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Supply chain crisis risks taking the global economy down with it – Financial Post

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The pipeline of international commerce has never been so clogged

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Last year the global economy came juddering to a halt. This year it got moving again, only to become stuck in one of history’s biggest traffic jams.

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New indicators developed by Bloomberg Economics underscore the extremity of the problem, the world’s failure to find a quick fix, and how in some regions the Big Crunch of 2021 is still getting worse.

The research quantifies what’s apparent to the naked eye across much of the planet — in supermarkets with empty shelves, ports where ships are backed up far offshore, or car plants where output is held back by a lack of microchips. Looming over all of these: rising price tags on almost everything.

Central banks, already retreating from their view that inflation is “transitory,” may be forced to counter rising prices with earlier-than-expected interest-rate hikes. That poses new threats to an already stumbling recovery, and could take the air out of bubbly equity and property prices.

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Behind the logjams lies a mix of overloaded transportation networks, shortages of labour at key chokepoints, and demand in the U.S. that’s been bolstered by pandemic stimulus and focused more on goods than services.

It’s not just a problem of moving stuff around. The world is still struggling to make enough stuff too.

Haulage trucks on the dockside at the Port of Dover Ltd. in Dover, U.K., on Tuesday, Nov. 2, 2021.
Haulage trucks on the dockside at the Port of Dover Ltd. in Dover, U.K., on Tuesday, Nov. 2, 2021. Photo by Chris Ratcliffe/Bloomberg

Producers have been caught off-guard by this year’s rebound after they slashed orders of materials last year, when consumers stopped spending.

In Vietnam, plants that make Nike shoes had to scale back output because migrant workers had decamped to their home provinces out of fear of COVID-19. China, the world’s manufacturing powerhouse, is confronting new virus outbreaks and responding with targeted lockdowns. Its factory prices are rising at a 10 per cent annual rate, the fastest since the 1990s.

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Pulling all these pieces together, the Bloomberg Economics supply indexes show shortages just off a twenty-year high in the U.S. Gauges for the U.K. and euro area are at a similarly elevated level.

The measures are based on a range of data, from factory gate prices to the ratio of inventory-to-sales for retailers, and the backlog of orders for service-sector firms. Readings of zero indicate normal conditions, negative ones mean goods are abundant, and positive points to constraints. The gauges show an abrupt shift from excess supply before the COVID crisis to today’s significant shortages.

For global manufacturers like Toyota — which slashed September production by more than a third from 2020 levels as shortages stalled its famed just-in-time production process — as well as the firms that move their products around the globe, and the shoppers waiting for deliveries, the big question now is: when will the disruptions end?

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Even giants like Amazon and Apple — used to bending supply chains to their will — don’t see the situation improving fast. Amazon said its entire fourth-quarter profit could be wiped out by a surge in the cost of labour and fulfillment. Apple said it lost US$6 billion in sales because of inability to meet demand, and could lose more next quarter.

Amazon said its entire fourth-quarter profit could be wiped out by a surge in the cost of labour and fulfillment.
Amazon said its entire fourth-quarter profit could be wiped out by a surge in the cost of labour and fulfillment. Photo by Clodagh Kilcoyne/Reuters files

Shipping conditions should start to ease after the Chinese New Year in early February, “although disruptions could last at least till the middle of next year,” said Shanella Rajanayagam, a trade economist at HSBC. Even then, with pent-up demand and inventory restocking keeping the pressure on, Rajanayagam says it could still take some time for supply chains to fully disentangle.

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What comes next is uncharted territory partly because of the sheer number of bottlenecks along the route from assembly lines to shopping baskets. As one supplier waits for another to deliver, the delays are feeding on each other.

Logistics systems usually ride the ups and downs of the global economy in a predictable pattern: Rising demand boosts trade, pushing shipping rates up and heralding good times for cargo carriers, until they over-build capacity and a bust follows.

But the pandemic has thrown that cycle out of whack. Even amid signs of slowing growth, the pipeline of international commerce has never been so clogged.

The more than 70 ships anchored off Los Angeles, for example, are loaded with enough 20-foot containers full of goods to stretch from Southern California to Chicago if laid end to end.

