Driven by positive sales and traffic and an uptick in capital expenditures, the National Restaurant Association’s Restaurant Performance Index (RPI) finished 2014 with a solid gain. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.9 in December, up 0.8 percent from its November level of 102.1. In addition, December marked the 22nd consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.
“Growth in the RPI was driven by the current situation indicators in December, with a solid majority of restaurant operators reporting higher same-store sales and customer traffic levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, six in 10 operators reported making a capital expenditure during the fourth quarter, with a similar proportion planning for capital spending in the first half of 2015.”
“Overall, the RPI posted three consecutive months above 102 for the first time since the first quarter of 2006, which puts the industry on a positive track heading into 2015,” Riehle added.
emphasis added
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2014. In the past month, the indexes increased in 46 states and remained stable in four, for a one-month diffusion index of 94. Over the past three months, the indexes increased in 50 states, for a three-month diffusion index of 100.
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.
emphasis added
West Coast dockworkers and their employers need to stop holding the economy hostage and sign a labor contract. ...
Meantime, both sides are blaming the other for slowdowns at the port.
But the real issues, the ones that are being discussed at the table, need to be resolved. Earlier this month, both sides agreed to bring in a federal mediator to do just that.
It’s unclear what’s going on beyond closed doors, but it has become apparent that both parties are going to have to work harder to get this contract signed.
Texas factory activity was flat in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, came in at 0.7, indicating output was essentially unchanged from December.
Other survey measures also reflected sluggish activity during the month. The capacity utilization index fell to 5.1, its lowest reading in five months. The shipments index plunged from 20.8 to 6, due to a much higher share of respondents noting a decline in shipments in January than in December. The new orders index moved down from 2.7 to -7.7, registering its first negative reading since April 2013.
Perceptions of broader business conditions worsened this month, with both the general business activity index and the company outlook index dropping below zero for the first time in 20 months. The general business activity index dropped to -4.4, and the company outlook index fell 13 points, coming in at -3.8.
Labor market indicators reflected unchanged workweeks but continued employment increases. The employment index was 9.0 in January, slightly below last month’s level but close to its average reading over the past two years.
emphasis added
Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on November 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
| Month | YoY House Price Increase |
|---|---|
| Jan-13 | 6.7% |
| Feb-13 | 7.3% |
| Mar-13 | 7.6% |
| Apr-13 | 8.1% |
| May-13 | 7.9% |
| Jun-13 | 8.4% |
| Jul-13 | 8.7% |
| Aug-13 | 9.0% |
| Sep-13 | 9.0% |
| Oct-13 | 8.8% |
| Nov-13 | 8.5% |
| Dec-13 | 8.4% |
| Jan-14 | 8.0% |
| Feb-14 | 7.6% |
| Mar-14 | 7.0% |
| Apr-14 | 6.4% |
| May-14 | 5.9% |
| June-14 | 5.5% |
| July-14 | 5.1% |
| Aug-14 | 4.9% |
| Sep-14 | 4.6% |
| Oct-14 | 4.5% |
| Nov-14 | 4.5% |
Tenth District manufacturing activity expanded at a slower pace in January, but producers’ expectations for future activity remained at solid levels. Most price indexes were lower than last month, especially for finished goods prices.
The month-over-month composite index was 3 in January, down from 8 in December and 6 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in some types of durable goods production, particularly electronics, machinery, and metal products, some of which is likely due to lower energy activity. Looking across District states, the weakest activity was in energy-dependent Oklahoma. ... the employment index posted a five-month low.
...
“We saw weaker activity in some energy sector-related manufacturing in January, and that pulled the overall index down somewhat”, said [Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City]. “But firms still reported modest overall growth in regional factory activity".
Future factory indexes continued to remain stable at mostly solid levels. The future composite index was unchanged at 19 ...
emphasis added
the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution. This will be most likely revealed in the aggregate data and be much less newsworthy.
emphasis added
An unusually wet December has given way to a hot, totally dry January. And it's creating angst among drought-weary residents ...
Weather experts, however, say not to panic. They emphasize that it's too soon to say that California is headed into its fourth straight year of drought. And they point out that a dry January is not out of the ordinary in a typical Northern California winter.
"A midwinter dry spell occurs almost every winter, and it averages 19 days," said meteorologist Jan Null, owner of Golden Gate Weather Services in Saratoga. "Now if it persists on to February and March, then we're getting out of the normal realm."
