Six years after the official end of the Great Recession in June 2009, U.S. manufacturers, wholesalers, and retailers continue to play it safe and act conservatively with respect to their inventory holdings. Many companies, though, have been caught off guard by several major developments in the U.S. and global macroeconomic environment during the past 12 months. These include the following:
World oil and commodity prices have plunged. In June of 2014, Brent crude, a benchmark for world oil prices, stood at around US $112/barrel. By the end of January of this year, it had plunged to a low of $48.40/barrel. As of June 2015, the Brent price had recovered by approximately $15/barrel from the end-of-January reading, but it still remains around $48/barrel lower than its June 2014 level. World commodity prices have also fallen sharply over the past year. The IHS Materials Price Index (MPI)—an aggregation of exchanged and non-exchanged traded commodity prices computed by IHS—plunged by approximately 40 percent between the last week of June 2014 and early July of this year (see Figure 1).
For most economies, lower oil and commodity prices typically provide a net benefit, but for energy-producing countries whose economies heavily depend on oil revenues, such as Saudi Arabia or Russia, they have a strong negative effect. In the United States, lower oil prices are a good thing or a bad thing, depending on whom you ask—or where you live. For consumers, lower oil prices are good: They translate to lower gasoline prices at the pump, which frees up cash in household budgets and helps to boost consumer spending. Lower energy prices also allow companies to reduce their transportation costs, creating savings that can increase their margins or be passed along to consumers. But falling oil prices are behind a pullback in energy exploration and investment in several parts of the United States, including West Texas, North Dakota, Oklahoma, New Mexico, Louisiana, and Alaska. Moreover, spending on equipment and structures like drilling rigs by businesses in the energy and mining industries has been hit hard as drilling activity has diminished. Texas as a whole is likely to fare relatively well thanks to its diversified economic structure, but North Dakota and Oklahoma are seeing a major impact, since their local economies depend to a significant degree on energy production.
The U.S. dollar continues to appreciate in value. In the past 12 months the U.S. dollar has appreciated considerably compared to most major currencies. At the beginning of August 2014, the value of a euro was in the neighborhood of US $1.34. In mid-March of this year, the euro exchange rate hit a 12-year low of $1.05. It has recovered very slightly, to approximately $1.09 as of the third week of July.
A stronger dollar helps boost imports, as imported products become relatively cheaper, and it lowers consumer and producer price inflation by making imported consumer products and intermediate inputs less expensive. However, it places corresponding downward pressure on exports of manufactured goods.
Several emerging markets are slowing down—and some are in deep recession. The Russian and Brazilian economies continue to contract and are still in recession. Russia's real gross domestic product (GDP) was down 0.6 percent year-over-year in the first quarter of 2015. We at IHS expect a total of four quarters of contraction, with Russia pulling out of its recession by the fourth quarter of this year. One challenge for the country is that over 50 percent of the government's revenue is energy-based, so lower energy prices have a strong negative effect on the economy. Another is that the sanctions imposed by the United States and the European Union due to Russia's involvement in the Ukrainian and Crimean conflicts are unlikely to be lifted before 2016. These sanctions are restraining credit availability—and therefore are elevating interest rates—by isolating Russia from international capital markets.
Brazil's real GDP fell 0.2 percent quarter-on-quarter in Q1, and we expect the second and third quarters to be in negative territory as well. Brazil's troubled economic situation—we anticipate a 1.4 percent contraction this year and tepid 0.6 percent growth in 2016—could also take a turn for the worse. Rising inflation is forcing the country's central bank to raise interest rates at a time when the economy is already contracting.
Turbulence roils China's stock market, and a Greek tragedy unfolds. For anyone in tune with international economic developments, the headlines in June and July of this year have been extraordinary. Greece came very close to exiting the eurozone, and China suffered a major stock market correction.
Fortunately, the "contagion" effect of these events on other economies has been mild, as evidenced by the limited volatility in global financial markets and foreign-exchange rates. One reason is that banks in the rest of the world have dramatically reduced their exposure to Greek debt, from about €247 billion in mid-2012 to €34 billion this year. In addition, European authorities have set up emergency bailout funds to insulate the rest of Europe from the fallout of the ongoing Greek crisis. Another is that the Chinese equity bubble was largely financed with local money, so foreign banks have limited exposure. Moreover, swift action by China's government seems to have stopped the stock market rout—at least temporarily.
Consumer spending gives the U.S. a boost
Mixed or tepid growth in some emerging markets, uncertainty around the Greek debt crisis, and a stronger dollar all have placed significant downward pressure on U.S. exports. Real exports of goods declined 3 percent in the first quarter of 2015. In addition, the labor-related West Coast port disruptions in the last quarter of 2014 and the early part of this year put a damper on both import and export trade. Many retailers had a difficult time restocking, and manufacturers' and wholesalers' inventories were running low in the first two quarters of the year.
