This Week in The Lens
The Lens is FrontierView’s weekly newsletter published by our Global Economics and Scenarios team. Each week, The Lens features easily digestible content that dives into the business implications of macroeconomics on the market today.
Economic and geopolitical trends and insights from FrontierView’s Global Economics and Research team
__________________________________________________________________________________________________________________
For the last year, a seemingly relentless global shortage of semiconductors hobbled production of everything from cars to computers to healthcare devices to ICT, and provoked all sorts of handwringing over supply chain resilience. Now, we’re blessed with the opposite problem: an apparent glut – particularly in advanced chips used in consumer electronics. That’s great news for manufacturers reliant on semiconductor inputs (and painful for tech companies that invested massively in chip production), who now have one less supply chain headache to worry about. But there’s a catch: we’re swimming in chips primarily because consumers aren’t buying as much of the electronics they go into – not because of a healthy expansion in capacity.
There’s a similar theme playing out in other areas. Shipping costs are down – especially in and around the Pacific. Big box retailers are struggling to unwind excess inventories . Manufacturers’ input cost and selling price inflation are starting to ease. And in all cases, the reason pressures are easing is weakening demand – driven in large part by high inflation, squeezed profits and falling real incomes.
Does this mean we’re headed for a return to cheap inputs across the board? Not so fast. As FrontierView CEO Rich Leggett and I talked about in this month’s episode of GlobalView, there’s likely a floor under a lot of the recent drop in commodity and input prices . Production and capacity remain weak due to longer-term underinvestment and fears of a demand slowdown. Europe is entering a severe energy crisis that will spill into higher energy and goods prices around the world. Add that to geopolitical tensions, resource nationalism and other threats to global supply chains, and it’s difficult to see an easy return to pre-pandemic low-cost abundance even if we are headed for a global recession.
Elizabeth Rust
Senior Analyst in Research
About the Author
Elizabeth Rust is FrontierView’s Senior Analyst for Global Economics. She specializes in helping clients understand the key drivers impacting the global economy including energy, commodities, US monetary and fiscal policy and other macro and geopolitical factors. Prior to joining FrontierView, Elizabeth was Senior Economist at Keybridge LLC, an economic advisory firm based in Washington, DC. She also served as the 2018 Europe Fellow with Young Professionals in Foreign Policy and as a researcher with the Conference Board in Brussels. She holds a master’s degree in international economics from Johns Hopkins University (SAIS) and a bachelor’s degree, magna cum laude, from Cornell University.