As it stands now, we are heading into the next FOMC meeting with the growing expectation that the Fed will take a dovish turn. Is it not obvious that global economic turmoil, collapsing oil prices, weak inflation, and a stronger dollar are clearly pointing to rapidly rising downside risks to the US economy? For financial market participants, they answer is a clear "yes." Expectations of the first rate hike have been pushed out to the end of this year, seemingly in complete defiance of Fed plans for policy normalization. The Fed may get there as well and abandon their carefully crafted mid-year plan, but I suspect they will not move quite as rapidly as financial market participants desire.
As a general rule, the Fed tends to act in a more deliberate fashion....
Bottom Line: I reiterate my view that despite the generally positive data flow, and the upward boost from oil, I don't see how they can justify raising rates without some reasonable acceleration in wage growth. ... my broader point is this: During normal times the Fed moves methodically if not ponderously. The current state of the economy gives them room to move as such. So I would not be surpised to see a fairly steady hand revealed in the next FOMC statement.
The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.4 percent in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.8 percent before seasonal adjustment.
The gasoline index continued to fall sharply, declining 9.4 percent and leading to the decrease in the seasonally adjusted all items index. The fuel oil index also fell sharply, and the energy index posted its largest one-month decline since December 2008, although the indexes for natural gas and for electricity both increased. The food index, in contrast, rose 0.3 percent, its largest increase since September.
The index for all items less food and energy was unchanged in December, following a 0.2 percent increase in October and a 0.1 percent rise in November. This was only the second time since 2010 that it did not increase.
emphasis added
Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates falling for the third consecutive week as bond yields continued to drop despite a strong employment report. Averaging 3.66 percent, the 30-year fixed-rate mortgage is at its lowest level since the week ending May 23, 2013 when it averaged 3.59 percent. This also marks the first time the 15-year fixed rate mortgage has fallen below 3 percent since the week ending May 30, 2013.
30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.6 point for the week ending January 15, 2014, down from last week when it averaged 3.73 percent. A year ago at this time, the 30-year FRM averaged 4.41 percent.
emphasis added
If you have a truly ideal credit profile and loan scenario, a few of the more aggressive lenders are quoting conforming, 30yr fixed mortgage rates at 3.5% today. Almost all other lenders are only an eighth of a point higher at 3.625% for top tier scenarios. This is a rate landscape that hasn't been seen since early May 2013. There's still quite a bit of ground to cover between here and the 3.125%-3.25% rates seen at the end of September 2012, but for all intents and purposes, 3.5%-3.625% was the upper end of the refi boom golden age from mid 2012 to mid 2013.
The number of homes sold increased sharply from the month of November and rose modestly from the same time a year earlier, marking one of just two months in 2014 to post a year-over-year gain in sales. ... A total of 19,205 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in December 2014. That was up month over month 22.8 percent from 15,643 sales in November 2014, and up year over year 4.3 percent from 18,415 sales in December 2013, according to CoreLogic DataQuick data.
"One month doesn’t make a trend, but December’s uptick in home sales might indicate renewed interest in housing thanks to lower mortgage rates and job growth in recent months,” said Andrew LePage, data analyst for CoreLogic DataQuick. “The gain came despite a continued decline in the share of homes sold to investors and cash buyers. If demand continues to build we'll need more supply to keep up with it. One of the big questions hanging over the housing market is whether higher demand and home values will lead to a lot more people listing their homes for sale, as well as more new-home construction, which remains well below average.”
...
Foreclosure resales represented 5.0 percent of the resale market in December. That was down from a revised 5.5 percent in November 2014 and down from 5.8 percent in December 2013. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that have been previously foreclosed upon in the prior 12 months.
Short sales made up an estimated 6.2 percent of resales in December, down from a revised 6.4 in November 2014 and down from 10.2 percent in December 2013. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added
Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand during the reporting period of mid-November through late December, with most Districts reporting a "modest" or "moderate" pace of growth. In contrast, the Kansas City District reported only slight growth in December. However, most of their contacts, along with those of several other Districts, expect somewhat faster growth over the coming months. ...
Single-family residential real estate sales and construction were largely flat on balance across the Districts. Sales declined somewhat on a year-over-year basis in the Boston, Cleveland, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas Districts. In the Philadelphia District, year-over-year existing home sales finished lower in November, but pending December sales in some areas were up notably over December 2013. However, builders of new homes in the Philadelphia District reported weak traffic for prospective buyers and fewer contract signings. San Francisco reported that overall home sales picked up in December. Richmond reported a modest increase in housing market activity. Home prices increased modestly, on balance, in the Boston, Philadelphia, Cleveland, Atlanta, Chicago, and Dallas Districts. The Cleveland, Atlanta, Chicago, Minneapolis, and Kansas City Districts all reported slightly slower single-family residential construction activity. However, the pace of single-family home construction increased in some areas of the San Francisco District.
