Tracking turmoil in global trade

Optimism among US small businesses retreated in October 2022 for the first time in four months as the sales outlook worsened, but there were glimmers of hope that supply-chain disruptions showing more signs of subsiding.

That’s according to the latest economic trends report by the National Federation of Independent Business, released Tuesday. While 31% of owners reported that supply-chain disruptions have had a significant impact on their business and another 31% said the effect was moderate, that’s lower than in July and the three months before.

And for the first time since 2019, a net figure of zero owners viewed current inventory stocks as too low in October, after reporting depleted stockpiles for months on end owing to the pandemic-era snarls.

The survey’s metrics on inflation — a top issue in this year’s midterm elections — were mixed. (Read more about the US midterm election results and for Bloomberg’s US Election Risk Index.

The net share of owners rising prices ticked down for a fifth month to 50%, the lowest since September 2021 but still well-elevated. However, the share of firms planning to increase prices in the next three months rose for the first time since May, and about a third plan to raise compensation, the most this year.

A similar share see inflation as the single most important issue impacting small businesses, up from 30% in September 2022.

Labor remains the next biggest problem. Owners continued to report difficulty attracting qualified applicants and filling open positions. However, hiring plans retreated for the first time since June, though the figure remains elevated.

After setting records earlier in the year, retail shipments arriving at US container ports are set to keep slowing for the rest of 2022, the Global Port Tracker by the National Retail Federation and Hackett Association showed.

That’s because retailers stocked up far in advance of the holiday shopping season to avoid a repeat of pandemic-era port congestion and potential disruption from West Coast dockworker and US rail-employee talks, they said in a report.

They trimmed the forecast for container arrivals for November 2022 to 1.92 million 20-feet equivalent units, the first time imports may come in below 2 million since February 2021. For the year as a whole, 2022 arrivals may total 25.9 million units, which would just exceed last year’s record of 25.8 million.

Volumes for February 2023 are forecast at 1.71 million TEUs, 19% lower than the same month in 2022, when US ports were still congested.

International Financial Institutions plan to address food insecurity

Kristalina Georgieva, Managing Director, International Monetary Fund (IMF) has made a statement following the publication of a Joint International Financial Institution (IFI) Plan to Address Food Insecurity.

Russia’s invasion of Ukraine has precipitated serious economic and social consequences around the globe. Among them, many countries are now facing dangerous food shortages and sharply higher prices for food, energy, and fertilizers. 

These pressures occur at a time when countries’ public finances are already stretched from the pandemic and public debt burdens are high. With inflation reaching the highest levels seen in decades, vulnerable households in low- and middle-income countries are most at risk of acute food insecurity. And history has shown that hunger often triggers social unrest and violence.

If we have learned one lesson from the 2007-08 food crisis, it is that the international community needs to take fast and well-coordinated actions to effectively tackle a food crisis, by maintaining open trade, supporting vulnerable households, ensuring sufficient agricultural supply, and addressing financing pressures. I am honored to have been able to work together with the heads of other International Financial Institutions to propose concrete actions. Coordination between us will be critical for the plan to have maximum impact in quickly alleviating food insecurity, especially for the most vulnerable households in the most vulnerable countries.

Working closely with the World Bank and other International Financial Institutions, the IMF will provide policy advice, capacity development assistance, and financial support to catalyze and complement financing from other institutions. The IMF is investing in its monitoring capacity to allow for timely identification of countries with the most pronounced financing pressures, especially fragile and conflict-affected states, which will particularly be affected by food insecurity.

The IMF is working with country authorities on macroeconomic frameworks and policy priorities. A critical area of focus is to assist countries in their efforts to rapidly improve social safety nets to protect vulnerable households from the imminent threat of hunger. Helping members identify ways to safeguard food security without resorting to export restrictions has been another priority. These policy objectives are reflected in the IMF’s program engagement. IMF financial support for Moldova (recently augmented to help address the harmful effects of the war) and Mozambique, for instance, includes a focus on strengthening social safety nets for vulnerable households.

The IMF will also bring to bear its new Resilience and Sustainability Trust, which will provide affordable longer-term financing for countries facing structural challenges, while countries with acute financing needs could access IMF emergency financing, where appropriate. The IMF is intensifying efforts with the World Bank and others to support debt restructurings where needed.”

