Supply-chain headwinds pummel the US economy
Our new supply-chain stress indicator reveals the US economy faces escalating supply-side challenges. Transportation logjams are the greatest point of stress, but limited spare domestic production capacity, low inventories, sharply higher input costs (most acute for raw materials), and labor challenges are making it increasingly hard for supply to keep up with demand.
What you will learn:
- Ocean freight is a chokepoint, with inbound cargo shipments at record levels and shipping costs up 400+% since the Covid outbreak. The trucking industry – which moves 75% of total freight across the country – is struggling to transport record amounts of goods, forced to leave shipments at seaports for up to two weeks before starting the trip to their destination (up from 3-4 days pre-Covid).
- Manufacturing capacity utilization was 76.7% in August, higher than the 2015-19 average and less than 3ppts from the highest reading of the past two decades.
- Slack is minimal in durables and nondurables production, with Covid shining a light on the fact that US production capacity hasn’t risen since 2000.
- Production costs are sharply higher, most notably for raw materials used in durables and nondurables manufacturing, up 35-55% y/y – the result of significant shortages and strong demand. The economy today faces the greatest imbalance between raw materials and finished goods in two decades.
Firms must brace for higher ‘new normal’ construction material prices
New research by Oxford Economics suggests that construction materials prices have shifted permanently higher due to the shocks of the past couple of years. Project managers and investors should anticipate costs being at least 15-20% higher in 2024 and onwards than in 2021.Find Out More
New Activity Trackers suggest momentum is waning
After a choppy first quarter of GDP data, our novel Activity Trackers (which incorporate proprietary daily sentiment data from Penta) suggest that economic momentum in EM Asia is on a softer trend in Q2 (at least outside of China) supporting our view of easing underlying inflationary pressures and diminishing appetite for further rate hikes.Find Out More