Commercial real estate activity expanded in most Districts. The Philadelphia District reported a modest pace of growth for commercial real estate leasing activity, and Boston reported improving conditions in commercial real estate markets overall. Commercial real estate activity in the Chicago and Kansas City Districts expanded at a moderate pace. The Dallas District noted that office leasing activity remained strong, but one contact noted a slight pullback in demand from oil and gas firms. Demand for apartments in the Dallas District also remained strong. New York City's co-op and condo market showed continued strength in the final quarter of 2014; apartment sales volume was down from the exceptionally high levels of the prior year but still fairly brisk, while selling prices were up moderately. Commercial construction activity increased in most Districts. Activity grew modestly in the Philadelphia District and a bit faster in the Atlanta and Chicago Districts. Atlanta cited the multifamily residential segment as a source of growth, while Chicago credited demand for industrial and office buildings. Commercial builders in the Cleveland District reported a moderate to robust increase for projects in the pipeline. Dallas reported that overall commercial construction was strong. San Francisco reported that multifamily residential construction was strong in many areas of that District and that retail, office, industrial, or infrastructure projects were widespread across that District.
emphasis added
I took advantage of my six spare (but, alas, non consecutive) minutes over the holidays to get caught up on some reading. After all of the gifts had been opened and all of the mess had been cleaned up, I found one last gift of the year in the December 2014 issue of Supply & Demand Chain Executive. It was from Rosemary Coates, Executive Director of the Reshoring Institute and President of Blue Silk Consulting. In an article, titled ‘What Happens When you Decide to Leave China?” she details in gory, gripping detail the crises that may await companies not prepared for the pushback from local workers as well as the potential loss of equipment, technology, and intellectual property.
We’ve all become accustomed to thinking of reshoring as a wonderful thing – and Coates article does not change that. The gains in proximity, flexibility, and cultural similarity from locations moved closer to consumers are real, but so are the complexities associated with closing an operation in China. Here is an example from Coates’ article I promise you won’t forget:
“Western executive Chip Starnes is the president of a Florida-based medical supplies company that decided to leave its manufacturing site in China for an even lower cost manufacturing site in India. When the Chinese employees got wind of what was happening, they locked him in his office for days and would not allow him to leave. The 80 or so workers were concerned about getting paid for their final days at the factory, and didn’t want Starnes to leave until they had their money. The workers, who saw the equipment being packed for shipment to India, forced Starnes into his office, and even deprived him of sleep by shining bright lights and banging on the windows of his office all night until they were paid.”
CEO Chip Starnes held hostage by workers.
I’m sure I am making an understatement for everyone when I say, “gee, that sounds awful.”
There is no way you can stop reading an article after a story of that kind, so I stayed plugged in right to the very end. And that’s when it dawned on me: procurement can not afford the luxury of just thinking of reshoring as a happy feel good movement without also getting granular visibility into how the timing and planning for the transition could affect their supply chain.
And the point is quite valid that it doesn’t really matter where an operation is being moved to. Whether it is being moved to a lower cost location because salaries of employees and demand for workers cause the low cost country status to evaporate, or being moved back to North America as flexibility and agility are prioritized over cost, the people being left behind are equally affected.
And if the only risk was a disrupted source of supply, the answer would be relatively simple – contract with multiple suppliers. But that isn’t it. According to Coates’ article, it may be hard to remove all equipment and tooling from foreign facilities. There is also the grey area of proprietary designs and intellectual property. Once you have trained people to make something to spec, or let them see how it is done with what kinds of materials, you can’t undo that knowledge just by removing a mold or terminating employment.
A few suggestions for procurement teams working with suppliers that have global operations and supply chains:
If your supplier is planning to reshore an operation, it is well within the scope of risk assessment to find out what their plans are and what guarantee they plan to offer against disrupted supply, lost equipment, and compromised IP. Find out if they have direct employees on site, how they are managing the transition with local governments, and if they have put contingency plans in place.
If your supplier already has manufacturing operations overseas in a country where there is the potential for retaliation in the face of a decision to relocate (whether they are reshoring, or in the case of poor Mr. Starnes they are moving to another offshore location) find out exactly what part of their production process is being handled overseas and just how much involvement third parties are having.
If your supplier is proposing to lower their costs by moving an operation or production process abroad, make sure you find out if they are considering the total costs of that move, because it can not be easily undone once started. And understanding the laws (and common violations of those laws) in the locations they are considering is as much your responsibility as it is theirs.
And that brings me to the final point: first vs n-tier suppliers. This is just another reason to know where your suppliers are operating and how confident they are in their ability – and their suppliers ability – to navigate the very complex waters of reshoring.