Background: Following a meeting of International Financial Institutions (IFIs) and global leaders convened by the US Treasury on April 19, 2022, “ Tackling Food Insecurity: the challenges and call to action,” the International Monetary Fund (IMF), the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), the World Bank, and the International Fund for Agricultural Development (IFAD) have worked together to formulate a joint action plan to address food insecurity.

According to the plan, the IFIs will pursue actions to step up, surge, and scale their work across six priority goals: 1) support vulnerable people; 2) promote open trade; 3) mitigate fertilizer shortages; 4) support food production now; 5) invest in climate-resilient agriculture for the future; and 6) coordinate for maximum impact.

 

Is imposition of sanctions on Russia fueling price hike?

The western media has started playing mantra that Russian invasion of Ukraine and the imposition of economic sanctions on Moscow are contributing to surging global prices, particularly at the grocery stores and the gas pumps.

Russia’s status as a major exporter of raw materials, especially oil and natural gas, along with Ukraine’s position as a key agricultural supplier to regions including Africa and the Middle East, make the conflict between the two countries a flashpoint for commodity prices, which were already on the rise due to the pandemic.

“These countries export a lot of raw materials,” William Reinsch, a former Undersecretary of Commerce who now serves as international business analyst at the Center for Strategic and International Studies, said in an interview. “They tend to have a world price. And so when supply is constricted, the consequence for Americans is that the price goes up because it goes up everywhere.”

New consumer price index (CPI) data to be released Tuesday by the Labor Department is likely to show another sharp jump in both monthly and annual inflation. Consumer prices rose by 7.9% in the year ending in February, and signs of high inflation in March are mounting.

On Friday, the Food and Agriculture Organization (FAO) of the United Nations recorded a 12.6% increase in its benchmark food price index from February to March, an uptick it described as a “giant leap.” The March numbers represent all-time highs for cereal grains, vegetable oils and meats, while the sugar and dairy sectors also saw major gains.

The FAO cereal price index in particular saw a 17.1% increase from February to March, marking its highest level since 1990. The increase was “largely driven by conflict-related export disruptions from Ukraine and, to a lesser extent, the Russian Federation,” according to an FAO assessment.

The global numbers are consistent with the situation in the United States, where food prices spiked 7.9% in February as compared to the previous year, the largest 12-month increase since July 1981, according to consumer data from the US Bureau of Labor Statistics. The February food-at-home index, which looks at prices relating to domestic food preparation, was up nearly 9% in the same period, while wholesale prices for goods jumped 2.4% in February, the largest advance since data was first calculated in 2009. 

The war in Ukraine also accelerated a steady rise in oil prices driven largely by the recovery from the pandemic. Fuel oil prices rose 6.7% and gas prices rose 6.6% in February alone, according to the CPI as crude oil prices rose toward US$100/barrel. 

The price of a barrel of West Texas Intermediate crude peaked near US$130 on March 8 before falling to roughly US$94 on Monday, but gasoline prices have not fallen nearly as fast. A gallon of regular unleaded gas costs roughly US$4.10, according to the AAA national average, down just 20 cents from a month ago.

While inflation-adjusted gas prices are still below the peaks seen in the wake of the Great Recession, higher energy costs can hit consumers harder than inflation in other sectors. Higher gas prices are not only difficult to avoid for drivers but can also increase transportation costs for store-bought goods.

Beyond the cumulative effects of rising commodity prices, which can ripple through the economy and become magnified as they work their way up global production pipelines, Russia does produce certain goods that US companies, and by extension the nation’s consumers, use directly. “Palladium, vanadium and titanium are three such goods,” said Reinsch.

Palladium is a component in catalytic converters, which convert toxic gasses produced by internal combustion engines into less toxic pollutants. Vanadium is added to steel to make it stronger, and titanium has numerous applications including aircraft shells.

“There are others who produce these products,” Reinsch said. “But again, it is supply chain interruptions, and we have to scramble around to find them from other places.”

As more Americans feel the sting of inflation, the upswing in prices has emerged as a major campaign issue ahead of the 2022 midterm elections, with Republicans and Democrats taking turns placing blame for the upward trend in costs.