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An aerial image taken on October 28, 2021 shows the Palos Verdes Peninsula (L) and cargo container ships (back) waiting in the Pacific Ocean to unload at the Port of Los Angeles and Port of Long Beach.
An aerial image taken on Oct. 28, 2021 shows the Palos Verdes Peninsula and cargo container ships waiting in the Pacific Ocean to unload at the Port of Los Angeles and Port of Long Beach. Photo by Patrick T. Fallon/AFP via Getty Images

And even when those vessels get to dock, their payloads will only slam into the thousands already stuck in the ports waiting for a ride inland. That will require more truckers and trailers in the short run.

A longer-term fix means getting COVID-19 under control, building new infrastructure such as more efficient ports, and improving technology for digital transactions and faster communication.

Elsewhere in the world, shipping bottlenecks have often followed severe weather and virus outbreaks, like the recent COVID-19 flareup in Singapore. An analysis of port congestion showed the backlog Monday in that city-state centre of finance and logistics was elevated, with 53 container ships at anchor, the highest count since Bloomberg started tracking the data in April.

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That’s a problem for the U.S., where the clothes and home electronics that fill up shoppers’ carts rely on foreign inputs and assembly. And with vaccination rates in many Asian countries still low, it’s a problem that won’t disappear anytime soon.

“For the supply chain to recover, it is going to require a certain amount of luck” — avoiding weather disasters or new COVID hotspots — “plus time and investment to add more logistics capacity,” said Simon Heaney, senior manager for container research at Drewry in London.

For a global economy exiting the deepest recession in recent history, supply shortages caused in part by strong demand are a good problem to have. Clearly worse would be the opposite one: abundant supply because economies remained depressed, with millions more unemployed.

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But this least-bad option is still creating plenty of problems of its own.

Inflation is already running high enough to be outside the comfort zone for monetary policy makers. In the U.S., it’s at 5.4 per cent now and could stay lodged in the 4 per cent to 5 per cent range next year if supply constraints don’t ease, according to Bloomberg Economics models.

Inflation is already running high enough to be outside the comfort zone for monetary policy makers.
Inflation is already running high enough to be outside the comfort zone for monetary policy makers. Photo by Kim Kyung-Hoon/Reuters files

That doesn’t mean the world is in for a re-run of 1970s-style stagflation. It took a decade of overheating and policy missteps to drive U.S. inflation above 10 per cent back then. The Fed and its peers are unlikely to make the same mistakes again. And unemployment is far below its 1970s peaks, and falling.

Still, the current environment — call it stagflation-lite — is a challenging one for central bankers.

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Keeping rates at their current lows would allow the recovery to continue, but risk prices spiralling higher if households and businesses come to expect more of the same. Tightening would quell inflation not by addressing inadequate supply, but rather by stifling demand. It could turn into the monetary policy equivalent of the surgeon who declares: “Operation successful, patient dead.”

Traders are currently pricing in two Fed rate hikes in 2022, two more than the median member of the Federal Open Market Committee. A Bloomberg Economics model of the Fed’s reaction function — its policy response to changes in the economy — suggests that if inflation runs strong and unemployment falls, even two hikes next year might not be enough.

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  1. A woman checks out a jobs advertisement sign during the COVID-19 pandemic in Toronto on April 29, 2020.

    Onex president says wage inflation will persist, squeezing margins

  2. Mario Aricci, owner of Ponesse Foods at St. Lawrence Market in Toronto, on Sept. 15, 2021.

    Businesses set to raise prices and wages, adding to inflation concerns

  3. Gross domestic product was little changed in September, according to a preliminary estimate from Statistics Canada released Friday, while the expansion grew by a less-than-expected 0.4 per cent in August.

    Canada’s economy stutters and stalls amid supply bottlenecks

  4. An Amazon delivery worker pulls a delivery cart full of packages during its annual Prime Day promotion in New York City, U.S., June 21, 2021.

    Amazon growth hit by labour crunch, rising costs

Of course, predictions of rapid monetary tightening have been consistently wrong in the past, and they could be again. Demand for goods might cool as pandemic stimulus fades or fears of tighter financial conditions erode confidence. A rotation of spending from goods back to services, already under way in the U.S., will lessen the imbalance between constrained supply and booming demand. A sustained slowdown in China might hit commodity prices.

