In the United States, consumer demand drives the economy. For most supply chain managers, therefore, consumer behavior matters.
And how is the American consumer faring these days? Even in the face of uncertainty—about anticipated economic growth, expected improvements in job prospects, and growth in housing wealth and equity markets—consumers have continued to manage their household finances and spending. But when they do shop, they are less likely to spend their money at traditional brick-and-mortar stores than in the past.
More spending, less saving
Real personal consumption expenditures grew 2.6 percent (annual rate) in the final quarter of 2013—the strongest annual increase since the first quarter of 2012. That growth was not uniform across all sectors, however. Although the fourth quarter saw stronger-than-usual spending on nondurable goods and services, durable goods spending was weaker than expected. Some of the added strength in nondurables was weather-related—spending on clothing, heating oil, natural gas services, and electricity increased—because November and December were unseasonably cold.
For the full year 2013, real consumer spending growth came in at 2.0 percent, the weakest showing since 2010. Real disposable income, meanwhile, grew a measly 0.7 percent, the weakest growth since 2009. Both are shown in Figure 1. The payroll-tax cut that expired in January 2013 took 2 percentage points out of households' paychecks and approximately 1 percent out of disposable income. With less after-tax income, many Americans put less money aside, sending the savings rate down to 4.5 percent in 2013, the lowest since 2007. (See Figure 2.)
Despite the weak growth in disposable income and spending during 2013, the average monthly reading of the Reuters/University of Michigan Consumer Sentiment Index for the year was the highest since 2007. Indeed, consumers had some encouraging news in 2013, as the housing market gained traction, job prospects improved, and inflation remained relatively subdued.
Housing strength and consumer spending
Housing prices and sales gained significant traction in 2013, although they are still below their 2006 peaks. The relatively strong housing numbers helped boost consumer spending in two ways. First, new and existing home sales are associated with increased purchases of "white goods" (home appliances, such as refrigerators, dryers, and washers). And second, the so-called "wealth effect" also had an impact. Many economists believe that people are likely to increase their spending when they "feel" wealthier or when their actual assets (typically real estate and stock holdings) increase in value, and that appeared to be the case in 2013.
In the third quarter of 2012 household net worth surpassed its previous peak, registered in the third quarter of 2007, by US $511.5 billion. By the fourth quarter of 2010, household financial asset holdings surpassed its previous peak, also set in the third quarter of 2007. In addition, household nonfinancial asset holdings (mostly real estate) are likely to surpass their previous peak, registered in the first quarter of 2007, during the second quarter of 2014.
Then again, not all wealth is created equal. Econometric research by Nobel laureate Robert J. Shiller clearly indicates that an increase in real housing wealth has a stronger impact on consumer spending than does an increase in financial wealth. Rates of home ownership are still elevated in the United States, so gains in housing wealth are distributed more widely through the economy. Since the fourth quarter of 2012 and through the third quarter of 2013, household nonfinancial asset growth outpaced the growth of household financial assets. In fact, year-over-year quarterly growth in household nonfinancial assets was in the 9.3-percent to 10.2-percent range in every quarter of 2013. Thus, due to higher household wealth, consumer spending kept pace with 2012 despite anemic increases in disposable income.
A few other indicators suggest that consumers' prospects may be improving somewhat. For instance, wage gains have started to outpace price increases on a year-over-year basis, mostly because price increases were very modest. (See Figure 3.) This helps consumers' budgets, as they are able to maintain a certain level of purchasing power. Both job opportunities and the unemployment rate improved in 2013; however, declines in the unemployment rate were mostly attributable to many people leaving the labor force.
Lackluster holiday retail sales
Holiday retail sales—defined as not seasonally adjusted November plus December retail sales less autos, gasoline, and food services—increased 3.3 percent in 2013 compared to 2012. Any increase is a boost to the economy, but last year's growth was the weakest since 2009.
"Black Friday" week (the busy holiday shopping period immediately following Thanksgiving) was not particularly stellar on the brick-and-mortar front. In fact, many retailers experienced an inventory build-up in November due to lackluster sales. Moreover, many retailers introduced heavy price discounting in order to lure shoppers into their stores, hoping to increase revenue by bringing in more foot traffic and generating more sales even as their per-unit margins were hurt. In addition, slower growth in many emerging markets and eurozone economies has kept global commodity and import prices relatively muted. Consumer goods prices, excluding food and energy, fell on a year-over-year basis every month in the last two quarters of 2013.
Looking ahead
Retailers whose profitability took a strong hit last year are unlikely to discount as heavily in the last quarter of 2014 as they did during the holiday season of 2013. In addition, they are likely to keep inventory holdings on the low side next holiday season to minimize the risk of engaging in excessive price discounting in order to move product if sales are weak.
The outlook for online retailing is more upbeat, however. E-commerce retail sales represented 6 percent of retail trade (total retail sales less food services) in the fourth quarter of 2013 and are likely to grow to 7.0 percent of retail trade by 2016.
In sum, although retail supply chain managers should see relatively robust purchasing activity by American consumers this year, retail chains will be very cautious with their inventory stocking levels. With online sales growth expected to outpace the growth of traditional in-store sales, 2014 could turn out to be a challenging year for retail store supply chains, especially in the last two quarters of the year.
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.”
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."
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.