Supply chains are tightening again. This time, it looks like a good sign for the economy.
Supply chains are tightening again. This time, it looks like a good sign for the economy.
Global supply chains have largely bounced back from the breakdowns they suffered early in the pandemic. But now there are signs they may be tightening up again.
The consulting firm GEP said this week that supply chains are nearing full capacity for the first time in nearly a year, and an index from the New York Federal Reserve Bank likewise shows rising pressure on the movement of goods. That could be a positive economic sign for the coming months.
When people started ordering a bunch of stuff in the early part of the pandemic, companies that move stuff were caught off guard. So they responded by adding capacity to move it all — trucks, ships and train cars.
“Truthfully, there was too much, and then a whole bunch of it went to the sidelines,” said Dale Rogers, a professor of logistics and supply chain management at Arizona State University. As demand for raw materials and consumer goods dropped off last year, companies idled a lot of those trucks, ships and train cars. But now, more of that capacity is coming back online.
“And the fact that it’s coming back tells you that good things are going to show up in [gross domestic product], probably before the end of the next quarter,” Rogers said.
It’s coming back because demand has increased again, which is coming mostly from two parts of the economy, said Mukund Acharya, vice president at GEP.
“One is driven off consumer demand. And the other is the fact that the government is now pushing and investing more,” Acharya said. “And so we’re seeing the increase coming from semiconductors, renewables, construction.”
The infrastructure law and Inflation Reduction Act, Acharya said, are boosting manufacturers as well as driving demand for the components and raw materials they need to be shipped to them.
But since that expansion is coming off a steep drop last year, the cost of shipping right now is pretty low.
“So you’re seeing less stress in terms of supply chain-driven inflation, but then the people in the middle that are actually transporting them are suffering,” said James Leiman, who teaches at the University of Minnesota, Crookston.
Still, the rebound in demand is helping the sector, said Joe Dunlap at CBRE.
“So, holding our breath that we can make it through the calendar this year without any further disruptions that may set us back,” Dunlap said.
And possible disruptions are out there, he said — wars, droughts, hurricane season. A lot of breath holding might be in order.
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