Lately, all talk related to the US economy seems to be focused on inflation. And while the Fed has continually issued statements regarding interest rates, the organization appears divided on how to proceed. Moreover, there are growing fears that too much intervention too soon could push the economy into a recession next year. In the meantime, it is worth examining whether these recession fears have any real merit.

“What do I hear? A recession? It’s hard to understand. After all, the economy is booming. Just look at the job market. The demand for workers is so high that it has had a more negative effect on growth than the global supply chain crisis. Moreover, isn’t the decrease in raw material stocks a sure sign that demand exceeds supply?

Well yes. However, a recent comment from the Financial Times suggested that these may just be lagging indicators and that it is time to re-examine these supply-side constraints.

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Supply shows signs of normalization

A recent study by Bank of America highlighted a cluster of trucking, rail and delivery companies currently reporting rapidly falling prices and increasing capacity. Around the world, container demand and rates have been falling for weeks. Of course, the blockades in Shanghai have caused a sharp increase in the number of ships moored offshore. However, port handling in nearby cities like Ningbo and Tianjin is progressing normally.

In the West, shipping activity moderated somewhat. Ship queues are rapidly diminishing in Los Angeles and Long Beach. This may be because inventory levels are well past the point where panic buying could affect them. In many cases, stocks are above pre-pandemic levels.

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Air freight, meanwhile, remains extremely tight. In fact, the ongoing COVID-related lockdowns in China may well lead to a temporary reversal of the easing we saw in Q1 at the start of Q2. Yet overall, trends seem to indicate that the global logistics market is gradually, albeit in fits and starts, recovering.

The ports of LA and Long Beach quickly eliminate the lines.

Recession fears hinge on Fed intervention

All of this begs the question: how quickly should the Fed tighten things up, and do we risk doing “too much, too soon?” In other words, could reaching the recovery with a rapid series of rate hikes lead us to exceed the target? If so, could this push a faltering economy into a recession? No matter who you ask, you’re unlikely to get a quick answer.

We at MetalMiner are curious to know how well companies have managed to restock. We would also like information on how current inventory levels compare to pre-pandemic levels. It is likely that some companies will look to increase their inventory after the last two years of stockouts. Indeed, the imperative of “just in case” has taken precedence over the discipline of “just in time”.

Clearly, some sectors are driven by a desire to “profit” from rapidly rising prices rather than maintaining historically high inventory levels. Whatever the motivation, it would be a recipe for overstock if Steam suddenly exited the market.

Wholesale inventories in the United States are soaring.

A fragile recovery is nevertheless a recovery

Of course, MetalMiner isn’t calling a recession – certainly not. Again. Almost all early indicators show signs of an economy close to recovery, inflation or not. However, it is worth acknowledging the recession fears that are currently jeopardizing some aspects of this recovery. More importantly, it is important to note that the risk of Fed overreaction remains a clear and present danger.

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