Q3 GDP Comes in at 2.6%, Higher Than Expected But There is a Catch
RedStone Resource
November 1, 2022
Inside This Edition
Global Supply Chain Pressures Index Still High, But Decelerating
The current index came in at 1.05 (that is, 1.05 points higher than the historic average). This is well off the peak hit in December 2021 of 4.30 (67.6% lower than last year).
Shanghai Containerized Freight Index: Normalizing or Recessionary?
The current index came in at 1,697 points on October 28th. This was down sharply from its peak of 5,094 points hit in January of 2022; but does this current level represent more of a normalization process in which the market settles back into a pre-pandemic level of activity or is it a clear sign of a global recession?
Northeast Diesel Supplies Continue to Remain Tight
Diesel inventories are capturing headlines as they hit 20 days of supply. Data shows that diesel inventories in regions of the east coast have dropped significantly. In the New England PADD 1A district, inventories have fallen more than 54% year-over-year and national inventories are still below the 5-year average and 15.7% lower than they were a year ago.
ECONOMIC BRIEFING
Q3 GDP Comes in at 2.6%, Higher Than Expected but There is a Catch
Estimates suggested that Q3 would be weak, and indeed when the details are analyzed it is obvious that Government spending and US energy exports helped prop it up. Consumer spending is the most critical component of GDP accounting for 70.7% of total GDP, and it came in 1.4% higher. That was weaker than the 2.0% growth rate from Q2 and could show that pressures are finally starting to impact US consumers.
Other categories of GDP including investment and spending by corporations, imports, and inventory building activity were all weaker in Q2. Nonresidential construction provided a nice boost, rising by 3.7% but residential investment was down by more than 26.4%.
The Federal Reserve is still mixed on its view of the coming quarters, but there will continue to be green shoots of economic growth in areas of construction, some segments of corporate investment and spending, and jobs and wages are expected to remain stable which could continue to provide a modest consumer spending backdrop.
Global Supply Chain Pressures Index Still High, But Decelerating
The New York Federal Reserve (in conjunction with Liberty Street Economics) introduced a Global Supply Chain Pressures Index which measures a variety of global metrics dating back to 1998. The index looks at various supply chain factors and it measures them relative to their ‘average’ performance, and how far away from average they are. In other words, if maritime prices are elevated, it measures just how far from their historic average they are and that becomes one of the inputs for the overall index.
Generally, when the index is in a positive range, conditions are tougher for supply chain managers. When the index is below zero, conditions are generally easier for supply chain managers.
The current index came in at 1.05 (that is, 1.05 points higher than the historic average). This is well off the peak hit in December 2021 of 4.30 (67.6% lower than last year). The index is a little tough to interpret because it is still nearly 880% higher than it was just prior to the pandemic in 2019. With the index showing a positive 1.05, it is showing that pressures are still high for shippers, making the global supply chain environment still more challenging than pre-pandemic “normal” conditions. It typically means that prices are slightly more elevated than the historic norm, capacity is slightly tighter, etc.
TRANSPORTATION BRIEFING
Shanghai Containerized Freight Index: Normalizing or Recessionary?
An index created by the Chinese Government to track the health of the maritime sector for shipments originating in Shanghai has been dropping, and it is capturing a lot of attention. The index compiles destination pricing data for roughly 15 different global destinations for exports out of China – and specifically Shanghai. As a general gauge of global trade and how strong global demand is, it is a good barometer to consider.
The current index came in at 1,697 points on October 28th. This was down sharply from its peak of 5,094 points hit in January of 2022; but does this current level represent more of a normalization process in which the market settles back into a pre-pandemic level of activity or is it a clear sign of a global recession?
When we consider the historical chart for the index, we see that the average for the index over the past 13 years was roughly 1,000 points. So, at 1,697 it shows that the index is still much stronger than the historic average, but well off its abnormal peak hit earlier this year. It is deceleration, but at this point it can’t be an indicator of deep problems or a global recession. There is also a similar pattern that has developed in the Baltic Dry Index.
Northeast Diesel Supplies Continue to Remain Tight
Diesel inventories are capturing headlines as they hit 20 days of supply. Data shows that diesel inventories in regions of the east coast have dropped significantly. In the New England PADD 1A district, inventories have fallen more than 54% year-over-year and national inventories are still below the 5-year average and 15.7% lower than they were a year ago. The Middle Atlantic PADD 1B also has inventories 42.7% lower than they were last year and even the Gulf Coast has inventories that are 18.1% lower Y/Y.
There are some alerts being released by suppliers in the region for businesses to prepare for potential shortages of retail diesel supplies and even heating oil rationing may be required if a severe cold snap were to hit the northeast region.
Further creating challenges in the situation is the current drought and its impact on the Mississippi River and barge traffic that carries a significant volume of petroleum products.
There is also a carry-on impact in other areas of petroleum. For instance, heating oil prices are currently running nearly 61.4% higher than last year according to the EIA weekly report. Expect fuel surcharges to remain 45-50% higher year-over-year if these conditions continue.
