--- title: "Services Restored - Flexport Weekly Economic Report" description: "While May personal income and outlays figures showed drops in both real disposable income and personal consumption expenditures, we’ve largely seen a stabilization in these figures in recent months.…" language: en canonical: https://www.flex.thisisbrew.com/blog/services-restored-flexport-weekly-economic-report/ lifecycle: live --- # Services Restored - Flexport Weekly Economic Report *While May personal income and outlays figures showed drops in both real disposable income and personal consumption expenditures, we’ve largely seen a stabilization in these figures in recent months. The significant drops were from post-recession spikes and the current levels of consumption are all up from where we were pre-Covid.* ## In Focus - Personal Consumption Stabilizes U.S. real disposable income fell 0.1% sequentially in May and real personal consumption expenditures ([PCE](https://www.bea.gov/news/2022/personal-income-and-outlays-may-2022)) fell by 0.4%. While this might feel like a downward trend, the [disposable income](https://fred.stlouisfed.org/graph/?g=RnP7) figure was roughly 0.1% off from its January level, and the real personal consumption expenditures were up 0.2% from the January level. The chart above shows the main components of PCE, adjusted for inflation, over the last several years and normalizes them so that they equal 100 for February 2020, on the eve of the pandemic recession. This lets us put this month’s numbers in perspective. We see that only services behaved the way we usually expect consumption to perform in the wake of a recession. Consumption of services: fell by about 20% with the onset of recession; then rebounded by about 10%; and then gradually recovered over the next two years, to the point where it has only recently exceeded its February 2020 level. In contrast, we saw that durable goods (those that are expected to last three years or more) and nondurable goods rebounded from an initial dip to far exceed their pre-Covid levels. By the spring of 2021, when the second round of federal stimulus hit, durables consumption was up almost 35%. Nondurables consumption was up roughly 12%. Since then, durables consumption has backed off, while nondurables have held fairly constant. The rate of durables consumption, however, is still almost 20% *above* where it was pre-pandemic. Thus, while there are concerns about a [downturn](https://www.atlantafed.org/cqer/research/gdpnow) in the U.S. economy, neither the data on personal income nor on personal consumption expenditures have yet shown a serious persistent dropoff. An additional interesting feature of the chart concerns whether broader consumption patterns are returning to normal. The normalization above belies the relative size of the different sectors. Pre-Covid, services accounted for almost two-thirds of PCE, with nondurables consumption almost twice that of durables, and those ratios held fairly steady. A striking characteristic of the Covid economy has been the sharp tilt towards goods, as shown in the chart. From 2019 to 2021, in real terms, the goods share of personal consumption jumped from 36.0% to 40.7%. The ratios of goods to services are what we track and forecast with the [Post-Covid Indicators](https://www.flex.thisisbrew.com/blog/post-covid/). Lately, those indicators have been declining back toward pre-Covid norms. Yet, the ratio of goods to services can go down either because goods consumption falls or because services consumption rises. Lately it has been more of the latter. ## Latest Flexport Metrics & Research The Flexport **Ocean Timeliness Indicator** for Transpacific Eastbound [routes](https://www.flexport.com/research/ocean-timeliness-indicator) improved to 96 days after falling for five straight weeks and is now its lowest since September 12, 2021. Flexport’s **Air Timeliness Indicator** meanwhile [held](https://www.flex.thisisbrew.com/blog/air-timeliness-indicator/) steady at 11 days on TPEB routes. Flexport research reports in the past week include the launch of our new [European Logistics Pressure Matrix](https://www.flex.thisisbrew.com/blog/dealing-with-a-downturn-eu-logistics-pressure-matrix/), which brings together eight key data points on consumer and industrial demand for logistics services as well as metrics for the level and timeliness of operations in European supply chains. Separately we showed how the [fireworks industry](https://www.flex.thisisbrew.com/blog/big-bang-for-independence-day-a-signal-of-shifting-supply-chains/) provides clear lessons on the evolution of supply chains in the past three years. ## Economics Data **Key U.S. inflation** data came with the May Personal Income and Outlays [report](https://www.bea.gov/news/2022/personal-income-and-outlays-may-2022). PCE inflation was up 6.3% over the last 12 months, even with the April figure and down slightly from the March peak of 6.6%. - Breaking this down into **components**, the inflation rate for goods has receded slightly, from 10.6% in March to 9.6% in May. The inflation rate for services has steadily risen, hitting a new high of 4.7% in May. - This is a particular concern because