And supply chains could unsnarl quicker than expected, too. The Bloomberg gauge of shortages in the U.S. has edged down in the latest readings — whilst staying at historically elevated levels. It’s just that there’s no precedent that sheds much light on when, or how, conditions will normalize.

“The current situation is unique and quite different from the more isolated disruptions the world has experienced,” said John Butler, president of the World Shipping Council, which represents the biggest ocean freight carriers. “The way in which the current congestion ultimately unwinds will also be different.”

— With assistance by Anna Wong

Bloomberg.com

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Nobody seems to know what's going on with the economy – CNN

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A version of this story appeared in CNN’s What Matters newsletter. To get it in your inbox, sign up for free here.

(CNN)If you’re confused by the US economy, which simultaneously shows signs of strength and cause for concern, you’re not alone.

The economy is on the road to recovery from the coronavirus pandemic, reeling from inflation or a source of disappointment on jobs creation, depending on who you’re talking to.
It’s probably all three, and what happens from month to month seems to be something of a surprise. That element of unpredictability might be the most normal possible thing given the shock of the pandemic — the extraordinary government intervention to save the economy is unlike anything anybody alive today has ever seen.
It’s hard to decide how important any single thing is.
Let’s look today at jobs.
Government data released Friday showed the US economy gained 210,000 jobs in November and the unemployment rate fell to 4.2%. A low rate traditionally signals full employment, meaning that nearly everyone who wants a job has one.
And yet!
Most stories about the November jobs report described it as “disappointing” in the first sentence, but also proof that the pandemic recovery is moving along.
Why the disappointment? Tappe wrote: “Economists had expected more than double the number of jobs created in November, forecasting a continuation of the buoyant economic recovery over the past two months. Instead, the November jobs gain was more reminiscent of the pre-pandemic economy, when employers added a smaller but steady number of positions, at least on the face of it.”
At the same time, there’s the good news. The jobs report suggests the pandemic recovery is progressing. The country has created more than 6 million jobs this year, and labor force participation increased to 61.8%, the highest level since the pandemic hit.
Much of the disappointment stems from expectations. The jobs report is based on two surveys — one of businesses with payrolls and one of households about their economic situation — that are conducted by the government mid-month and released by the Bureau of Labor Statistics in tandem on the first Friday of each month.
“Weird jobs numbers,” tweeted Jason Furman, who led the Council of Economic Advisors during the Obama administration.
“Very strong household survey: unemployment down to 4.2% & labor force participation up as employment up 1.1 million,” he tweeted. “But the normally more reliable payroll survey shows only 210K jobs added.”
He’s not sure what’s going on: “Some explanations may emerge but it may just be measurement error.”
Where do expectations come from? Leading up to the monthly release, economists and banks publish their own expectations for what the surveys will find. If the government data doesn’t hit those expectations, disappointment follows.
I talked to Elise Gould, a senior economist at the Economic Policy Institute, about what we do and do not learn from these reports.
She said they need to be viewed as pieces of information, not the full picture, in part because the surveys can overstate things and miss the changing composition of the workforce.
Revisions to jobs reports from recent months have confirmed stronger job growth than what was shown by the surveys.
Still, it’s best to know the latest information, even if we know it’s likely to change, she said.
Also, the pandemic. There is also the pandemic element to confound economic expectations, just like it has confounded people’s lives.
“Everyone in this economy today and the people that are making these predictions have never lived through a pandemic that hit the labor market so strong,” said Gould. “And so their models are not necessarily capturing the ebbs and flows of the pandemic.”
I asked David Goldman, managing editor of CNN Business, for his thoughts on why these reports seem to confound expectations each month. He came back with three points:
  • This is a particularly unusual environment. It is making predictions really difficult for economists. The labor shortage, supply chain crisis, energy crunch, inflation and Covid-19 situations all wrapped into one make for a delicate balancing act. We should cut economists a break.
  • Right in the long run. Economists actually have been proven correct over the past several months when they initially were thought to be wrong. That’s because the reports keep getting revised higher in subsequent months as Labor Department economists get more data. It’s not only hard for economists at Goldman Sachs and JPMorgan to figure out — it’s hard for the government, too.
  • Don’t focus on expectations. The forecasts aren’t the important thing here — it’s the actual data. And one month doesn’t a trend make. We’ve had some shockingly good jobs data in recent months, and November wasn’t all that bad — just not quite as good as we had expected.
There’s uncertainty elsewhere. Leaders at the Federal Reserve, like Chairman Jerome Powell, had been preaching that inflation was temporary — calling it “transitory,” meaning it wouldn’t permanently affect the economy.
But in a signal that inflation may last a little longer than expected, Powell told lawmakers this week the Fed may end some of its pandemic stimulus efforts — they call it “tapering” — earlier than expected.
“At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Powell said.
One wrench thrown into the economy has been the resilience of the coronavirus. We may not quite understand how the surge of the Delta variant over the summer and fall arrested progress.
CNN’s Tappe and Nathaniel Meyersohn wrote about the Delta effect back in August.
Now that the Omicron variant is emerging, it, too, could send things in a new direction.

