The Friday Report: October 18th, 2019

Quick wrap up of a few hot topic newsworthy stories in the supply chain logistics industry

E-Commerce Popularity Driving the Demand for Space

Amazon has set the expectations for consumers for fast, free delivery.  The rest of the market now has to keep up.  This is having a major impact on how space for warehouses, fulfillment centers and distribution centers (DCs) are searched for, contracted and managed.  With a current vacancy rate in the industry hovering at the lowest rate ever, around 4.3%, the market is pinched for space. 

More companies than ever before are now providing direct fulfillment for the first time and need to meet expectations for short delivery windows.  Currently, approximately 280 million square feet of industrial and distribution space is under construction each quarter.  The majority of this space is for warehouses.  Because so many businesses are entering the market, nearly every area of the country is facing space constraints, especially in close proximity to cities and urban areas.  This is forcing changes, such as bigger buildings with taller clear heights and fulfillment centers with smaller footprints.

Does the Surprise Drop in U.S. Retail Sales Mean Consumers are Worried?

Recently, U.S. retail sales dropped, the first decrease in seven months. Industry experts believe that this may be an initial sign that consumer confidence may be weakening.  Overall sales dropped 0.3% in September as compared to an upwardly revised 0.6% increase in August.  Bloomberg had projected that the median estimate would be a 0.3% increase.

When looking at this from a different perspective, however, it seems as if the picture remains unchanged.  Within the “control group” category, sales experienced little change but missed predictions for a 0.3% increase.  The control group excluded car dealers, food services, building materials stores and gas stations.  Many industry experts consider this to be a more reliable gauge of underlying consumer demand.

Taken together, the weaker business investment and manufacturing, continued trade war and reduced consumption pose risks to America’s longest running economic expansion on record.  Poor economic performance may have a negative impact on political fortunes in next year’s elections.

Middle Market Executives Predict Recession

According to a survey of 250 business owners and C-level executives conducted by Grant Thornton LLP, 62% of respondents anticipate a recession within the next 18 months.  39% of respondents are predicting a recession within the next 12 months, as compared with the 33% of public company respondents who likewise predicted recession. This is in contrast to the 23% of survey respondents who do not predict a recession within two years.

Of the groups, public company respondents feel that interest rate increases are likely to trigger recession in contrast to private companies who believe that shifting regulations, trade and tariffs, American political uncertainty and credit availability are likely triggers for recession.

Half the survey respondents indicated that innovation is among their top investment decisions in advance of a recession.  Nearly half the respondents identified research and development, an important driver of innovation.  The indication that companies are planning strategic technology investments as a means of ensuring that they thrive through the anticipated recession.  This includes using technology to improve management of inventory levels to avoid carrying unnecessary inventory costs, monitoring customer demand patterns and managing inventory levels.

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