In today's interconnected and wired world, what happens in one major market inevitably reverberates in others around the globe. So it's not surprising that economies worldwide are feeling the effects of the U.S. economic slowdown.
Global Insight Inc. (formerly DRI and WEFA) is a leading consulting company providing comprehen- sive economic information and forecasts on countries, regions and industries, with particular expertise in global trade and transportation. Global Insight serves more than 3,800 clients in industry, finance, and government through offices in 13 countries covering North and South America, Europe, Africa, the Middle East, and Asia.
In today's interconnected and wired world, what happens in one major market inevitably reverberates in others around the globe. So it's not surprising that economies worldwide are feeling the effects of the U.S. economic slowdown.
In the United States the news remains bleak, with credit availability continuing to tighten as financial distress spreads well beyond the mortgage market. Financial institutions that are taking heavy losses in that market are reducing their risk exposures across the board. Moreover, the availability and costs of financing for businesses, consumers, and state and local governments have deteriorated to such a point that lower interest rates for the banks are not translating into lower rates to borrowers. In fact, it's quite the reverse, with banks raising their rates and showing an unwillingness to lend.
The United States is experiencing a true "credit crunch," the likes of which has not been seen in decades. A credit crunch is a sudden reduction in the availability of loans or a sudden increase in the cost of obtaining a loan. It often is caused by a sustained period of lax and inappropriate lending, which results in losses for lending institutions and investors when the loans turn sour and the full extent of bad debts becomes known.
That's one reason the future looks threatening and uncertain. President Franklin D. Roosevelt's Depression-era assertion, "The only thing we have to fear is fear itself," has become the mantra recently, a reminder that an economic crash hinges on psychology — in other words, on a crisis of confidence among lenders and spenders.
Although the U.S. economy hasn't plunged into that abyss quite yet, it is teetering on the edge, and it is doing so while the U.S. dollar continues to weaken. The crisis probably is not as bad as all the negative news headlines would seem to indicate, and it should not cause a severe recession. Nevertheless, it will have an undeniable impact, not just on the United States but on its trading partners as well.
Dollar's decline hits hard
Since an estimated 70 percent of the U.S. gross domestic product (GDP) is linked to consumption, a drop in consumer spending will have an impact on trade and cause repercussions for trading partners. One can only hope that Europe will maintain its confidence and avoid a similar decline in trade while providing some of the relative optimism the markets could use right now.
The declining dollar has investors shifting to the commodity markets, pushing up the price of oil to an unsustainable level that is creating further inflationary pressures. Other commodity prices, particularly for grains and other foodstuffs, have also increased dramatically, in some cases reaching record highs. The countries that are least able to deal with rising prices are the ones that are being hit the hardest.
Much of the rise in prices stems from policies of the U.S. Federal Reserve, which is using lower interest rates as its primary tool for staving off a recession. The dollar has depreciated 33 percent against the euro since November 2005, but it appears as if the Fed does not care about a weak dollar for now. In fact, the Fed's policies have prompted the European Central Bank to complain about excessive movement in the exchange rate.
Based on the financial turmoil in the United States, Global Insight is projecting that world GDP growth will decline from nearly 4 percent last year to closer to 3 percent this year, a drop of one-quarter. The impact of that decline on global industrial production will increasingly be felt in the second half of the year. For example, the weakness of U.S. imports in 2007 and 2008 is having a significant effect on global containerized trade in general and on the three east-west "headhaul" (major container export) routes in particular. These three routes represent more than 26 percent of the global deep-sea container trade by volume. As highlighted in Figures 1 and 2, the headhaul routes are expected to recover in 2009.
In the longer term, we forecast world container volumes will grow on average above 7 percent per year.
The upside of exports
The dollar's downward slide may be bad news for U.S. consumers —it means that prices for imported goods are rising —but it is dramatically improving the competitiveness of U.S. producers. U.S. exports rose 8.1 percent in 2007, and they should rise a similar 8.3 percent this year. Export growth, in fact, is helping to prevent a more severe economic downturn.
Other regions are managing to hold their own. Growth in Asia also looks solid, but there are signs that Europe is losing steam, partly because U.S. goods are gaining at Europe's expense as the dollar falls, and partly because some housing markets there (the United Kingdom, for one) are declining.
The outlook for international trade's contribution to U.S. GDP growth is illustrated in Figure 3.
Despite the United States' credit woes, the strength of U.S. exports will continue to have a positive effect on the country's GDP through 2009. And a stronger U.S. economy will help to prop up economies worldwide.
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.”
Freight transportation providers and maritime port operators are bracing for rough business impacts if the incoming Trump Administration follows through on its pledge to impose a 25% tariff on Mexico and Canada and an additional 10% tariff on China, analysts say.
Industry contacts say they fear that such heavy fees could prompt importers to “pull forward” a massive surge of goods before the new administration is seated on January 20, and then quickly cut back again once the hefty new fees are instituted, according to a report from TD Cowen.
As a measure of the potential economic impact of that uncertain scenario, transport company stocks were mostly trading down yesterday following Donald Trump’s social media post on Monday night announcing the proposed new policy, TD Cowen said in a note to investors.
But an alternative impact of the tariff jump could be that it doesn’t happen at all, but is merely a threat intended to force other nations to the table to strike new deals on trade, immigration, or drug smuggling. “Trump is perfectly comfortable being a policy paradox and pushing competing policies (and people); this ‘chaos premium’ only increases his leverage in negotiations,” the firm said.
However, if that truly is the new administration’s strategy, it could backfire by sparking a tit-for-tat trade war that includes retaliatory tariffs by other countries on U.S. exports, other analysts said. “The additional tariffs on China that the incoming US administration plans to impose will add to restrictions on China-made products, driving up their prices and fueling an already-under-way surge in efforts to beat the tariffs by importing products before the inauguration,” Andrei Quinn-Barabanov, Senior Director – Supplier Risk Management solutions at Moody’s, said in a statement. “The Mexico and Canada tariffs may be an invitation to negotiations with the U.S. on immigration and other issues. If implemented, they would also be challenging to maintain, because the two nations can threaten the U.S. with significant retaliation and because of a likely pressure from the American business community that would be greatly affected by the costs and supply chain obstacles resulting from the tariffs.”
New tariffs could also damage sensitive supply chains by triggering unintended consequences, according to a report by Matt Lekstutis, Director at Efficio, a global procurement and supply chain procurement consultancy. “While ultimate tariff policy will likely be implemented to achieve specific US re-industrialization and other political objectives, the responses of various nations, companies and trading partners is not easily predicted and companies that even have little or no exposure to Mexico, China or Canada could be impacted. New tariffs may disrupt supply chains dependent on just in time deliveries as they adjust to new trade flows. This could affect all industries dependent on distribution and logistics providers and result in supply shortages,” Lekstutis said.
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."