Analysis from Dr John Ashcroft on the economic impact of Covid-19
In Southern California, off the twin ports of Los Angeles and Long Beach, 62 container ships lie at anchor, awaiting an unloading berth. The floating queue, a phenomenon unknown before the pandemic, has doubled in size since August. The precious cargo includes toys, electronics, furniture and many other goods awaited in distribution depots and in store. A further 29 ships are adrift twenty miles offshore. They are so far from the coast, their anchors cannot reach the ocean floor. Onland, docks and railroad terminals are jammed with shipping containers amid an epic buying spree by companies, racing to keep up with domestic demand. Trucking companies and warehouses can’t find enough workers to keep freight moving. Americans are waiting for auto parts, Lands End clothing, cat food and Peleton exercise gear, amid many other products apparently.
The Biden administration is struggling to ease congestion in the nation’s freight system. The smooth economic recovery is being disturbed by product shortages and rising prices. This week, the Federal reserve lowered their forecasts for US growth this year to 6% from 7% as a result. A rising tide lifts all boats. World trade increased by 22% year on year in the second quarter. It increased by a further 10% in July. Exports from China to the rest of the world increased by 20% in the period. Much of this was heading for the West Coast of America, as the shipping lane queues and dollar freight rates attest. World growth and world trade is bouncing back… creating problems at the docks…
In the UK, It’s Crisis at the Pumps.
In September we were worried about the lack of CO2 emissions. By the end of the month, it was all about gas prices and problems at the pumps. The spike in gas prices is forcing smaller suppliers out of business, creating fears about rising energy costs. The gas crisis was explained. A dependency on foreign imports. Problems with the Russians, poor connections with the French. A lack of storage capacity in the UK. Winters too cold, summers too hot and a lack of wind to blow the turbines when the kettles are on. Oh yes and the price cap, disturbing the natural rhythms of the free market. Crisis at the pumps. The lack of HGV drivers means petrol stations are closing for lack of logistical supply. Don’t panic. There’s lots of product. The government is ready to relax the visa scheme to tackle the truck driver shortage. 10,000 foreign workers will be allowed into the UK to meet essential food and fuel requirements.
100,000 drivers are needed to ensure the flow of product around the UK.
The Bank of England moved in the month to hold rates and continue with the asset purchase program, maintaining the target for government bond purchases at £875 billion and the total target of asset purchases, including corporate bonds, at £895 billion. With government borrowing of around £170 billion this year, the Bank may yet have to do more and fill the Chancellor’s £1 trillion pound bank note. CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely, it is said, to developments in energy and goods prices. Conditioned on the market path for interest rates, CPI inflation is expected to fall back to close to the 2% target in the medium term but then it always does.
Forecasts for growth this year may be eased back slightly reflecting concerns about supply side constraints. The Bank had forecast growth of 7.25% this year. Further data is needed before any significant adjustment need be made. For the moment despite concerns about labour and supply shortages, we still expect growth of over 7% this year and over 5% in 2022. The big question remains the impact of the end of the furlough scheme on unemployment levels.
Vacancies rise to over one million.
In the UK the number of vacancies in the economy increased to over one million in August. Accommodation and food featured along with vacancies in retail, health and social care. The number of people unemployed fell slightly to 1.55 million. The unemployment rate eased to 4.6%. The number of people on furlough fell to 1.6 million at the end of July. One million vacancies, 1.6 million on furlough, 1.6 million unemployed. The end of the furlough scheme will make for an interesting scenario towards the end of the year. The hope is a significant surge in job losses can be avoided. Market forecasts are for the unemployment rate to increase to 5.3% in the final quarter before easing back towards current levels by the end of next year… Don’t worry too much about the setbacks in the short term, “The fundamental underpinnings of expansion remain in place.”
Dr John Ashcroft specialises in economics, strategy and financial markets. He is author of The Saturday Economist, great updates every week on the UK and World Economy. The Saturday Economist Live is now available as a podcast and on Zoom. “Fast Moving, Content Rich and Fun.”
Find out more… www.thesaturdayeconomist.com