Republicans have blamed rising inflation on Democratic-backed policies, including the US$1.9 trillion American Rescue Plan that President Biden signed into law in March 2021, about a year after former President Trump signed a bipartisan $2 trillion coronavirus relief package.

A number of Democrats have, in turn, placed blame on corporations and market concentration, accusing larger companies of taking advantage of economic conditions to increase costs.

By contrast, experts have pointed to a combination of factors that have contributed to the higher price stickers.

“Part of it is supply chain disruptions because of the pandemic. We can’t get the goods that we got before, for instance, like computer chips, and so on,” Desmond Lachman, said a senior fellow for the American Enterprise Institute. 

“But it was also the case that budget policy was too loose, and monetary policy was too loose. So we had all three things pushing in the same direction,” he said.

Ben Page, senior fellow at the Urban-Brookings Tax Policy Center, also said that stimulative fiscal policy contributed to inflation but added he wouldn’t call it the “root cause for most of the inflation.” 

“I think the way that you can see that it’s not purely driven by US policy is that it’s not just a US phenomenon,” Page said. “The increased inflation is something that we’ve seen across the world, or certainly across the developed world.”

In recent weeks, countries such as China, Egypt and France have seen rising inflation rates, a trend expert say is exacerbating by the ongoing Russia-Ukraine war.

The US has joined allies in unleashing a spate of sanctions on Russia in response to its invasion of Ukraine. 

Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, said many of the sanctions have been aimed at raising costs for Russia and restricting how its government accesses the global financial system.

“So, limiting their bank’s ability to the government’s ability to use global banks,” Ziemba continued. “And the sanctions program was set up in a way that tried to use the areas of asymmetry that would hurt Russia more than it would hurt the US and Europe.”

On the flip side, Ziemba said some of the impacts the US has seen as a result of the sanctions have been “sort of indirect,” while Russia has faced more payment challenges.

“The other issue, of course, the Biden administration is trying to do what they can to alleviate some of these costs. The challenges are we’re in a tight market … and I do think one of the challenges is going to be that a number of the producers of particularly oil and gas don’t make decisions quickly to change their production,” Ziemba said.

“I think that’s where the debates with sort of countries like Saudi Arabia and the UAE [United Arab Emirates] have been reluctant to deviate from their go-slow additional supply policy have been disappointing to the administration,” she added.

 

Supply chain disruptions can upset world order

Supply chain snarls and labor shortages are driving prices higher and creating shortages as the economy struggles to adapt to a new phase of the coronavirus pandemic.

After slashing prices and laying off workers at the onset of COVID-19, manufacturers, suppliers and retailers have struggled for months to meet the quick rebound in demand unleashed by unprecedented federal aid and highly effective coronavirus vaccines.

Consumer prices rose 0.4% in September and 5.4% in the 12 months leading into it, according to data released Wednesday by the Labor Department. Much of the September jump came from rising food, energy and shelter prices — an economically challenging mix for Americans with tight budgets and a politically toxic combination for President Biden and Democrats.

Deepening backlogs at ports and worker shortages at nearly every point in the supply chain have also left shelves depleted of popular products — just as Americans begin planning out their holiday purchases.

“The demand is there. There's close to US$2 trillion in savings sitting in household accounts, the American consumer is flush with cash and ready to move back towards what we might consider normal modes of consumption,” said Joe Brusuelas, Chief Economist at audit and tax firm RSM.

While the Biden administration is scrambling to ease the problem, Brusuelas warned that only time will fully normalize supply lines.

“At this point there's not much that the federal government can do to what can accurately be described as a behavioral shock,” he said.

Here’s what you need to know about the supply chain challenges.

New habits die hard

Many economists believed the burst of inflation seen earlier in the year would quickly fade as supply chains kicked back into gear and workers came back into the labor force with the pandemic well under control. But as the delta variant caused a global resurgence in COVID-19 cases, supply chains buckled again while demand chugged along.

Brusuelas said that COVID-19 outbreaks in Northeast and Southeast Asian shipping and manufacturing hubs caused shutdowns similar to those during the onset of the pandemic in early 2020. Declines in energy production, as well as port and factory closures driven by surging cases, have severely limited the ability to meet recent demand.

