SHI 06.20.18 Just Ship It

SHI 06.13.18 The Real GDP
June 13, 2018
SHI 06.27.18 Out of Alignment
June 27, 2018

“Your margin is my opportunity.”

Amazon founder, Jeff Bezos, made this comment a few years ago.   While targeting the “gross margin” of their competition, Amazon’s innovations have disrupted scores of business across the American corporate landscape, lifting company value toward $1 trillion and Jeff’s net worth to over $141 billion.   Yes, that’s billion with a B.

And the business of moving stuff from here to there, and keeping track of it — known as “logistics services” — is growing like a weed.  Spending in the warehouse, transportation, and supplies businesses are way up.  According to the Wall Street Journal, in 2017, logistics costs rose to nearly $1.5 trillion.  A June report by the Council of Supply Chain Management Professionals puts the number a bit lower, but at an amount equal to 7.7% of this year’s nominal GDP.

Why is this important?  Because logistics demand will continue to grow both here in the US and abroad:

  • Warehouse space demand is growing quickly in areas near transportation and distribution hubs, spurring employment growth.   Locally, this means employment and warehouse demand in the Riverside/San Bernardino areas are way up.
  • Growth in this segment is very positive for our GDP and for US companies doing business overseas. 
  • China now has 600 million people in what is called the “middle class.”   Lots of new demand here.
  • Future innovations are, well, a bit frightening:  Uberization of freight; blockchain; fully autonomous trucks; artificial intelligence applications; truck platooning; electric vehicle fleets; autonomous mobile robots; and drone and unmanned aerial vehicle delivery systems.

The bottom line:  Don’t get too comfortable.  The future isn’t what you might be expecting.  But keep calm.  🙂

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/


Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   This has been the case for decades … and will continue to be true for years to come.

Is the US economy expanding or contracting?

According to the IMF (the ‘International Monetary Fund’), the world’s annual GDP is almost $80 trillion today.  US ‘current dollar’ GDP almost reached $20 trillion during Q1, 2018.   We remain about 25% of global GDP.    Other than China — a distant second at around $11 trillion — the GDP of no other country is close.

The objective of the SHI10 and this blog is simple: To predict US GDP movement ahead of official economic releases — an important objective since BEA (the ‘Bureau of Economic Analysis’) gross domestic product data is outdated the day it’s released.

Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric.

The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.


Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore related items of economic importance.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.


The BLOG:

Once again, the Steak House Index is forecasting lukewarm US growth in Q2.   Unlike many other forecasts or forecasters.

My foundational theory is that unlike retail, steak houses cannot be disrupted in the Amazon economy.   A piping-hot, ready-to-eat, USDA Prime Prime Rib cannot be delivered to your dining room table by Amazon.  Or can it?  Could an unmanned aerial vehicle delivery system” prove me wrong.  Naaaa.  🙂

Regardless, this Saturday more and more people seem to be electing to heat at home.  Once again, not in Seattle.  But in Boston, NYC and Philly, there are plenty of tables available in every time-slot this Saturday.   Odd.  I’m sure this will change as the weekend approaches, but remember:  We pull the reservation data the exact same time every week.   At 11 am (CA time) on Wednesday.  And this week, demand is definitely lower:

 

 

This distinction is more meaningful as we view the week-over-week changes.  Here is the long-term trend report:

 

The SHI10 reading of a negative 131 suggests Q2, 2018 consumer spending will be weaker than many forecasters are expecting.   Once again, I was curious to see if (1) the SHI10 trend is unusual, or if (2) we’ve seen a similar pattern in past years.  So I went back to an old SHI file for data.  Here’s the graphic showing the Orange County SHI for 2016 and 2017:

 

 

It looks like expensive eateries in the OC were in higher demand during June of 2016.   Interestingly, demand in 2017 was quite a bit weaker.  The SHI10 — which, of course tracks 10 markets, not just 1 — seems to be tracking much more like 2017 than 2016.  Interesting.

You will recall GDP growth is driven from four (4) primary channels, historically the largest being consumer spending.  But if ‘government spending’ or ‘private investment’ see big increases in Q2, we could still have a barn-burner of a GDP growth number, without a huge lift from consumer spending.  And both are possible, inasmuch as the federal government is spending quite a bit of money these days … and the corporate tax-cut plus profit repatriation could easily lead to a significant increase in private investment.

The quarter ends in 10 days.  They we will wait until late in July to see the actual number.  I continue to believe it will be a big number, but not as big as the other forecasts seem to indicate.

  • Terry Liebman

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