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Omicron Variant May Be Good For Economy – Forbes

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The omicron variant of Covid-19 has sparked great fear. With time, we may find the fear to have been justified, but we may find the opposite: that this is good news for the economy.

It’s still early days for our knowledge of omicron. Waiting to learn more seems to make sense, but consider this: Business decisions are being made every day. Any person who waits for perfect certainty—about the economy, technology or Covid-19—will never make a single decision. In many areas decisions have to be made this week. So it’s worthwhile to consider how omicron may be good for the economy.

Omicron seems to be displacing the delta variant in South Africa. Ted Wenseleers showed that delta’s share of total Covid-19 cases in South Africa has plummeted while omicron has surged. Because the early indications show that omicron was highly transmissible, it could well displace the delta variant around the world.

So far omicron has triggered a surge in infections in South Africa, but not a comparable increase in deaths. There’s good reason for the virus to mutate to be less dangerous. Bugs that kill their hosts don’t replicate as much as bugs that allow their hosts to remain alive. Many viruses in the past have evolved to be milder. We cannot take this idea too far, however.

The omicron virus may have mutated so that it has greater ability to infect those who already had been exposed to earlier variants. That’s no surprise to South African scientists, who have observed a very high past infection rate in their population. The virus could not get ahead by finding people never exposed to any version of Covid-19, so it found a way to infect the previously ill, this theory goes.

BioNTech CEO Ugur Sahin said recently that current vaccines probably help protect against severe illness from the omicron variant, and that new vaccines are under development that would be more targeted against omicron. Given the speed with which our vaccines were developed, we may have new versions being tested in the lab right now. The question will be how long we have to wait for regulatory approval.

From an economic forecasting viewpoint, business leaders should consider the upside potential of omicron. Although it is way too early to be sure, we may find that the disease becomes dominated by a less dangerous mutation. Illness would continue if this happens, but with fewer deaths and hospitalizations. People would come to feel more comfortable dining out, traveling and seeking routine non-Covid healthcare tests and procedures. The rosy view is far from certain, but current evidence is not more pessimistic.

Companies that that are especially sensitive to the Covid pandemic should try to delay big decisions. We’ll have better information in the coming weeks. But decisions that cannot be delayed should probably consider the possibility of a stronger economy rather than greater Covid problems.

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Can the global economy battle through another COVID-19 setback? – Aljazeera.com

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Video Duration 26 minutes 00 seconds

From: Counting the Cost

A new coronavirus variant has forced governments to impose travel bans just as economies were starting to recover.

Last week, after scientists in South Africa identified a new coronavirus variant, borders were suddenly closed off to passenger travel from Southern African countries, oil prices fell more than 10 percent, and stock markets took a hit.

Markets and economies are expected to face weeks of uncertainty as investors closely watch for updates on Omicron. What comes next largely depends on what scientists discover and how quickly they do so.

Also, green hydrogen has been hailed as the energy of the future; can it help decarbonise economies?

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