TKer.co Editor Sam Ro joins Yahoo Finance Live to discuss the state of the economy, supply chain disruptions, inflation, consumer demand, retail inventory, and the outlook for markets.
Video Transcript
JARED BLIKRE: All right, well, while the economy is seeing pain with the markets and economy, there is one area that may be showing signs of a recovery. And that is the supply chain. TKer.co editor Sam Ro joins us to talk about why a possible shift in the supply crunch may be on the horizon. Sam, this is my first time bringing you in, buddy. What do you got for us today?
SAM RO: Yeah, it’s really interesting, because economic data continues to show growth, right, except it might be decelerating a little bit, which is what the Federal Reserve and Chairman Powell has been aiming for with tighter monetary policy, right? They’re looking for slower growth in their effort to bring down inflation. And so we’re seeing a lot of evidence or anecdotes that we’re getting these kinds of relief to the supply chains, whether it’s slowing demand or actual evidence that the supply chains themselves might be loosening up.
For instance, just very recently JPMorgan noted that the ports in LA, which are responsible for about 40% of inbound shipping traffic, are incredibly loose, haven’t been this loose in months, as you can see from the chart that you have up there. Bank of America also recently did a survey of the trucking, truckers in the supply chain. And they’ve also noted that capacity availability hasn’t been this high in over a year. So that’s all great news, especially in the context of wanting inflation to come down.
JULIE HYMAN: And all of this makes some sense, especially given this last two weeks that we’ve gotten from the retailers, where every single one of them is talking about double-digit inventory gains year-over-year and that they have been caught off guard, some of the big ones, of course, by a drop in demand. So it stands to reason then that perhaps they’re not going to be ordering as much or ordering the same kind of stuff.
SAM RO: Yeah, it’s a really strange time to be covering the economy right now, because in some sense, a lot of the bad news that’s coming from retailers about how they’d overstock with inventory and how they’re also getting hit with this shift in consumer spending toward experiences as opposed to goods, all this is a lot of bad news for a lot of retailers who sell stuff. This is also good news when it comes to the whole inflation story, because inflation has been impacted by stuff like supply chain disruptions and depleted inventory. So if inventories are coming back, then suddenly all these, the empty store shelves are filled. And maybe even further down the road, we start seeing more and more items go to the clearance aisle, which also further helps the inflation story.
JARED BLIKRE: And, Sam, what’s the transmission mechanism and timing here? So we have these costs coming down. When do we see the shelves get restocked? And also, when does this finally help take those inflation numbers coming down? Because everybody wants to know when Fed Powell, Chair Powell can finally blink.
SAM RO: Sure. I mean, that’s a great question, because it’s hard to tell because if you’re a company that’s selling stuff at an incredibly high price and people are paying for it, why are you going to start bringing those prices down? At some point, if demand does start to cool and if, like you were talking about just before I started speaking, about how there are companies that are freezing hiring and more companies announcing layoffs, as things start to tighten up on the demand side, then how are companies going to compete for business?
And, of course, an easy way to do that is to start offering deals, offer promotional pricing, send more stuff to the clearance aisle so that you can get people who are on tighter budgets to come in. So maybe that’s when stuff like that starts to show up in the inflation readings. But even just this morning with the income and spending report, we saw that Core PCE price index, while still high, has been going sideways for the last four months, and on a year-over-year basis is actually coming down. So maybe it’s already starting to creep into the inflation data.
So I think I don’t know exactly when it happens. Maybe it’s already begun. But next month’s inflation reports and the following month’s inflation report is going to be really interesting to see to what degree these inventory stories that retailers are telling about are actually real and actually translate to cheaper pricing for customers.
JULIE HYMAN: Yeah, and I’m going to continue to watch all of these various shipping indicators. I know you’re a chart guy like nobody else, Sam Ro. And so I’m curious, what on this–
JARED BLIKRE: He’s got some competition, I mean–
JULIE HYMAN: You are a chart guy. He’s, I would say, you’re mostly a market chart guy. He is a broader chart guy, I think it’s safe to say.
SAM RO: I go to Jared for all of my market charts.
JULIE HYMAN: Exactly. So but I’m curious, Sam, what people should be watching in terms of supply chain and logistics stuff. What kind of data should we be looking at?
SAM RO: Sure. Probably the best part I think right now at a macro level is the inventory sales ratio. This is something that comes out from the census department. They have two different reports that come out every month. And they’ll mention how much inventories are growing. And you’ll hear some chatter about inventory levels being significantly higher from last month or the year prior.
But the ratio of inventory relative to sales is going to be really interesting, because that tells you how quickly retailers and businesses are able to turn over what they have in their stock rooms. This measure has been coming up for a couple of months. So if this continues to go up, then it gives you a sense that stores have a lot of stuff in the back room. So the next time you don’t see something on the sales rack, you can ask that manager to go check in the back. And the likelihood that there will be something back there will be increasing.
JULIE HYMAN: Ooh, news you can use on that front. Thanks for the tip, Sam. Appreciate it. Good to see you. Have a great holiday weekend.