“The issues around the supply chains are not driven exclusively by consumption, but rather by ports that are not open 24 hours a day, a lack of labor specifically within the trucking industry, to move goods from ports to warehouses to stores, and the lack of labor and the warehouses themselves, which are also not open 24 hours a day,” Brusuelas said.

Meanwhile, US consumers have continued to spend, but not evenly across the economy.

While online stores, mega-retailers and furniture sales have benefited from the delta-driven shift, surging cases made it difficult for nearly every industry to hire enough workers to handle rising demand.

Employment growth fell from nearly one million jobs in July to 366,000 in August and 194,000 in September, leaving businesses scrambling to fill more than 10 million vacant positions. Though, some economists expected the September lapse of federal unemployment benefits to fill the void, the recent jobs report confirmed the pandemic’s inherent curb on the economy.

“These are all COVID-restriction related or COVID-disruption related things, and until we let all of that work out, this is not going to go away,” said Norbert Michel, a vice president at the Cato Institute, a libertarian think tank.

Holiday shopping season at risk

The persistent supply chain issues and worker shortages are not expected to be permanent features of the post-pandemic economy, but will likely take several months to fix. That means Americans can expect to pay more for their holiday spreads and have trouble finding certain gifts in time for December celebrations.

“I know you’re hearing a lot about something called supply chains and how hard it is to get a range of things from a toaster to sneakers to bicycles to bedroom furniture,” Biden said in remarks Wednesday before meeting with business and labor leaders.

“With the holidays coming up, you might be wondering if gifts you planned to buy will arrive on time,” he said.

Analysts have stressed for months that Americans should knock off their shopping lists quickly to ensure gifts will arrive by the middle of December — and expect to pay more for them.

Chad Moutray, chief economist at the National Association of Manufacturers, said some companies have even purchased their own ships or flown in components of products to avert port backlogs and a lack of container space.

“All of that leads to higher prices. Much of that can be passed on to the consumer, but the overall cost of production here is going up pretty phenomenally, largely because of all the extra costs related to shipping but also to being able to navigate some of these supply chain issues,” Moutray said.

Food producers and suppliers have also boosted prices as they struggle to work through a range of obstacles, including processing plant closures, trucking shortages and volatility within the restaurant and bar sector.

The consumer price index (CPI) for food rose 0.9 percent in September, making up more than one-fourth of the total monthly increase in inflation. The index for food at home rose 1.2 percent last month as prices for basic staples rose sharply.

Meat, poultry and fish prices rose 2.2 percent in September, with beef, bacon, ham and fresh fish rising by more than 2 percent each.

“Sometimes it's a processing issue, sometimes it's a labor issue, sometimes it's an import issue — it's a variety of things as we sort of recover from the pandemic and the shock that it provided globally to the food system,” said Agriculture Secretary Tom Vilsack in a Tuesday interview with WAMU, the NPR affiliate in Washington, DC.

“People were a little bit surprised at some of the increases that they saw,” he continued. “I think we're going to see a moderation of that, which is good. And from time to time there may be a shortage here or there, but I don't think people can be prevented from being able to feed their families nutritious food.”

Few easy fixes

Just hours before the release of the September inflation data, the White House announced that Walmart, FedEx and UPS will increase operations to 24 hours a day, seven days a week to keep goods moving. The administration also said the Port of Los Angeles will adopt a similar schedule and that labor leaders are willing to make sure enough workers are on the job to handle the load.

Business groups are urging Congress to provide more funding for job training programs and allow for more temporary visas to fill vacant trucking jobs and other open positions. One of the best ways to make that happen, they argue, is through the US$ one trillion bipartisan infrastructure bill that would establish an advisory board to encourage women to enter the trucking industry and set up an apprenticeship program for truck drivers under the age of 21, in addition to revamping roads and bridges.

Others have called on Biden to activate the National Guard to help alleviate supply chain congestion and incentivize states to use the Guard or open up US Navy ports to help unload cargo.

Even so, economists and business groups say it could take several months to see an impact on prices and shipping times as the country adjusts to life amid the evolving pandemic.

“Individuals are reassessing their professional careers and their lives following what is a shock that is equal to global wars or depressions that we all know from history,” Brusuelas said.

“Until we achieve a level of confidence within the public that they can go back to work, that they can go back to the stores, that they can attend social events without the risk of contracting disease, we're just going to be in this strange nether world where we're short of workers.”