Supply chain issues causing ‘unprecedented’ non-recession inventory slump: JPM

The current national bout of low inventory represents an "unprecedented non-recessionary inventory collapse" for the last 20 years, a new report by JPMorgan found.

“While non-manufacturing activity is now tracking a strong and steady recovery, the goods-producing sector has been buffeted by supply constraints alongside continued boomy gains in final demand,” the report noted. “The result has been a slump in inventories that, over the past two decades at least, looks to be unprecedented outside of a recession.”

Supply has faced a number of challenges this year, including shortages in labor and raw materials. The semiconductor chip shortage, which affected an estimated 169 industries, was particularly devastating to the automotive and technology industries.

“There is little doubt that the main culprits for the stunning collapse in inventories over the past quarter are the supply bottlenecks that have limited factories from getting product to market,” the report said. “From shortages in semiconductor chips that [have] rippled throughout the goods-producing sector to raw commodity inputs into construction, the surge in demand has caught industry flat-footed.”

“What used to take us six weeks to get a container from Asia into the U.S. or Europe now takes 10 weeks.”Corsair CEO and Founder Andy Paul

The report, authored by JPMorgan Global Economist Joseph Lupton, explores the changes in the inventory and manufacturing sectors.

Data analyzed in the report suggest inventory dropped further than expected. “The latest data show the inventory correction slumped far more than we had expected last quarter and now poses more upside to 2H21 growth,” the report said.

“What used to take us six weeks to get a container from Asia into the U.S. or Europe now takes 10 weeks,” Corsair CEO & Founder Andy Paul said regarding supply chain bottlenecks. “It doesn’t really affect the overall business that much — just gives us a couple of short-term hiccups.”

Stunted growth emerging from issues within the supply chain have not adversely affected final demand, which has seen an increase in Q2.

“Despite the deceleration in manufacturing, final demand for goods continued to charge forward at a rapid pace,” the report noted. “Buoyed by a surge in consumer retail sales in March and April, and coupled with steady, ongoing double-digit gains in business equipment spending, global final demand for goods looks to have surged last quarter.”

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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