The July Logistics Manager’s Index, released on August 5, came in at 59.2, down from June’s reading of 60.7, and close to May’s reading of 59.4.
The report is authored by researchers from Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
"The increase in the overall slowdown in expansion is driven by a decreased rate of expansion for inventory costs, which are down (-9.0) to 71.9. While this is notably slower than June’s rate of expansion of 80.9, it still represents a significant rate of expansion of inventory costs," the report says.
The group notes that the decrease in cost growth is due to inventory levels expanding. Those came in at 55.2. in July. That resulted in a warehouse capacity increase of 3.3.
"It is worth noting that all of these shifts are primarily driven by either our Upstream or smaller (<999 employees) respondents," the report says. "Larger firms and downstream retailers are actually reporting contracting inventories, more capacity, and lower price expansion as they attempt to maintain JIT inventory management strategies to avoid higher costs."
Other measurements include transportation utilization, which moved up to 59.5. Transportation capacity was up slightly to 52.6 and transportation prices were at 63.0.
The report offers the following analysis:
The LMI read in at 59.2 in July, down (-1.5) from June’s reading of 60.7. This is just below the all-time average of 61.5 for the overall index and represents a moderate rate of expansion. Continuing the trend we have observed over the last three months, logistics expansion is being disproportionately driven by smaller firms, who reported an overall index of 62.1, which is statistically significantly higher than the 56.2 that was reported by our larger respondents.
This continued disparity is largely driven by higher inventories and tighter capacity for smaller firms. Many of these smaller firms represent the “middle-mile” of supply chains, sitting between ports and manufacturers upstream and retail customers downstream. They are largely distributors, wholesalers, and logistics service providers. This is corroborated by a statement from Eric Hoplin, president and CEO of the National Association of Wholesaler-Distributors that the middle-mile entities like wholesalers and distributors will be hit the hardest by tariffs – with some analysts estimating they will carry up to 50% of the cost[1]. Essentially, they are holding the high levels of inventory that were brought into the U.S. to avoid tariffs but have not been moved down to retailers yet. The expense of these inventories is high, but the idea is that they will act as buffers to the current uncertainty.
Unfortunately, uncertainty is still high as the tariff situation continues to be a fluid one. U.S. President Trump signed an order imposing new tariffs on 66 countries starting August 8th. This is a week later than had been announced on July y 9th (which itself was an announcement of a pushback), to give time for more countries to strike deals with the U.S. As of this writing, tariffs stand at 15% for the EU, 25% for India and Mexico (with a new 90-day negotiating period for the latter), 35% for Canada, 30% for China, 50% on Brazil, and 15% for Japan and South Korea. There are also 40% tariffs on transshipments of Chinese goods passing through another country if they did not undergo “substantial transformation”. The exact threshold of “substantial transformation” has yet to be specified. This is in addition to the flat tariffs on commodities such as steel, aluminum, and copper. Taken altogether, these announcements mean that the average U.S. tariffs is now 18.3%. This is a significant shift from their average of 2.3% before Trump re-took office. This is the highest tariff rate U.S. consumers have faced since 1934[5]. The assertion of these tariffs is currently under review in Federal Courts, where litigants are asserting that the administration may have exceeded its authority to address emergency situations through trade regulations.
Markets were down sharply on August 1st as a result of the tariff announcements. The dip may have been somewhat tempered however by the weaker-than-expected job report, which investors are hoping may lead to interest rate cuts from the Federal Reserve. The U.S. added 73,000 jobs in July, which was lower than anticipated. The previous two job reports were also revised down significantly, with May being revised down 125,000 positions to 19,000 jobs added, and June being revised down 133,000 positions to 14,000 added. That means that over the last three months, an average of 35,300 jobs have been added. For reference, the U.S. added an average of 186,000 jobs per month in 2024.
Digging more deeply into the jobs report and revisions, we see that when adjusting for seasonality, we lost 11,000 manufacturing positions in July. This comes after losing 15,000 in June and another 11,000 in May, meaning that the U.S. is down 37,000 seasonally-adjusted manufacturing jobs in the last three months. Corroborating this is the reading of 48% in July’s manufacturing PMI. This is down (-1.0%) from June’s reading and the fifth straight month of contraction. The struggle that U.S. manufacturing is currently having with the tariffs is two-fold:
1) Building up capacity takes time and resources. Since we keep going back and forth on the cost and implementation of tariffs, companies aren't sure what is permanent and what is not. As such, they may be unwilling to make the capital expenditures that would be needed to set up domestic manufacturing. The International Chamber of Commerce (ICC) supports this, noting that the lack of detail in the tariff announcements have made it difficult for firms and their supply partners to quickly formulate the strategies need to deal with them effectively[
2) As they stand at the moment, tariffs disproportionately impact inputs, not finished goods. Ford Motor is an example of this, with company officials stating that they are actually at a disadvantage relative to competitors because they assemble 80% of their vehicles in the U.S. Their current structure means that they will pay more for the components (and likely for U.S. labor as well) needed to build vehicles themselves than they would if they were importing finished goods. Finance chief Sherry Hourse noted that Ford paid more than $800 million in tariffs in Q2 due to tariffs. Meanwhile, General Motors, who imports approximately half of their vehicles, reported a $1.1 billion decrease in net income – shaving 35% off of their profits – due to the increased cost of components from the tariffs. This loss comes despite their industry-leading expansion of a 12% sales gain to dealerships through the first half of the year.
The other major economic announcement in the last week of June was U.S. Q2 GDP. U.S. GDP increased by 3% in Q2, a shift away from the 0.5% decline in Q1. Nearly all of this shift can be explained by trade dynamics. In Q2 the U.S. had a positive trade balance – partly due to the “air pocket” in May when tariffs were elevated. net exports added 5.0% to GDP, while inventories – including the goods left over from the Q1 stock-up, subtracted 3.2%.
Meanwhile, consumption was soft, adding less than 1%. No matter how you slice it, it is a good thing when GDP goes up instead of down, but it will be important to keep an eye on inventories and trade movements in Q3 – particularly if they dip due to increased tariffs.