All decisions have broad and specific implications. Reshoring may be an example of a decision with sunny broad implications, but very different consequences for the specific individuals on the ground – whether employees or hired workers.
New Year’s Resolution: Don’t get trapped in an office for days by 80 angry workers.
30
I tend agree that the net impact [from the decline in oil prices] will be positive, but note that the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution. This will be most likely revealed in the aggregate data and be much less newsworthy.
emphasis added
Nationwide, asking prices on for-sale homes were up 0.5% month-over-month in December, seasonally adjusted — a slowdown after larger increases in September, October, and November. Year-over-year, asking prices rose 7.7%, down from the 9.5% year-over-year increase in December 2013. Asking prices increased year-over-year in 97 of the 100 largest U.S. metros.
Four of the five markets where asking prices rose most year-over-year are in the South, including Atlanta, Cape Coral-Fort Myers, North Port-Sarasota-Bradenton, and Deltona-Daytona Beach-Ormond Beach. Of the top 10, four are in the Midwest, including Cincinnati, Detroit, Lake-Kenosha Counties, and Indianapolis. Among markets with the largest asking price increases, Houston stands out for having a large local oil industry, accounting for 5.6% of jobs there.
Only Bakersfield and Baton Rouge have an even higher employment share in oil-related industries than Houston. Oklahoma City, Tulsa, New Orleans, and Fort Worth round out the seven large metros where oil-related industries account for at least 2% of employment. It’s not until you look at smaller metros that you find oil-related industries representing a larger employment share. In Williston, ND, and Midland, TX, they account for almost 30% of local jobs. [see graph of percent oil jobs at article]
This history offers three lessons for today’s housing market. First, any negative impact of falling oil prices on home prices should be concentrated in oil-producing markets in Texas, Oklahoma, Louisiana, and other places with large oil-related industries. Second, in these markets, oil prices won’t tank home prices immediately. Rather, falling oil prices in the second half of 2014 might not have their biggest impact on home prices until late 2015 or in 2016. Third, falling oil prices will probably help local economies and home prices in markets that lack oil-related industries.
...
Nationwide, rents rose 6.1% year-over-year in December. The least affordable rental markets are Miami, Los Angeles, and New York, where median rent for a two-bedroom unit eats up more than half of the local average wage.
emphasis added
Fed officials rarely comment on the decisions taken by foreign central banks and have generally played down risks to domestic growth emanating from abroad. Yet minutes of the Fed’s Dec. 16-17 policy meeting included several references to the urgency U.S. officials and market participants are placing on new policy actions to counteract slow growth outside the U.S.
...
The minutes showed Fed officials “regarded the international situation as an important source of downside risks to domestic real activity and employment.” They added that the risks were particularly serious “if foreign policy responses were insufficient.”
In another place in the Fed minutes, officials warned that financial markets had been “importantly influenced by concerns about prospects for foreign economic growth and by associated expectations of monetary policy actions in Europe and Japan.”
Participants generally anticipated that inflation was likely to decline further in the near term, reflecting the reduction in oil prices and the effects of the rise in the foreign exchange value of the dollar on import prices. Most participants saw these influences as temporary and thus continued to expect inflation to move back gradually to the Committee's 2 percent longer-run objective as the labor market improved further in an environment of well-anchored inflation expectations. Survey-based measures of longer-term inflation expectations remained stable, although market-based measures of inflation compensation over the next five years, as well as over the five-year period beginning five years ahead, moved down further over the intermeeting period. Participants discussed various explanations for the decline in market-based measures, including a fall in expected future inflation, reductions in inflation risk premiums, and higher liquidity and other premiums that might be influencing the prices of Treasury Inflation-Protected Securities and inflation derivatives. Model-based decompositions of inflation compensation seemed to support the message from surveys that longer-term inflation expectations had remained stable, although it was observed that these results were sensitive to the assumptions underlying the particular models used. It was noted that even if the declines in inflation compensation reflected lower inflation risk premiums rather than a reduction in expected inflation, policymakers might still want to take them into account because such changes could reflect increased concerns on the part of investors about adverse outcomes in which low inflation was accompanied by weak economic activity. In the end, participants generally agreed that it would take more time and analysis to draw definitive conclusions regarding the recent behavior of inflation compensation.
...
With regard to inflation, a number of participants saw a risk that it could run persistently below their 2 percent objective, with some expressing concern that such an outcome could undermine the credibility of the Committee's commitment to that objective.
...
