is unknown, but the situation is “rapidly evolving” as talks continue between the Longshore Workers Union (ILWU 514) and the British Columbia Maritime Employers Association (BCMEA), Maersk said.
Terms of the acquisition were not disclosed, but Mode Global said it will now assume Jillamy's comprehensive logistics and freight management solutions, while Jillamy's warehousing, packaging and fulfillment services remain unchanged. Under the agreement, Mode Global will gain more than 200 employees and add facilities in Pennsylvania, Arizona, Florida, Texas, Illinois, South Carolina, Maryland, and Ontario to its existing national footprint.
Chalfont, Pennsylvania-based Jillamy calls itself a 3PL provider with expertise in international freight, intermodal, less than truckload (LTL), consolidation, over the road truckload, partials, expedited, and air freight.
"We are excited to welcome the Jillamy freight team into the Mode Global family," Lance Malesh, Mode’s president and CEO, said in a release. "This acquisition represents a significant step forward in our growth strategy and aligns perfectly with Mode's strategic vision to expand our footprint, ensuring we remain at the forefront of the logistics industry. Joining forces with Jillamy enhances our service portfolio and provides our clients with more comprehensive and efficient logistics solutions."