Supply Chain Disruptions Eased
The supply chain disruptions that defined much of the end of 2021 seem to have finally abated. For many, the holiday season of 2021 was filled with a sense of urgency and unease as consumers were warned to begin their holiday shopping months in advance to get ahead of hold-ups in production and shipping. This year, those concerns ceased to exist. In many cases, an oversupply of goods has led to widespread, months-long sales at some of America’s largest retailers like Target and Walmart. A variety of statistics indicate that supply chain issues are now behind us. For starters, ocean shipping rates have fallen below pre-pandemic levels. Overall freight rates have declined since the end of February this year and have fallen to their lowest level since August 2020. Capacity is up for both railroads and delivery trucks. Current supply gluts are partially responsible, as many retailers are overstocked and have paused adding additional inventory. A shift in consumer spending from goods to services has further contributed to this build-up of inventories and a decrease in shipping rates.
China Reopening
On the production side, China has finally ended its zero Covid policy, which will further ease the supply-demand imbalance. The reopening has catalyzed a rapid spread of Covid in China, becoming especially problematic, with estimates of up to a quarter of a billion people having caught Covid in the first 20 days of the country’s reopening. However, the lockdowns seen at important production plants, such as Foxconn, where Apple sources the majority of its iPhones, are a thing of the past.
Inflation Slowing
The easing of supply chains is good news for the Fed’s fight against inflation, as they are now receiving some much-needed help on the supply side of the equation. While increasing rates helps dampen the demand side of the inflation equation, the decongestion of supply chains helps on the supply side. With CPI falling to 6.5% in December, down from a peak of 9.1% earlier in 2022, there are encouraging signs that the combination of slowing global demand, high interest rates, and normalized supply chains will successfully rein in inflation.
Written by: Brian Sawyer
