Creating Problems at The Docks ...
In Southern California, off the twin ports of Los Angeles and Long Beach, 62 container ships lie at anchor, awaiting an unloading berth. The floating queue, a phenomenon unknown before the pandemic, has doubled in size since August. The precious cargo includes toys, electronics, furniture and many other goods awaited in distribution depots and in store.
A further 29 ships are adrift twenty miles offshore. They are so far from the coast, their anchors cannot reach the ocean floor.
Onland, docks and railroad terminals are jammed with shipping containers amid an epic buying spree by companies, racing to keep up with domestic demand. Trucking companies and warehouses can't find enough workers to keep freight moving. Americans are waiting for auto parts, Lands End clothing, cat food and Peleton exercise gear, amid many other products apparently.
The Biden administration is struggling to ease congestion in the nation's freight system. The smooth economic recovery is being disturbed by product shortages and rising prices. This week, the Federal reserve lowered their forecasts for U.S. growth this year to 6% from 7% as a result.
Forecasts for inflation PCE basis have been increased to 4.2% from 3.4%. The unemployment rate is expected to rise to 4.8% before easing back next year. The good news, forecasts for growth, jobs and inflation are all heading in the right direction in 2022.
Growth is expected to be just under 4% next year, slowing to 2.5% in 2023. Employment will increase, inflation will return towards the 2% target. Jerome Powell and the FOMC hinted tapering could begin before Christmas. Interest rates could begin to rise next year. The central project for the Fed Funds rate suggests rates could increase to 0.3% in 2022 rising to 1.0% in 2023 and almost 2% in the following year.
It will turn out NICE again. Non Inflationary Controlled expansion, not the nasty Stagflation the pessimists are projecting. US markets closed up. The Dollar moved higher against Sterling and the Euro. Ten year bond yields moved higher closing at 1.45 from 1.37. It's business as usual for now.
A rising tide lifts all boats. World trade increased by 10% in July. Exports from China to the rest of the world increased by 20% in the second quarter. Much of this was heading for the West Coast of America, as the shipping lanes queues and dollar freight rates attest. World trade is bouncing back ... creating problems at the docks ...
Crisis at the Pumps ...
Last week we were worried about the lack of CO2 emissions. This week it was all about gas prices and problems at the pumps. The spike in gas prices is forcing smaller suppliers out of business.
The gas crisis was explained. A dependency on foreign imports. Problems with the Russians, poor connections with the French. A lack of storage capacity in the UK. Winters too cold, summers too hot and a lack of wind to blow the turbines, when the kettles are on. Oh yes and the price cap! disturbing the natural rhythms of the free market.
Crisis at the pumps. The lack of HGV drivers means petrol stations are closing for lack of logistical supply. Don't panic. There's lots of product. The government is ready to relax the visa scheme to tackle the truck driver shortage. 10,000 foreign workers will be allowed into the UK to meet essential food and fuel requirements. The army is to assist with training and testing of new entrants into the delivery network.
"Johnny Foreigner set to save Christmas" the headline on the side of the double decker bus. Soon we may be asked to "Toot for the Lorry Drivers", as they ensure the holidays are coming. The turkeys will be pleased.
The Bank of England moved this week to hold rates and continue with the asset purchase program. The Committee voted by a majority of 7-2 for the Bank of England to continue with the program of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of government bond purchases at £875 billion and the total target stock of asset purchases at £895 billion. With borrowing of around £170 billion this year, the Bank may yet have to do more and fill the Chancellor's £ trillion pound bank note.
CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely, it is said, to developments in energy and goods prices. Conditioned on the market path for interest rates, CPI inflation is expected to fall back to close to the 2% target in the medium term but then it always does.
Forecasts for growth this year may be eased back slightly reflecting concerns about supply side constraints. The Bank had forecast growth of 7.25% this year. Further data is needed before any significant adjustment need be made ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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