bracing for a bumpy ride: supply chain execs see both challenges and opportunities in 2007

Consumers may be growing skittish, but logistics and supply chain executives are feeling pretty good about the U.S. economy's prospects in 2007. Even as the consumer confidence index dipped in December, respondents to DC VELOCITY's 2nd Annual Reader Outlook Survey maintained a decidedly positive outlook. A solid 42 percent said they foresaw strong economic growth for the United States, while 45 percent said they expected business growth to hold steady. Only 13 percent of those polled predicted a decline in the overall economy this year.

When it came to their own businesses, survey respondents were even more optimistic. A full 58 percent said they expected revenue for their companies to increase in 2007, while just one in 10 predicted that revenue would decline.

That optimism notwithstanding, economists continue to warn of storm clouds on the horizon. Addressing the annual meeting of the Material Handling Industry of America in September, Global Insight economist Sara Johnson noted that U.S. economic growth was slowing, as the housing market cooled and gas prices inched back up (both factors are expected to dampen consumer spending). In fact, a continued slowdown in the home building sector prompted Global Insight in mid-December to scale back its 2007 economic growth projection to 2.2 percent from 2.4 percent.

The long-term outlook is a bit better, though. Johnson expects that the Fed will lower interest rates three times this year—with the first rate drop occurring in May. That could set the stage for a more robust economic expansion of 3.2 percent in 2008.

In the meantime, economists continue to keep watch on several possible trouble spots. Johnson says potential drags on the global economy include rising oil prices; a possibility of rising inflation; the housing market bubble; a trade, savings and investment imbalance; protectionism; and even the threat of avian flu.With consumer spending weakening, she says, the economy will rely on export growth and business investment in the short term.

Hey, big spenders!
If the DC VELOCITY study is any indication, logistics and supply chain professionals are prepared to do their part when it comes to business investment. A full 92 percent of the respondents said they planned to either maintain or increase their spending on logistics products and services this year—58 percent plan to up their spending and 34 percent say they'll spend about what they did in 2006. Of those planning to increase their spending, one-third say they'll be bumping it up by more than 33 percent. Another 17 percent plan to increase their spending by 5 to 9 percent, while 42 percent say they'll be spending 3 to 5 percent more this year.

Spending on new distribution centers and retrofits of existing facilities will also be strong in 2007, according to the survey. Seventeen percent of respondents plan to acquire real estate for building new facilities or expanding existing DCs. About 29 percent say they will make use of the services of a design build firm for those projects.

In the meantime, there may be some good news on the inflation front. Global Insight predicts that the slackening in the economy will help to moderate inflation, with some decline in nonenergy commodity prices like chemicals, and building products like lumber. And oil? The economic research firm expects the price of oil to hold steady at around $65 per barrel.