After stalling in the early part of 2015, the U.S. economy is expected to resume its relatively better expansion, mostly on the backs of consumer spending and a sustained housing-market recovery. IHS expects consumer spending patterns to be more balanced in the 2015-2017 period than they were from 2010 through 2014, with stronger growth in services and nondurable goods. The robust growth in auto sales that has been an important driver of consumer spending over the past few years, caused by a release of pent-up demand, is likely to moderate. Light-vehicle sales climbed at double-digit rates from 2010 through 2012, but sales growth slowed to 7.6 percent in 2013 and declined further, to 5.7 percent, in 2014. Auto unit sales are expected to increase over the next three years, but at a significantly slower pace. Light-vehicle unit sales are expected to rise 3.6 percent in 2015 and around 2.0 percent in 2016 and 2017.
Retailers have been relatively cautious when it comes to inventory building because of tight margins, fierce competition, and price discounting. However, since consumer spending and the housing market will be the main drivers of economic growth for the next couple of years, IHS expects retail inventory growth to outpace wholesale and manufacturing inventories by a considerable margin in the period 2015-2017 (see Figure 2). We are currently forecasting increases in real retail inventories of 3.4 percent in 2015, 4.9 percent in 2016, and 4.1 percent in 2017.
Manufacturing inventories are expected to be considerably weaker, with exports handicapped by weak global markets and the strong dollar. We expect real manufacturing inventories to increase 0.9 percent in 2015, and then 1.7 percent in 2016 and 1.8 percent in 2017.
Wholesale inventories have seen a disproportionate buildup in 2014 and the first half of 2015, so their growth rate is expected to slow to 2.1 percent in 2016 and 1.5 percent in 2017. Like manufacturing, wholesale inventories are exposed to the weakness of export markets, which is mitigating growth; however, wholesalers also benefit from strength in sales and inventories on the retail side.
Benefits for Amazon's customers--who include marketplace retailers and logistics services customers, as well as companies who use its Amazon Web Services (AWS) platform and the e-commerce shoppers who buy goods on the website--will include generative AI (Gen AI) solutions that offer real-world value, the company said.
The launch is based on “Amazon Nova,” the company’s new generation of foundation models, the company said in a blog post. Data scientists use foundation models (FMs) to develop machine learning (ML) platforms more quickly than starting from scratch, allowing them to create artificial intelligence applications capable of performing a wide variety of general tasks, since they were trained on a broad spectrum of generalized data, Amazon says.
The new models are integrated with Amazon Bedrock, a managed service that makes FMs from AI companies and Amazon available for use through a single API. Using Amazon Bedrock, customers can experiment with and evaluate Amazon Nova models, as well as other FMs, to determine the best model for an application.
Calling the launch “the next step in our AI journey,” the company says Amazon Nova has the ability to process text, image, and video as prompts, so customers can use Amazon Nova-powered generative AI applications to understand videos, charts, and documents, or to generate videos and other multimedia content.
“Inside Amazon, we have about 1,000 Gen AI applications in motion, and we’ve had a bird’s-eye view of what application builders are still grappling with,” Rohit Prasad, SVP of Amazon Artificial General Intelligence, said in a release. “Our new Amazon Nova models are intended to help with these challenges for internal and external builders, and provide compelling intelligence and content generation while also delivering meaningful progress on latency, cost-effectiveness, customization, information grounding, and agentic capabilities.”
The new Amazon Nova models available in Amazon Bedrock include:
Amazon Nova Micro, a text-only model that delivers the lowest latency responses at very low cost.
Amazon Nova Lite, a very low-cost multimodal model that is lightning fast for processing image, video, and text inputs.
Amazon Nova Pro, a highly capable multimodal model with the best combination of accuracy, speed, and cost for a wide range of tasks.
Amazon Nova Premier, the most capable of Amazon’s multimodal models for complex reasoning tasks and for use as the best teacher for distilling custom models
Amazon Nova Canvas, a state-of-the-art image generation model.
Amazon Nova Reel, a state-of-the-art video generation model that can transform a single image input into a brief video with the prompt: dolly forward.
Economic activity in the logistics industry expanded in November, continuing a steady growth pattern that began earlier this year and signaling a return to seasonality after several years of fluctuating conditions, according to the latest Logistics Managers’ Index report (LMI), released today.
The November LMI registered 58.4, down slightly from October’s reading of 58.9, which was the highest level in two years. The LMI is a monthly gauge of business conditions across warehousing and logistics markets; a reading above 50 indicates growth and a reading below 50 indicates contraction.
“The overall index has been very consistent in the past three months, with readings of 58.6, 58.9, and 58.4,” LMI analyst Zac Rogers, associate professor of supply chain management at Colorado State University, wrote in the November LMI report. “This plateau is slightly higher than a similar plateau of consistency earlier in the year when May to August saw four readings between 55.3 and 56.4. Seasonally speaking, it is consistent that this later year run of readings would be the highest all year.”
