Which Economies Are Flirting With Recession? Week Ahead – Sourcing Journal


FedEx Corp CEO believes the global economy is sliding into recession, but economists don’t see it — yet.

Dana M. Peterson, chief economist for the Conference Board, said in a Friday webinar analyzing scenarios surrounding an economic slowdown that the “risks are mostly on the downside.” Topping the list are the escalation of the war in Ukraine, other geopolitical events, and rising tensions between the US and China and even Greece and Turkey. Mistakes in monetary and fiscal policy, where “central banks do too much too late, leading to disastrous results,” also pose risks, she added.

Instead of a recession sweeping the global economy, some countries like the US, Germany and the UK are likely to see stagnant growth, Peterson said, noting that Ukraine and Russia have already slipped into recessionary territory.

“And for China, we expect very slow growth this year,” Peterson said, adding that the slowdown in western economies is likely to be “short and superficial.”

However, all bets could be off if “China, Europe and the US all slide into recession together,” Peterson warned, calling their combined “55 percent” of global gross domestic product one percentage point.

Erik Lundh, chief US economist for The Conference Board, said the Federal Reserve “has been quick to bring forward rate hikes to fight inflation, but is having a pretty hard time stopping them.”

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So far, the Fed has approved two 0.75 percent rate hikes in June and July and is expected to hike rates by at least 0.75 percent at Tuesday and Wednesday meetings.

And while Fed Chair Jerome Powell said the Federal Reserve is committed to its 2 percent inflation target, Lundh doesn’t expect the central bank to “miss its inflation target even late next year.” That means companies should expect the Fed to hike interest rates to around 4 percent early next year,” he added.

And while Lundh called the recent CPI reading “a minor anomaly” and “problematic,” he believes inflation “will gradually decelerate throughout 2022 and into 2023.”

So what does this mean for retailers?

Lundh expects inflation to remain a factor in consumer spending, despite rapid price growth, which is expected to moderate somewhat. While the latest retail sales data and personal consumer spending, or PCE metrics, suggest a contraction is underway, Lundh said he was “really concerned about the fourth quarter and the first quarter of next year.”

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That could result in a “short and mild recession,” with economic expansion returning to the U.S. “in the latter half of 2023,” Lundh said.

What could go wrong? According to Lundh, the Fed could tighten more than expected. Other risk factors are the housing market with regard to falling prices and government spending on infrastructure investments.

Meanwhile, in a Goldman Sachs webinar on the current state of logistics, transportation analyst Jordan Alliger said the economic slowdown mentioned by FedEx had a positive impact on port congestion.

“At the beginning of the year we had over 100 vessels off the coast of California. That’s worked its way down to about 10,” he said, adding that as companies have diverted goods to other ports, “we now have about 100 ships sitting off the east coast waiting to be unloaded, while there are probably 30 or so more was 40 a few months ago.”

Alliger fears that the camps are overcrowded.

“The stuff is full. Warehouses are full and that still results in equipment not being turned over as quickly and containers piling up at the final destination,” Alliger said. Until this issue is resolved, it will be nearly impossible to unburden the supply chain.

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Goldman Sachs retail analyst Kate McShane said downward revisions to corporate earnings estimates were less about sales numbers and more about inflation. She cited “good” back-to-school trends, while “Halloween had a very good response and sold at full price. It didn’t have to be motivated by promotions.”

McShane thinks Target should be able to clear its excess inventory, but isn’t sure if bulk traders have enough inventory overall.

Retailers are hoping consumers will maintain their shopping momentum during the all-important holiday season. If that’s the case, then inventories “should be in good shape by the end of the year,” she said. “But if you see a drop in consumer demand, they will continue to do so [have] to process inventories.”

The one thing that probably won’t be a problem is the shortages, which have left retailers with empty shelves over the past two holidays. But this year, virtually everyone has taken steps to ship goods in time to ensure they are fully stocked. “Things that they would traditionally get for the holiday, maybe in August or early September, they’ve had them on their books for a while now,” McShane said.





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