Supply Chain Set to Deliver this Christmas

“Well, this is it. The storm won’t subside by tonight. We—we’ll have to cancel Christmas.”

– Santa Claus, date unknown, as recorded in the story of one of his reindeer

When it comes to Christmas – the shopping season, not the part about the eventful birth several centuries ago in Bethlehem – the last few years were packaged in considerable challenges to the retail and logistics industries.

The weather wasn’t the issue. Rudolph’s red nose wasn’t much help with solutions to a global pandemic (2020), the backlog of shipments at ports like Los Angeles-Long Beach (2021), or a wave of inflation (2022).

This season, however, seems far less frightful. All indications point toward a merry economic Christmas, with sales up and the logistics industry delivering at an on-time rate comparable to that of the chief elf and his magical reindeer.

Based on weekly economic data (the Lewis-Mertens-Stock index, available here), we predict 1.8% growth from last year.

High-frequency weekly data gives the most up-to-date picture of the U.S. economy, and this index has 10 components: 1. Redbook same-store sales, 2. Rasmussen Consumer Index, 3. new claims for unemployment insurance, 4. continued claims for unemployment insurance, 5. adjusted income/employment tax withholdings (from Booth Financial Consulting), 6. railroad traffic originated (from the Association of American Railroads), 7. the American Staffing Association Staffing Index, 8. steel production, 9. wholesale sales of gasoline, diesel, and jet fuel, and 10. weekly average U.S. electricity load (with remaining data supplied by Haver Analytics). These data suggest economic growth continues.

The average per-person spending for the holidays has dropped slightly each of the last four years, from $885.81 in 2019 to $832.84 in 2022, according to the National Retail Federation. But holiday shopping got off to a strong start this year, with a record 200.4 million consumers shopping in the five days from Thanksgiving to Cyber Monday. That’s up from 186.4 million in 2020, 179.8 million in 2021, and 196.7 million last year. These numbers may help explain why inventory levels were reported as falling in November by logistics managers as customers stocked up on holiday items.

The supply chain, meanwhile, is significantly more placid than in previous years, which is a good thing because PwC reports that 40% of consumers say they are likely to “switch brands” if their items don’t arrive on time.

ShipMatrix, a logistic software company, tracks data on parcels shipped between Black Friday and Christmas Eve, and found that the three major national carriers all had on-time performance rates above 94% in 2022 – FedEx (95.2%), UPS (97.5), and the U.S. Postal Service (94.3%). That’s consistent with previous years, and the company expects 2023 rates to be at least that high. It predicts a peak of 82 million parcels delivered per day, but a delivery capacity of 120 million.

While it appears we are well on the way toward supply chains normalizing across a variety of industries, it is too early to declare victory. Still, consumer spending continues to remain more resilient than many expected. With wage growth now outpacing inflation, the economy can continue to strengthen as we move into 2024.

It’s impossible to predict what forms of nasty weather, literal or metaphorical, are on the horizon. Rudolph’s services might be in high demand a year from now. For now, he can given his hoofs, and his nose, a rest.

About the authors:

Jason Miller is the Eli Broad Professor in Supply Chain Management at Michigan State University’s Eli Broad College of Business. He uses economic data from various government sources to develop insights for supply chain management practitioners.

Andrew Balthrop (PhD Georgia State University) is a research associate within the Supply Chain Management Research Center at the Sam M. Walton College of Business at the University of Arkansas. His research focuses on the interaction between supply chains and public policy.

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