Supply chains inching back to normal, brace for headwinds of softer demand

Rock guitarist Jack White, who extended his “Supply Chain Issues Tour” into October, might want to name his band’s next road trip after a different villain.

That’s because supply strains, while still afflicting many consumers and businesses, are becoming more mundane than menacing like they were six months ago, especially in the US. Snarls have eased back from their pandemic peaks and some are already adding less inflationary pressure.

Modest improvements are showing up in gauges maintained by forecasters ranging from Bloomberg Economics to the Federal Reserve Bank of New York. But the gradual end of the pandemic-driven supply crunch might give way to another potential headache: a slump in consumer demand that throws economic growth into reverse and leads to an ugly inventory pileup.

“Pressures in the global goods sectors, which have been a central driver of inflation, may finally be easing,” Citi economists led by Nathan Sheets wrote in a research note this month. “The bad news is that this looks to be occurring on the back of a slowing in the global consumer’s demand for goods, especially discretionary goods, and thus may also signal rising recession risks.”

Citi cautioned against declaring an “all clear” on the supply front, and there are reasons to doubt whether clogs in the plumbing of global trade will be cleared any time soon — as the following lineup of charts illustrates. Labor strikes, factory disruptions tied to Covid outbreaks in China, Russia’s war in Ukraine, and year-end holiday shipping pressures could tangle logistics networks all over again.

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