Of late, all talk related to the US economy seems focused on inflation. And while the Fed has continually issued statements regarding interest rates, the organization seems split on how to proceed. Moreover, concerns are rising that too much intervention too soon could actually push the economy into a recession next year. In the meantime, it’s worth exploring whether these recession fears have any real merit.
“What’s that I hear? A recession?” It’s hard to wrap one’s head around. After all, the economy is booming. Just look at the labor market. Demand for workers is so high it has had a more negative effect on growth than the global supply chain crisis. What’s more, isn’t the dwindling inventory of raw materials a sure sign demand is outstripping supply?
Well, yes. However, a recent Financial Times comment piece suggested that these may just be lagging indicators and that it’s time to take another look at those supply-side constraints.
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Supply is Showing Signs of Normalization
A recent study by Bank of America highlighted a raft of trucking, rail, and delivery companies currently reporting rapidly declining prices and increasing capacity. Around the world, container demand and rates have been softening for weeks. Sure, the lockdowns in Shanghai have caused a severe spike in vessels moored offshore. However, port handling at nearby cities like Ningbo and Tianjin is progressing normally.
In the West, ocean shipping activity has moderated quite a bit. Vessel queues are dwindling quickly at both LA and Long Beach. This is perhaps because inventory levels are well past the point where panic buying could affect them. In many instances, inventories are above pre-pandemic levels.
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Airfreight, meanwhile, remains extremely tight. In fact, the ongoing China COVID lockdowns may well lead to a temporary reversal of the easing we saw in Q1 come early Q2. Still, all in all, trends seem to indicate that the global logistics market is gradually getting its act together, albeit in fits and starts.
Recession Fears Hinge on Fed Intervention
All of this begs the question: how fast should the Fed be tightening things up, and are we at risk of doing “too much too soon?” That is, could hitting the recovery with a rapid series of rate increases cause us to overshoot the goal? If so, could that push a stuttering economy into a recessionary period? No matter who you ask, you’re not likely to get a fast answer.
Here at MetalMiner, we’re curious to know how well companies have managed to re-stock. We’d also like information on how current inventory levels compare with pre-pandemic levels. It’s likely some firms will be looking to carry higher inventory after the last two years of stock-outs. Indeed, the imperative for “just in case” has overtaken the discipline of “just in time.”
Clearly, some sectors are driven by a desire to “cash in” on rapidly rising prices rather than maintain a historically-set inventory level. Whatever the motivation, this would be a recipe for overstock should the steam suddenly come out of the market.
A Fragile Recovery is Recovery Nonetheless
Of course, MetalMiner is not calling a recession – certainly not yet. Almost all early indicators are showing signs of an economy nearing recovery, inflation or not. However, it’s worth acknowledging the recession fears that are currently imperiling aspects of that recovery. More importantly, it’s important to note that the risk of Fed overreaction remains a clear and present danger.
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