US Supply Chain Stress Continues to Ease

All the components of Oxford Economics's supply chain stress tracker were steady or signaled an improvement in conditions in July. The transportation and activity components are nearly back to their pre-pandemic levels and aren't showing signs of bottoming out. "Prices and labor were the most stubborn, but they will lose momentum as the economy falls into a mild recession later this year," says Oren Klachin, lead US Economist at Oxford Economics.

The report said they expect lingering supply chain constraints to lessen by the end of the year. "We believe elevated interest rates, tight monetary policy, and restrictive credit standards in H2 2023 will fix lingering imbalances in the economy."

The report continues:

The transportation component of our supply chain stress tracker continued to move toward its prepandemic level in July. The decision by UPS workers not to strike removed the risk of disruptions, and the bankruptcy of Yellow, one of the largest US trucking companies, didn't cause a surge in supply chain stress. Reports indicate that Yellow's customers quickly diverted shipments to other trucking firms.

Goods prices declined, according to the Producer Price Index, as goods demand waned and companies prudently managed their inventories. The ISM manufacturing survey suggests that goods prices will stay in deflation. Meanwhile, services prices stayed elevated in July as the ISM Services report showed that 15 of 18 industries reported higher prices.

Job creation slowed in July. Manufacturing and transportation and warehousing payrolls declined, while overtime hours edged lower. Meanwhile, wages surprised to the upside, a reminder that the labor market remains tight. There are some labor-related risks on the horizon. We are keeping a close eye on talks between the United Auto Workers and US motor vehicle manufacturers over the coming weeks, as the current work contract expires on September 14th.