A wobbly supply chain continues to impact the U.S. consumer, and there are now indications of excess inventory in some areas, leading to revenue-busting markdowns at public companies. That, plus shifts in who is buying what, and for how long, are giving some Goldman Sachs analysts plenty to think and talk about.
The good news is that congestion in the supply chain has actually started to ease, with the number of ships waiting off the coast of California dropping from 106 in January to about 30 now, said Goldman’s Jordan Alliger, who covers the transportation sector. He, along with colleagues Kate McShane and Jason English, presented his views today at an online discussion of supply and demand.
“But there are other data points that inform what’s going on behind the scenes. The West Coast ports are really the end result of other congestion pinch points, such as dwell time, wait time for equipment, rail service, how full the warehouses are, lack of labor participation and transportation, which has really been a major problem to this point,” he said. “All this has actually led to the ships backing up.”
Alliger said his expectation is that supply-chain issues should be resolved in the relatively near future since the post-Covid frenzy is also abating, along with consumer expectations for the economy. “Should we see some rate of growth deceleration, that also could help moderate the supply-chain congestion issue in conjunction with more labor, more equipment, et cetera,” he said.
However, there is some difference of opinion within Goldman Sachs about what a decline in growth actually means for consumers and for the overall health of the economy.
“We’re looking at discretionary cash inflow for the consumer, the amount that goes into their wallets, and we’re expecting that to contract in the low single digits this year. We’ve never had a contraction without a recession,” said Jason English, lead equity analyst covering the packaged food, household and personal care sectors.
“But our economists don’t expect a recession right now. Why don’t they expect a recession? Because they’re looking at the bank account balances and seeing consumers are going to get less money in, but they’ve got a lot of reserves pent up through Covid that they can tap into, so there’s a very robust balance sheet,” he summarized.
That said, English himself has doubts about how well those figures could fend off recession. He said the outlook for the amount of money flowing into a household is meaningfully different depending on income quintile, and that would suggest the retained savings is likely different as well.
According to English, the bottom 20% of household earners in the U.S. are expected to see their discretionary cash inflow contract by mid-20% levels by the end of the year. The next bottom quintile will be down 10%, he said, but up at the top quintile, there’s a predicted 3% expansion.
And when consumers do spend money, it’s not going to be in the areas where there have been supply shortages over the last couple of years, he continued.