Separately, Rogers said the end-of-year growth reflects the return to a healthy holiday peak, which started when inventory levels expanded in late summer and early fall as retailers began stocking up to meet consumer demand. Pandemic-driven shifts in consumer buying behavior, inflation, and economic uncertainty contributed to volatile peak season conditions over the past four years, with the LMI swinging from record-high growth in late 2020 and 2021 to slower growth in 2022 and contraction in 2023.
“The LMI contracted at this time a year ago, so basically [there was] no peak season,” Rogers said, citing inflation as a drag on demand. “To have a normal November … [really] for the first time in five years, justifies what we’ve seen all these companies doing—building up inventory in a sustainable, seasonal way.
“Based on what we’re seeing, a lot of supply chains called it right and were ready for healthy holiday season, so far.”
The LMI has remained in the mid to high 50s range since January—with the exception of April, when the index dipped to 52.9—signaling strong and consistent demand for warehousing and transportation services.
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).
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
Grocers and retailers are struggling to get their systems back online just before the winter holiday peak, following a software hack that hit the supply chain software provider Blue Yonder this week.
The ransomware attack is snarling inventory distribution patterns because of its impact on systems such as the employee scheduling system for coffee stalwart Starbucks, according to a published report. Scottsdale, Arizona-based Blue Yonder provides a wide range of supply chain software, including warehouse management system (WMS), transportation management system (TMS), order management and commerce, network and control tower, returns management, and others.
Blue Yonder today acknowledged the disruptions, saying they were the result of a ransomware incident affecting its managed services hosted environment. The company has established a dedicated cybersecurity incident update webpage to communicate its recovery progress, but it had not been updated for nearly two days as of Tuesday afternoon. “Since learning of the incident, the Blue Yonder team has been working diligently together with external cybersecurity firms to make progress in their recovery process. We have implemented several defensive and forensic protocols,” a Blue Yonder spokesperson said in an email.
The timing of the attack suggests that hackers may have targeted Blue Yonder in a calculated attack based on the upcoming Thanksgiving break, since many U.S. organizations downsize their security staffing on holidays and weekends, according to a statement from Dan Lattimer, VP of Semperis, a New Jersey-based computer and network security firm.
“While details on the specifics of the Blue Yonder attack are scant, it is yet another reminder how damaging supply chain disruptions become when suppliers are taken offline. Kudos to Blue Yonder for dealing with this cyberattack head on but we still don’t know how far reaching the business disruptions will be in the UK, U.S. and other countries,” Lattimer said. “Now is time for organizations to fight back against threat actors. Deciding whether or not to pay a ransom is a personal decision that each company has to make, but paying emboldens threat actors and throws more fuel onto an already burning inferno. Simply, it doesn’t pay-to-pay,” he said.
The incident closely followed an unrelated cybersecurity issue at the grocery giant Ahold Delhaize, which has been recovering from impacts to the Stop & Shop chain that it across the U.S. Northeast region. In a statement apologizing to customers for the inconvenience of the cybersecurity issue, Netherlands-based Ahold Delhaize said its top priority is the security of its customers, associates and partners, and that the company’s internal IT security staff was working with external cybersecurity experts and law enforcement to speed recovery. “Our teams are taking steps to assess and mitigate the issue. This includes taking some systems offline to help protect them. This issue and subsequent mitigating actions have affected certain Ahold Delhaize USA brands and services including a number of pharmacies and certain e-commerce operations,” the company said.
Editor's note:This article was revised on November 27 to indicate that the cybersecurity issue at Ahold Delhaize was unrelated to the Blue Yonder hack.
The new funding brings Amazon's total investment in Anthropic to $8 billion, while maintaining the e-commerce giant’s position as a minority investor, according to Anthropic. The partnership was launched in 2023, when Amazon invested its first $4 billion round in the firm.
Anthropic’s “Claude” family of AI assistant models is available on AWS’s Amazon Bedrock, which is a cloud-based managed service that lets companies build specialized generative AI applications by choosing from an array of foundation models (FMs) developed by AI providers like AI21 Labs, Anthropic, Cohere, Meta, Mistral AI, Stability AI, and Amazon itself.
According to Amazon, tens of thousands of customers, from startups to enterprises and government institutions, are currently running their generative AI workloads using Anthropic’s models in the AWS cloud. Those GenAI tools are powering tasks such as customer service chatbots, coding assistants, translation applications, drug discovery, engineering design, and complex business processes.
"The response from AWS customers who are developing generative AI applications powered by Anthropic in Amazon Bedrock has been remarkable," Matt Garman, AWS CEO, said in a release. "By continuing to deploy Anthropic models in Amazon Bedrock and collaborating with Anthropic on the development of our custom Trainium chips, we’ll keep pushing the boundaries of what customers can achieve with generative AI technologies. We’ve been impressed by Anthropic’s pace of innovation and commitment to responsible development of generative AI, and look forward to deepening our collaboration."