Written by Rodney Johnson April 21, 2022
Less Inventory Is Moving Around The World - Does This Spell A Recession?
If you have trouble sleeping, I have a solution. Visit the website www.freightwaves.com, which is all about the freight-moving industry. While there’s no doubt that the information is important and that geeks like me find it interesting, I understand that most people don’t get excited about global shipping container rates and trucking delivery tender rejections.
Right now, those rates are flashing warning signs that already are showing up in GDP growth. We need to pay attention.
There's less goods being globally transported and stocked on store shelves than before. What does this mean for our country?
A recent report on Freightwaves showed that global shipping container rates have fallen by more than 20% since they peaked last fall, which indicates lower demand for containers and fewer goods in motion. The delivery tender rejection rate, which measures the percentage of loads that drivers reject, also has fallen, which again shows that fewer goods are in transit. Part of this can be explained by the calendar, as wholesalers and retailers buy less stuff in the spring than during late summer and fall, and part of it can be explained by the COVID lockdown in China. However, there’s one more piece of information that makes this concerning. Retailers aren’t restocking at the same rate as in the past.
Throughout most of the 2010s, the inventory-to-sales ratio fluctuated between 1.4 and 1.5, showing that retailers had about 140% to 150% of what they expected to sell on the shelf. During COVID, with dramatically higher sales and supply issues, the inventory-to-sales ratio dipped to 1.07 last fall, implying that some shelves were empty and most were very light. The ratio has since popped higher, reaching 1.17 in December, and it now sits around 1.13. It’s tempting to think that retailers will try to restock or hoard inventory, but that doesn’t appear to be the case. Freightwaves reports fewer loads for retailers, which is a problem. Trucking companies beefed up during the pandemic and now have too much capacity for the current amount of business available, which means competition for loads and lower shipping prices.
There are several possible reasons that retailers aren’t ordering as much stuff. Perhaps they simply can’t source more inventory from overseas manufacturers or they’ve placed the orders but can’t yet get the stuff shipped. It’s also possible that retailers are watching consumers, who appear to be dialing back their unit spending in the face of higher prices. Even though retail sales inched higher in May, those numbers aren’t adjusted for inflation. On a per-unit basis, we bought less stuff.
For more information regarding how today's rising prices are affecting our economy and the ramifications of this, please watch this informative video made by Rodney Johnson to get the latest news.
Perhaps the best way to look at this is from a national perspective. The Atlanta Federal Reserve Bank’s GDPNow model, which updates the current quarter GDP forecast with every major economic release, expects second-quarter GDP to be a modest 1.1%. That can and will change as the quarter goes on, but if the number ends up anywhere close to that it will be a dramatic drop from the 6.9% growth in the first quarter.
Unless something dramatic changes for the positive over the next several months, we could be looking at a recession by the end of the year. Now is the time to contact your financial advisor and run through your priorities, fears, and goals so that you can be prepared for a possible recession. Contacting one couldn't be any easier, just click a support link or call today!
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. The information presented is not to be considered advice you can or should act upon for investment, tax or estate planning purposes without consulting with a professional to discuss your own set of unique circumstances. This article is designed to provide you with information regarding investing and planning for or during retirement. You must seek professional advice separately before acting on any items discussed in this article. The views expressed are those of Rodney Johnson and not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. Rodney Johnson is not affiliated with Mutual Advisors, LLC or California Retirement Advisors.