This Week in SCDigest

The new orders index - a barometer of future manufacturing activity - followed a similar trajectory, trending down sharply in the last half of the year and also showing contraction in the last two months after a long streak indicating expansion.

The PMI data was generally consistent with manufacturing production levels as reported each month by the Federal Reserve. First, we will note that in July, the Fed changed the baseline year for the index from 2007 to 2012, giving the average month in that year a score of 100. Who knows why they make such changes, but it is interesting because 2007 actually had higher US manufacturing output than was reached in 2007, the peak year of output that amazingly we still have not exceeded eight years later.

As can be seen in the chart below, the index hit bottom in June 2009 at a level of about 85 (meaning 15% below 2012 levels), and has climbed slowly but steadily from there. But as can be seen, and consistent with the PMI numbers, the index has really flatlined in the last half of 2015 (we are still awaiting the December number).

While the overall manufacturing index is thus about 6% above 2012 production, there are huge differences in that recovery by sector, which we will detail in coming weeks in OnTarget.

Oil prices of course continue to head almost unbelievable downward. The trend started in last quarter of 2014, and we ended that year at about $50.00 per barrel for US West Texas Intermediate (WTI) after having been as high as $107 that summer.

As can be seen below, WTI railed a bit in 2015, hitting a high of about $63 in late April, before heading consistently down beginning in July and ending the year at about $37.00. Who could have possibly seen this coming? Diesel prices naturally followed suit, starting the year at about $2.88 per gallon - down more than $1.00 from the start of 2014 - and ending the year at about $2.23.  As I noted last week, this help offset rapidly rising US truck rates in most 2015, especially in the first half of the year.

Rail volumes shrank, with total units down 2.5%, according to the Association of American Railroads. Traditional car loads were down 6.1%, mostly on continuing drops in coal traffic, but intermodal cars were up just 1.6% for the year, far below most recent periods. There was some evidence that low diesel prices were leading to diversion of some freight from rail to truck.

On the ocean shipping side, preliminary numbers show US ports handled 218.2 million TEU in 2015, up 5.4% from 2014, including both imports and exports.

The US trade deficit rose 5.5% through November, to a total of $488 billion, even as oil imports slowed dramatically. Of course, as usual the story was even worse for "goods," where the trade deficit was an astounding $696 billion through November, another record pace. Roughly half of that deficit in goods is in trade with China, where the deficit was $337 billion through November, and will again set a new record for the year, surpassing the 2014 mark of $343 billion for the full year. Where is the reshoring?

The cumulative US trade deficit with China in goods since 2000 is now some $3.6 trillion, as shown in the graphic below.

The growth of ecommerce sales rolled on, up 14.8%, 14.3% and 15.1% in Q1 through Q3, respectively, year over year, as we await the Q4 number from the Commerce Dept, with Q3 on-line sales of about $87.5 billion. That is still under 10% of total retail sales (and there are different ways to calculate that percentage), but ecommerce's share is obviously much higher in some categories. Amazon's is somehow growing even faster, with increases in merchandise sales in the mid-20% range in 2015, and it will end the year with revenue of well more than $100 billion when it reports at the end of the month. Still, it struggles to make a profit, with earnings of only $114 million through Q3, basically breakeven on sales of $71.2 billion in sales in the first nine months of 2015.

Overall retail sales were up only about 1.3% for the year, including inflation, as the retail transition to on-line continues.

I have lots more but am out of space. 

Any reaction to our review of supply chain 2015 in numbers and charts? Is it of interest to you?What else would you like to see? Let us know your thoughts at the Feedback button below.

Loved it! Nice job, Dan!

Merry Christmas!

Mike Ledyard
Vested Program Faculty
University of Tennessee, Graduate & Executive Education

Wonderful tale.

Happy Holidays!

Jerry Saltzman
Director, Global Planning Capabilities
Pfizer