“Paycheck cycle economics” impacts the supply chain

While this week will be light on economic news, IHS Global Insight said there will be two significant reports addressing the supply chain.

The Trade Balance report due out Thursday should show the trade deficit widening in September, and the Michigan Consumer Sentiment Index issued the following day should edge up in early November, with respondents saying that the economy is doing better than they thought a month ago.

“We expect the foreign trade deficit to widen to $47.6 billion in September, from $45.6 billion in August,” said economist, Gregory Daco.

“Overall, exports should make a more timid advance than imports. We expect a drop in exports of industrial supplies to be offset by stronger food and capital goods exports. Automotive, capital, and consumer goods should lead on the import front, while petroleum imports for once show little change.”

Daco noted that trade helped real GDP growth to the tune of 0.2 percentage points in the third quarter, and that he expects trade to provide another small boost to growth in the fourth quarter.

Meanwhile, another report may also have an impact on inventory levels and supply chain management, said IHS economists.

“The Reuters/University of Michigan consumer sentiment index should increase to 63.1 in mid-November from 60.9 in October,” Patrick Nigel. “But there seems to be a real disconnect between what consumers are saying and what they are doing. Spending has been up.”

Which means that retailers must keep inventory replenishment strategies in place.

Both Daco and Nigel noted that the October survey showed much better sentiment at the end of the month than the beginning, on better perceptions of the overall economy, and they expect to see sentiment starting to crawl its way up from recessionary levels.

Daco made the observation that since personal income adjusted for inflation (real disposable income) has fallen for three months in a row, sentiment remains weak.

“Wage growth is being outpaced by price increases, leading many households to save less in order to make ends meet,” he said. “This is not a sustainable pattern.”

IHS said that “paycheck cycle economics” is becoming more relevant in the American economy, as poverty rates are on the rise and median family incomes are dropping.

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