The economic data reflects the restructuring of the global supply chain.
Almost two years after the regionalization, nearshoring, re-shoringAnd “friend-shoringof the global supply chain restructuring process, US and foreign economic data are revealing the consequences. As the supply chain evolves, accelerated by pandemic disruptions and political uncertainty, so do previously reliable – and popular – data correlations.
Consider American manufacturing. While technology, financialAnd consultant companies announced major layoffs amid 15 months of monetary tightening by the US Federal Reserve, the manufacturing sector remains resilient. Indeed, expansionary fiscal policies continue to spur positive growth and inflation, which, combined with federal efforts to outsource semiconductor production, has sparked a manufacturing boom — and with it a severe labor shortage. work. Given an aging workforce and an economy and culture that has emphasized college education over job training for generations, there is simply no enough qualified workers — electricians, weldersAnd semiconductor technicians – to answer the question.
Across the Pacific,risk reductionamong major North American and Eurozone importers 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 producers previously leveraged vertical integration to export vast volumes of finished goods to advanced economies, many manufacturers from Guangzhou to Shanghai are now filling smaller orders for intermediate goods to nearshore destinations. emerging markets (EM) for final assembly.
In this new paradigm, exports from Qingdao Port, a shipping hub for emerging destinations, grew 16.6% year-on-year in the first quarter of 2023, while container volume via the ports of Shanghai and Zhoushan, which serve European and North American routes, fell 6.4%. Overall, East Asian manufacturing hubs face overcapacity while some U.S. sectors face capacity shortages. Such transformations are rarely free.
The “ex-factory price”, once consolidated, is also undergoing a geographical shift.
Optimization of global supply chains and vertical integration in major Asian manufacturing hubs in previous decades fueled joint movements between producer price index (PPI)/ex-factory price data major exporting countries and the consumer price index (CPI) in advanced economies. But those relationships relied on the now disrupted pre-pandemic supply chain.
With the assembly of finished goods more widely distributed in emerging countries and as part of the ongoing retooling of the supply chain, US inflation and prices in manufacturing centers may have a weaker data correlation. For what? Because a more diffuse and less integrated supply chain will cement ex-factory prices in different countries due to idiosyncratic considerations of local labor and materials.
Given these factors, a more geographically redundant but less efficient trade regime is likely to be inflationary, as the new weighted average PPI will reflect various unoptimized pricing data. Alternatively, the costs of energy, raw materials and other commodities could serve as leading indicators in a more complex but resilient global supply network.
US CPI and Bloomberg Commodities Index
Sources: US Bureau of Labor Statistics, Bloomberg, Kekselias, Inc.
Supply chain transformation = uncertainty
Given current policy and corporate emphasis on supply chain redundancy, greater diversification rather than consolidation and cost optimization is likely in the weeks and months ahead. Thus, the structure of world trade will continue to change before reaching a new equilibrium. This implies greater data volatility, weaker relationships between formerly correlated peers and, perhaps more importantly, emerging opportunities for investors who understand and anticipate new supply chain paradigms and co- data movements.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.
Image credit: ©Getty Images / Natee Meepian
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