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Something to recognize. Logistics can be somewhat thought of as a flow problem. If demand far exceeds supply, and both supply and demand stay constant, the ba
by adam_arthur 5y ago
Something to recognize.
Logistics can be somewhat thought of as a flow problem.
If demand far exceeds supply, and both supply and demand stay constant, the backlog will continue to get worse in severity over time.
For the problem to get better, either demand has to decline, or supply has to increase. However, the ability to expand supply seems limited in the short term. E.g. how long does it take to improve port throughput, or build new container ships?
Translating to the real world, think every ship stuck at the port removes another ship/containers from being able to pick up new goods which creates a self reinforcing problem.
Or thought another way, if the port can only unload 10,000 containers a day, and 20,000 containers a day are showing up, the number of backlogged containers will increase linearly with time.
Just yesterday we hit a record number of ships backlogged at the CA port, so I suspect this is exactly the situation we're in.
The free market will eventually solve by either supply throughput breakthroughs, or prices continuing to rise until demand destruction kicks in.
I want to lay a few stats out here. Retail sales has been ~20% elevated from 2019 levels since the pandemic started, primarily due to government benefits/stimulus checks.
https://fred.stlouisfed.org/series/RSXFS https://fred.stlouisfed.org/series/RSXFS
Some is due to spending habits changing, but that's likely a smaller portion.
Check real personal income over the course of the pandemic.
https://fred.stlouisfed.org/series/RPI https://fred.stlouisfed.org/series/RPI
Enhanced UI has ended, but it seems consumers are relying on credit now to maintain the same level of spending. It's not clear how long this will last, but it could be months, judging by the consumer loan data here.
https://fred.stlouisfed.org/series/CONSUMER https://fred.stlouisfed.org/series/CONSUMER
Note that many consumers paid off debts with the stimulus, is why this chart dips at the end. But we're quickly climbing back. Given lower interest rates, it's likely this can persist a few more months at current trend.
I suspect this will end organically whenever consumer credit is maxed out, and demand falls. But at the same time, wages are increasing fairly rapidly now... Is it possible higher wages can continue to support this new level of demand?
Probably in part, but not entirely.
- ec109685 5y agoYou can’t flat out say the rise in retail sales is due to stimulus. There are a lot of disruptions over the last year that have shifted spend from things like dining out and travel.
- adam_arthur 5y agoThis chart tells you most of what you need to know. https://fred.stlouisfed.org/series/RPI https://fred.stlouisfed.org/series/RPI This shows the insane increase in personal income over the course of the pandemic. Many made more money on enhanced UI benefits than in their line of work. This is a known fact. People in this situation have more propensity to spend the marginal dollar than higher income earners. Spending as a percentage of income inversely trends with level of income. It's true that some percentage of retail spending is spending shifted from other categories, but given personal income data, I doubt that's the primary cause. Also keep in mind, there was mortgage forbearance, rent forgiveness, and student loan moratorium (which is still ongoing I believe). Those factors don't show up in income, but will shift expenses from loan interest to goods most likely.
- 8note 5y agoI do know something else not specified by the chart. Everyone's been stuck at home and purchasing consumer items that would usually be bought in bulk and supplied by employers, restaurants, etc. Claiming it's government spending as the cause and not covid as the cause seems silly
- adam_arthur 5y agoThe ability to spend is constrained by aggregate income and available credit in society. Shifts in spending from services to goods can only alter consumption patterns so much. Here is the Fed data on services spending: https://fred.stlouisfed.org/series/PCESV https://fred.stlouisfed.org/series/PCESV As you can see, services spending is equivalent to 2019 levels today, while goods spending is 20% higher. Consider the level of fiscal stimulus, monetary stimulus through lower rates (cheaper credit), and expense reduction (moratoriums, forbearance). The sheer magnitude of demand stimulation is frankly obvious, even without digging into the data. Of course, the data backs up this theory as well. Saying it's "covid" isn't saying anything at all. You have to quantify what you're suggesting. What is the mechanism that can explain persistently higher goods spending? The data doesn't bear out substitution as the primary mechanism, either way.
- samstave 5y agoSuper-hyper-inflation is said to be coming by Jack Dorsey. Alex Jones was quoted as saying that he knows "high up elites" who told him war is coming ~February (don't kill me I am just quoting what he just said this week. --- So, with this backlog, inflation, war... and china's shenanigans all around... I am pessimistic on the next 8 months.