Consumer demand for goods shows signs of slowing, economist says


Flexport Chief Economist Phil Levy Joins Yahoo Finance Live to Discuss Inflation, Labor Shortages, Supply Chain Constraints, Consumer Demand and Outlook freight forwarding.

Video transcript

DAVE BRIGGS: The current supply chain crisis is fueling inflation to its highest level in 40 years. What does this mean for the Fed and the economy as a whole? Phil Levy is Flexport’s Chief Economist and joins us now. Phil, good to see you. You retweeted Friday morning that this is a moment no matter what it takes for the Fed. The Dow has been down more than 1,000 points since then. The S&P and NASDAQ followed suit. What would you like to see from the Fed on Wednesday?

PHIL LEVY: I think the Fed is in a difficult position now. It’s like the old joke, you know, how do you get there? And so, I wouldn’t start from here. So I guess I would like to see a 75 basis point hike. This is not an official position of Flexport. It’s mine. I think the Fed is behind when it comes to fighting inflation. What we are seeing right now is that the fed funds rate is significantly lower than the most conservative measure of inflation. And that means we continue to stimulate.

RACHELLE AKUFFO: And so at this point I want to check with your flex point – Flexport’s post-COVID indicator, one of the indicators that you have looking at what we’re seeing after the peak of COVID there. And you plan to measure the balance between US consumer spending on goods and services. What do you see there?

PHIL LEVY: Yeah, I’m glad you brought that up because to me that’s central to the story of what happened and how we got here, which is that you see the scale right there. What this scale shows is zero, which is what we had as a norm, the balance of goods and services before the pandemic. People leaned very heavily towards consumer goods. This has strained supply chains and helped drive up prices.

What we’ve seen most recently are hints that this could be moderating. There’s a difference between what we’re seeing for durable goods, where demand seems to be sustainable, and non-durable goods, which seem to be shrinking a bit more. But we have yet to see a return to what was very, very much the stable norm before the pandemic.

SEANA SMITH: Phil, what will it take to get back to that study standard until we see that level start to normalize?

PHIL LEVY: That’s a great question, and it’s very hard to know. What we saw was really the distinctive shift in economic behavior during the pandemic. Obviously, this has a lot to do with how people feel about the health situation. As long as it clears up, that should help. I must also point out, however, that it has to do with the balance between goods and services.

If people are scared, maybe because they watch your show and see what happened to their 401(k) balance, or because their income isn’t keeping up with inflation, you might get a cut consumption, which would also ease the pressures. on the supply chain system, but make life unpleasant for people.

DAVE BRIGGS: I want to ask you about something President Biden said on Friday when he was at the Port of Los Angeles. He showed that old Joe Biden fighting spirit that we haven’t seen in quite a while talking about the supply chain loop and whether or not there is a solution to it. Listen to what he said.

Joe Biden: Once in a while, something you learn makes you viscerally angry. For example, if you had the person in front of you, you would want to pop them. Now I really mean it. These companies raised their prices by up to 1,000%.

DAVE BRIGGS: The president talks about companies that are overseas. Is he misinformed or are our supply chains broken by COVID? Or is there a legislative solution?

PHIL LEVY: I don’t know if there is a legislative solution. You have certainly had companies that have had a very difficult time obtaining supplies. And I think what you’ve often seen is that when goods are very scarce, the price goes up, which you’ll see, whether it’s at the wholesale level or at the retail level, when someone runs out, rather than sort of keep prices low and watch the shelves empty, you’re clearly saying prices need to go up.

I don’t think there is a legislative solution to scarcity in this way. I think we can make supply chains work better. This is something Flexport is deeply committed to. But I don’t think that’s the core of the problem here. I think it’s really the fact that we’ve seen an incredible increase in demand.

If I could throw in a number, it would be, you look at durable goods. These are things that last a few years. Then think of sofas or exercise bikes. Between the eve of the pandemic and the spring of 2021, we saw US consumption of durable goods increase by around 35%. We just consumed a lot more. This strained the system and there were shortages.

SEANA SMITH: Phil, delivery times, what exactly do they look like now? And just in terms of how high they are compared to those pre-pandemic levels, we’re talking about the fact that we’ve seen some improvement in the supply chain. There are improvements in the ports. But from what I understand, we are still a long way from where we were at the start of 2020. Is that true?

PHIL LEVY: You are absolutely right, we have published a measure of this, our Ocean Timeliness Indicator, which you can find at We update it every week. You have seen improvement over the past few months. But we’re pretty much back to where we were in October of last year.

To be specific on this, getting a good to leave the factory in Asia to, say, be out of a port in the United States, before the pandemic, ah, 45, 55 days. Now it’s much closer to 100 days. It was worse a short time ago, so we have seen an improvement. But we’re nowhere back to– there you go. We did not return to where we were.

RACHELLE AKUFFO: And Phil, I want to ask you about some of the workarounds that people have put in place to sort of manage supply chains. How many of them are going to end up being permanent, as they say, look, maybe we need to diversify, diversify some of our routes or maybe some of the people we get our production from?

PHIL LEVY: Well, you’re absolutely right to point out the idea that supply chains can’t easily be reversed overnight. I think that’s one of the reasons you’ve seen somebody reluctant to, say, do the kind of offshoring that President Biden talked about because you’re not just moving from, say, a Southeast Asian supplier to a Latin American supplier and then back again. So, not knowing how long this was all going to last, looking at sometimes significant price differences, there was some hesitation there, but that happened too. And I think where it happened, you would expect it to last.


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