Toyota made headlines today by announcing its first loss in 70 years. Check out the New York Times and Wall Street Journal stories.
Certainly this is a remarkable story that demonstrates just how pervasive the effects of the economic downturn really are. But this story reminded me of the brighter side of global trade. Global trade, at its best, can enable people to climb the ladder of economic development. The story usually goes something like this… People connect with the global marketplace by producing low value goods. They then accumulate skills that enable them to produce higher value goods.
Indeed, this is the story of Toyota which, about 70 years ago, spun off from Toyoda Automatic Loom Works. It never ceases to amaze me that Toyota began as a textile company.
Certainly, yesterday was a tough day for Toyota. But the company itself is a remarkable success story that highlights the possibilities of global trade.
In the months ahead, we’ll be featuring guest bloggers on the Panjiva Blog. First up is Daniel Tunkelang, a member of Panjiva‘s Technology Advisory Board. Daniel is the Chief Scientist and a co-founder of Endeca. Daniel studied computer science and math, obtaining undergraduate degrees from MIT, and a Ph.D. from Carnegie Mellon University. Daniel is an expert in information retrieval and information science, and was recently appointed industry chair for Special Interest Group on Information Retrieval (SIGIR) ’09.
Daniel’s post (below) is the first of a series of posts which can be found at Daniel’s popular blog, The Noisy Channel.
By Daniel Tunkelang:
While I’m a neophyte on matters of global trade (fortunately fellow MIT alum and Panjiva investor Larry Summers
is a bit more qualified on those matters), I do know a thing or to about how people interact with information. So it’s my delight to share a short series of posts on the macroeconomics of information and attention.In Brief Principles of Macroeconomics
, Greg Mankiw
lists ten principles of economics that he divides into three groups:How People Make Decisions
- People Face Tradeoffs.
- The Cost of Something is What You Give Up to Get It.
- Rational People Think at the Margin.
- People Respond to Incentives.
How the Economy Works as A Whole
- Trade Can Make Everyone Better Off.
- Markets Are Usually a Good Way to Organize Economic Activity.
- Governments Can Sometimes Improve Market Outcomes.
How People Interact
- A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services.
- Prices Rise When the Government Prints Too Much Money.
- Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. .
Nobel Laureate Herb Simon articulated the concept of an attention economy in his 1971 article, “Designing Organizations for an Information-Rich World”:
in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.
In the next few posts, I’ll try to apply Mankiw’s principles to Simon’s conception of an attention economy to establish a macroeconomics of information and attention.
On Monday, we released data showing the extent to which the economic downturn is decimating the global supply base. Specifically, our analysis showed that there are fewer suppliers actively serving the U.S. market, and, of those that are active, many have suffered an alarming decline in the volume shipped to U.S. customers.
We’ve received questions about whether this is a China-only phenomenon. The short answer is no. Some statistics:
World: We saw a 72% drop-off in the number of active apparel suppliers from July to October. Of those that remain active, 40% are on Panjiva’s Watch List, as a result of suffering a huge decline in the volume shipped to U.S. customers in the most recent three month period.
CHINA: The comparable statistics for Chinese suppliers look much the same. We saw a 69% drop-off in the number of active apparel suppliers from July to October. Of those that remain active, 45% are on Panjiva’s Watch List.
Bottom line: the data suggest that this is not a China-only problem, but nor have Chinese suppliers been spared the pain that the global supply base is feeling.
Check out a related article over at MarketWatch.
To get a sense of the impact of the economic downturn on global suppliers, the Panjiva research team took a look at the shipment data that we track, clean, and analyze on a continual basis using our proprietary algorithms. The data suggest that the economic downturn is decimating suppliers. Consider what we found in the apparel industry, a bellwether of global trade:
- In October 2007, there were 43,653 companies that were actively serving the U.S. market. (For these purposes, we consider a company “active” if it has shipped to a U.S. customer in the preceding three months.)
- By July 2008, the number of active suppliers had dropped to 22,099.
- By October 2008, the number of active suppliers had dropped to 6,262 — a 70% drop in just three months.
- Of the 6,262 suppliers that were active as of the end of October, 40% suffered a year-over-year drop of 75% or more in volume shipped to their American customers.
To help companies spot suppliers that are at risk of failing, we are establishing the Panjiva Watch List. This list includes each supplier that has suffered a year-over-year drop of 75% or more in volume shipped to their American customers.
Also, we will continue to track the industry-wide stats. So that we can quickly communicate whether things are getting better or worse, we are introducing the Panjiva Pain Index – a number that gets higher as things get worse. The Panjiva Pain Index is calculated by averaging two numbers: the percentage of suppliers previously considered “active” that became “inactive” in the last month, and the percentage of “active” suppliers that are on the Panjiva Watch List.
In August, the Panjiva Pain Index stood at 24. The percentage of companies that went inactive was 23, and the percentage of companies on the Watch List was 24.
In September, the Panjiva Pain Index stood at 37. The percentage of companies that went inactive was 32, and the percentage of companies on the Watch List was 41.
In October, the Panjiva Pain Index stood at 43. The percentage of companies that went inactive was 46, and the percentage of companies on the Watch List was 40.
Questions? Comments? Let us know.