The August Logistics Manager’s Index reads in at 59.3, up very slightly (+0.1) from July’s reading of 59.2. The minimal overall movement is the product of counteracting forces at the sub-component level. The upward pressure comes from inventory and warehousing metrics.
Inventory level expansion is up (+2.7) to 58.2, which in turn is pushing up inventory costs (+7.3) to 79.2 and warehousing prices (+3.9) to 72.2. Also, warehousing capacity expansion slows (-0.6) to 50.5, which is just above the break-even of 50 and represents very marginal rates of expansion, according to the August 2025 Logistics Managers' Index, released by the Council of Supply Chain Management Professionals (CSCMP), Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno.
Key takeaways:
· The downward pressure comes from transportation metrics, with notable drops in both transportation prices (-6.9 to 56.1) and transportation utilization (-4.8 to 54.7). At the same time, available transportation capacity is up (+4.7) to 57.3. While these are not necessarily seismic shifts on their own, the fact that transportation capacity is now expanding faster than transportation prices is significant, as it represents a mild negative freight inversion.
· In the past, negative freight inversions have been associated with a move toward slowdowns in the transportation market. However, the August inversion is fairly mild (1.2-point difference) and it is only one reading. Traditionally, a move like this would need to go on for at least three months before considering it an actual freight recession. It does however represent the continuation of a trend observed since January when transportation prices came in 17.7 points higher than available transportation capacity during the beginning of the big stock-up ahead of tariffs. Transportation prices had been higher than transportation capacity in every reading since April 2024, which marked the end of the previous freight recession.
· However the inventories are allocated throughout the supply chain, it seems likely that most imports have arrived already. One potential signal that imports will slow down through the rest of the year is that Chinese factory output slowed in July. This comes despite their exports surging by 7.2% in the same month. Shipping analysts believe that, despite the uptick in inbound container volume in July, that overall U.S. container volumes will decline in the second half of the year, with the National Retail Federation predicting a 5.6% decrease in inbound volume for 2025. For this to come to pass, it would mean imports would need to be down by 17.5% through the last 5 months of the year.
· This slowdown would be coming after what has been a roller coaster during the last few months. U.S. GDP growth was revised to 3.3% expansion in Q2, up from the previous estimate of 3% growth. This shift is largely due to the “air pocket” in imports in April and early May. Imports were down by approximately $340 billion in Q2. Other factors like consumer spending suggest that, if we remove the fluctuations in trade, there may be an underlying slowdown.
· Recent analysis from Goldman Sachs suggests that U.S. businesses have borne the brunt of the tariffs, with only 22% being passed onto consumers through June. The report does warn that this could increase significantly (forecast to be 67%) by Q4 if trade policy does not soften.
· The other big shift in trade policy in August was the closing of the de minimis exception, which allowed imports under $800 to avoid tariffs. The popularity of de minimis shipments had exploded in recent years, going from 139 million shipments in 2015 to 1.36 billion in 2024 (or approximately 4 million packages per day). This increase was largely driven by fast-fashion e-commerce platforms. Unfortunately, it is also likely to impact small businesses that rely on international postal services. Due to the uncertainty surrounding the pullback of the de minimis exceptions, the national postal services of over 30 nations have temporarily suspended deliveries into the United States.
· Uncertainty around tariffs continues to effect U.S. consumer sentiment, which was was down (-5.7%) in August to 58.2. This is down 14.3% from the same time a year ago. The decline was driven by a decrease in consumer demand for durable goods and more uncertainty around personal finances, both of which were driven by tariff news. It is also notable that consumers are expecting year-ahead of inflation of 4.8%, which is up from their prediction of a 4.5% increase in July.
· Tariff-inspired price increases likely underlie the U.S. Personal Consumption Index (PCE) moving up 2.6% year-over-year in July, consistent with the increase in June. Costs have increased the most for goods such as furniture, appliances, and footwear, that are more exposed to tariffs. It is possible that more increases are coming, as the Producer Price Index (PPI), which looks at costs at the wholesale level, were up 0.9% in July, up significantly from the predicted 0.2%.
· Continued upstream and downstream inflation complicate matters for the Federal Reserve. When taken together with recent revisions to jobs reporting, the news that Americans applying for unemployment benefits was down in the last week of August suggests that the United States remains in what is being called a “no hire, no fire” economy. This is important for supply chains because slowness employment is the thing that is most likely to get the Fed to consider cutting interest rates.
· Inventories are now moving toward the downstream supply chain. After reporting contraction over the last few months, downstream retailers reported inventory level expansion at 57.1, which is nearly level with the upstream expansion of 58.1, and suggests that the high levels of inventory that entered the country over the course of the year are now more balanced throughout supply networks. This is reflected in overall inventory level expansion increasing (+2.7) to 58.2.
· The other major source of expansion in the industrial real estate space are data centers. Capital goods orders were up in July, which suggests that some firms are looking to increase their U.S. manufacturing operations. It is also likely that some of these capital expenditures are in the service of the ongoing buildout of data centers, which will total $600 billion in the United States in 2025 and could eventually result in $7 trillion of new buildouts by the end of the decade.
Freight seemed to be on an upswing in the second half of 2024 and into January of this year. It then settled into a state of consistent, if unspectacular growth through the next six months, averaging expansion of 62.1, with every reading from April to July falling somewhere between 62-63.1. This streak of consistence changed in August as transportation prices dropped (-6.9) to 56.1. This drop was driven by upstream firms, who reported very anemic expansion at 51.5. Downstream firms, who began the process of moving holiday inventories down the supply chain in earnest this month, buoyed that number somewhat with a reading of 66.1. The drop came despite the U.S. diesel prices reading in at $3.708 per gallon in the last week of August, which is almost even (+$0.057) from last week.
