Economic data reflects restructuring of the worldwide supply chain.
Almost two years later Regionalization, nearshoring, re-shoringAnd “Friend shoringAs the worldwide supply chain restructures, economic data from the US and overseas shows the results. As the provision chain shifts, accelerated by pandemic disruptions and political uncertainty, previously reliable – and popular – data correlations are also changing.
Think about manufacturing within the USA. While technology, financiallyAnd Advice While corporations have announced major layoffs because the Federal Reserve continues its 15-month tightening of monetary policy, the manufacturing sector stays resilient. In fact, expansionary fiscal policy continues to spur positive growth and inflation, which, together with federal efforts to shift semiconductor production overseas, has triggered a producing boom – and with it a severe labor shortage. With an aging workforce and an economy and culture that has, for generations, prioritized higher education over vocational training, there simply is not enough of it Skilled staff — electrician, WelderAnd Semiconductor engineer – to satisfy demand.
On the opposite side of the Pacific: “Risk reduction“Among the major importers of North America and the Eurozone, the crisis has created its own economic ripples. Export trade flows are shifting, according to a survey of 15,000 vendors at the 2023 Canton Fair in Guangzhou, China. While manufacturers previously used vertical integration to export large volumes of finished goods to advanced economies, many manufacturers from Guangzhou to Shanghai are now shipping smaller orders of intermediate products for final assembly to “nearshoring” destinations in emerging markets (EM).
In this recent paradigm, exports from the port of Qingdao, a shipping hub for EM destinations, increased 16.6% year-on-year in the primary quarter of 2023, while container volumes via the ports of Shanghai and Zhoushan, which serve European and North American routes, rose, fell by 6.4%. Overall, East Asian manufacturing hubs are battling overcapacity, while select U.S. sectors are facing capability constraints. Such transformations are rarely free.
The once consolidated “factory gate price” can be experiencing a geographical shift.
The optimization of worldwide supply chains and vertical integration in key manufacturing centers in Asia over the past many years have led to co-movements between the producer price index (PPI)/factory gate price and consumer price index (CPI) data of major exporting nations in advanced economies. However, those relationships relied on the now-disrupted pre-pandemic supply chain.
Because assembly of finished goods is more dispersed across locations in emerging markets and the provision chain is continuously retooled, data correlations between inflation and costs at manufacturing centers within the U.S. may show a weaker correlation. Why? Because a more diffuse and fewer integrated supply chain will cement factory prices in numerous countries as a result of idiosyncratic local labor and material concerns.
Taking these aspects into consideration, a more geographically redundant but less efficient trading system is prone to be inflationary as the brand new weighted average PPI will reflect various unoptimized pricing data. Alternatively, the prices of energy, raw materials and other raw materials could function leading indicators in a more complex but resilient global supply network.
US CPI and Bloomberg Commodity Index
Sources: US Bureau of Labor Statistics, Bloomberg, Cookieselias, Inc.
Supply chain transformation = uncertainty
Given the present political and business give attention to supply chain redundancy, we’re prone to see further diversification relatively than consolidation and value optimization in the approaching weeks and months. Therefore, the structure of world trade will proceed to vary before a brand new equilibrium is achieved. This implies greater data volatility, weaker relationships between formerly correlated peers and, perhaps most significantly, recent opportunities for investors who understand and anticipate the brand new supply chain paradigms and concurrent data movements.
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Photo credit: ©Getty Images / Natee Meepian
