The supply chain is getting looser, but what does that really mean?


A wobbly supply chain continues to impact the American consumer, and there are now indications of excess inventory in some areas, leading to markdowns that are sinking revenues for public companies. That, along with changes in who buys what and for how long, gives some Goldman Sachs analysts food for thought and discussion.

The good news is that supply chain congestion has actually started to ease, with the number of ships waiting off the California coast dropping from 106 in January to around 30 now, said Jordan Alliger of Goldman, who covers the transport sector. He, along with colleagues Kate McShane and Jason English, presented his views today in an online discussion on supply and demand.

“But there are other data points that inform what’s going on behind the scenes. West Coast ports are really the end result of other congestion pinch points, such as dwell time, waiting time for equipment, rail service, how full warehouses are, lack of labor participation and transportation, which has really been a major issue for this tip,” a- he said. “All of this actually caused the ships to roll back.”

Alliger said he expects supply chain issues to be resolved in the relatively near future as the post-Covid frenzy also wanes, along with consumer expectations for the economy. “If we were to see some rate of growth slowdown, that could also help alleviate the supply chain congestion issue in conjunction with more manpower, more equipment, etc.”, a he declared.

However, there is some difference of opinion within Goldman Sachs on what lower growth actually means for consumers and for the overall health of the economy.

“We are looking at discretionary cash flow to the consumer, the amount that goes into their wallet, and we expect that to contract into single digits this year. We’ve never had a contraction without a recession,” said Jason English, senior equity analyst covering the packaged food, household products 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 bank account balances and seeing consumers are going to get less money, but they’ve got a lot of reserves built up through Covid that they can tap into, so there’s a very strong balance sheet,” he summarized. .

That said, English himself has doubts about the ability of these numbers to fend off the recession. He said the outlook for the amount of money flowing into a household is significantly different by income quintile, suggesting the savings kept is likely also different.

According to English, the bottom 20% of households in the United States are expected to see their discretionary cash inflows contract by about 20% by the end of the year. The next bottom quintile will be down 10%, he said, but in the top quintile there is an expected expansion of 3%.

And when consumers spend money, it won’t be in areas where there have been supply shortages over the past two years, he continued.


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