With lower energy prices and the stronger dollar likely to keep inflation below target for some time, it was noted that the Committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident that inflation will move back toward 2 percent over time. emphasis added
1. The Federal Reserve finally raises short-term interest rates, well before the middle of the year, encouraged by the improving employment data and strong Gross Domestic Product growth. The timing proves faulty, however, as the momentum of the economy has begun to flag and a short-term slowdown has started. The end of monetary accommodation and rising rates precipitate a correction in equities. Long-term Treasury rates stay where they started and the yield curve flattens. [CR Note: I doubt the Fed will raise rates "well before the middle of the year"]
3. The year-end 2014 rally in United States equities continues as the market rises for a strong performance in 2015. A growing economy, fueled by housing and capital spending and favorable earnings, enables the Standard & Poor’s 500 to increase 15% during the year, outperforming equities in most major industrialized countries throughout the world.
4. Mario Draghi finally begins to expand the balance sheet of the European Central Bank aggressively by buying sovereign debt, mortgages and corporate bonds. In spite of this expansion, Europe falls back into a serious recession. Germany is particularly weak as reduced demand from various trading partners has a major impact on its exports. The European policy makers fail to embrace the one option, fiscal spending, that could turn the economy around, and European stocks decline. Politically, Europe moves dangerously toward the right. [CR Note: Unfortunately probably close.]
8. Brent slips into the $40s. The low price of crude oil, which continues throughout the first part of the year, has a major impact on Russia. A peace settlement with Ukraine is signed, giving Eastern Ukraine substantial autonomy but guaranteeing the sovereignty of the rest of the country. President Putin seems to be trying to win back the respect of the international community as the country reels from its economic problems, but the Russian citizenry finally turns on him. His approval rating plummets and he resigns by year-end. During the second half of the year, West Texas Intermediate and Brent crude are both above $70, as emerging market demand continues to increase. [CR Note: Brent into the $40s is already close. Brent closed at $51.10 today.]
Here is some good news for CPOs to ponder as we start the first work week of the new year: "American innovation is in trouble."
Here is some good news for CPOs to ponder as we start the first work week of the new year: "American innovation is in trouble."
Yes, that’s the headline for an analytical piece in a recent issue of The Washington Post newspaper, and it really is good news for procurement. Why? Because it opens one more door for procurement to prove its value by leveraging the supply base for new product ideas.
The author of the article, citing other studies, says the percentage of new companies in the US is declining, the percentage of old companies is increasing, and that since old companies are more risk averse than new companies that’s bad for innovation. It’s hardly the first article on the innovation deficit. In fact, there have been several articles on that subject in the business and general press over the last couple of years.
Many of the tomes bemoaning the lack of innovation prescribe remedies such as letting more immigrants with technical knowledge into the country, cutting the number of federal and state regulations that are obstacles for startups, easing the tax burden, and increasing government funding of research. The Post article listed those plus the availability of near-universal health care, which would make it easier for would-be entrepreneurs to leave established companies and start new ones without worrying about their families’ health needs. Obamacare moves in that direction.
There is plenty of other advice too, such as these suggestions in a recent issue of the Harvard Business Review, and this piece about innovation at HP in Fortune magazine. More ideas will emanate from an upcoming Global Innovation Summit to be held in California’s Silicon Valley next month.
Interestingly, what is barely mentioned is the potential of companies working closely with suppliers, who have specialized knowledge and insight in specific markets and technologies, to come up with new products. Yet, there are several examples of international companies which have done just that, including P&G, American Airlines, GSK, and F. Hoffman-LaRoche, to name a few. They are all good role models to follow. In the case of P&G, it has been a corporate mandate that a large percentage of new products come from outside the company, including suppliers.
One area that procurement chiefs could work on is expanding the depth of their search of their supply chains for innovation. A Procurement Leaders survey found that few focus on tier two suppliers for innovation and virtually none focus on tier threes. There is opportunity there.
Tom Linton, CPO of Flextronics, has said that the most successful procurement executives are relentlessly creative. By using that creativity to draw more innovative ideas from all tiers in the supply chain, they will keep their companies at the leading edge of their industries and increase their own professional standing at the same time.
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2014 was estimated at a seasonally adjusted annual rate of $975.0 billion, 0.3 percent below the revised October estimate of $977.7 billion.
Spending on private construction was at a seasonally adjusted annual rate of $697.7 billion, 0.3 percent above the revised October estimate of $695.7 billion. Residential construction was at a seasonally adjusted annual rate of $352.7 billion in November, 0.9 percent above the revised October estimate of $349.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $345.0 billion in November, 0.3 percent below the revised October estimate of $346.1 billion. ...
In November, the estimated seasonally adjusted annual rate of public construction spending was $277.3 billion, 1.7 percent below the revised October estimate of $282.0 billion.
emphasis added