it is less easy to write off **services inflation** as due to a temporary supply interruption. The Fed’s preferred [Trimmed Mean PCE](https://www.dallasfed.org/research/pce.aspx) rate, meanwhile, hit a new high of 4.0%, double the target level of 2%. **EU consumer confidence** [fell](https://ec.europa.eu/eurostat/databrowser/view/EI_BSCO_M__custom_2994254/default/table?lang=en) for a ninth straight month in June to reach the lowest since the pandemic (-24.0 vs. a long term average of -10.5 and an April 2020 record of -24.7) and the second worst on record. Elevated inflation – [8.6% in June](https://ec.europa.eu/eurostat/documents/2995521/14644614/2-01072022-AP-EN.pdf/72dcf5e4-56cb-5b8c-1a1f-d342666b8657) – and the conflict in Ukraine are major drivers of the deterioration as outlined in our new [EU Logistics Pressure Matrix](https://www.flex.thisisbrew.com/blog/dealing-with-a-downturn-eu-logistics-pressure-matrix/). - The Conference Board meanwhile [reported](https://www.reuters.com/markets/us/us-goods-trade-deficit-narrows-may-2022-06-28/) that **U.S. consumer confidence** is at its lowest since Feb. 2021. Consumers’ short-term outlook for the economy is the worst since March 2013 and inflation expectations are now 8% over next 12 months. **U.S. merchandise trade activity** [increased](https://www.census.gov/econ/indicators/index.html) by 0.4% in May versus April (census basis, seasonally adjusted), with imports dipping for a second month by 0.1%. The decline in the latter was led by a 2.4% slip in consumer goods imports which are now 10% below their March peak but still 35% ahead of the same month in 2022. **U.S. durable goods orders** [rose more than expected](https://www.bloomberg.com/news/articles/2022-06-27/us-durable-goods-orders-exceed-forecast-in-broad-advance?sref=ZdtLveG1) in May. Nominal durable goods booking rose 0.7% over April, while durable goods prices rose only 0.3%. **South Korea’s exports** [increased](https://www.motie.go.kr/motie/ne/presse/press2/bbs/bbsView.do?bbs_cd_n=81&cate_n=1&bbs_seq_n=165741) by just 5.4% year over year in June. That was the slowest rate since October 2020 and was slightly slower than [expected](https://www.reuters.com/article/idUSKBN2OC2FY). Yet, on a days-adjusted basis growth was 15.0%. - **Commodities** accounted for most of the growth with autos falling by 3.1%, industrial machinery sliding by 13.7% and home appliances down by 15.5%. ## Policies & Regulations The Biden administration has [started](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/june/united-states-and-taiwan-hold-inaugural-meeting-us-taiwan-initiative-21st-century-trade) trade **discussions with Taiwan** covering trade facilitation, digital trade, labor and environmental standards among others. That comes against the backdrop of the administration’s [Indo-Pacific Economic Framework](https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/june/readout-ambassador-katherine-tais-informal-meeting-indo-pacific-economic-framework-partners) which Taiwan is not a part of. The **EU and New Zealand** have [signed](https://apnews.com/article/new-zealand-global-trade-bilateral-c3a052ae2ec4e2180334490d81198aff) a free trade agreement which the EU sees as increasing trade by 30% and outward investment flows by 80%. The U.K. government has [extended](https://www.bloomberg.com/news/articles/2022-06-29/uk-extends-steel-tariffs-to-2024-to-protect-domestic-market) **steel “safeguarding” tariffs** which were due to lapse this week until mid-2024. The government recognizes that is a [breach](https://www.reuters.com/markets/commodities/britain-set-out-plan-steel-trade-safeguards-2022-06-29/) of WTO rules and will consult with other members. - [Legislation](https://bills.parliament.uk/bills/3160/stages) proposed by the Johnson administration to **unilaterally alter the Northern Ireland Protocol** on trade with the EU has passed its first two rounds of parliamentary review and will enter committee review before a final vote and passage to the House of Lords. The EU continues to [see the move](https://www.bbc.co.uk/news/uk-politics-61984708) as “illegal”. ## Supply Chain Update Two developers of new **semiconductor manufacturing** plants in the U.S. have [stated](https://www.wsj.com/articles/taiwans-globalwafers-to-invest-5-billion-in-new-texas-plant-11656330302) [their](https://www.reuters.com/business/autos-transportation/lges-reevaluate-investment-plan-arizona-battery-factory-spokesperson-2022-06-29) investments are contingent on yet-to-be passed legislation for financial support. - South Korean **inventories of semiconductors** [increased](https://www.bloomberg.com/news/articles/2022-06-30/south-korea-s-chip-stockpile-jumps-amid-tech-slowdown-concerns) by 53% year-over-year in May, continuing a steady build-up linked to expanding supplies of memory chips. One chip supplier has noted [noted](https://seekingalpha.com/article/4521286-micron-technology-inc-mu-ceo-sanjay-mehrotra-on-q3-2022-results-earnings-call-transcript) “some customers wanting to pare back their memory and storage inventory due to non-memory component shortages and macroeconomic concerns” - Separately, authorities in Taiwan [will increase](https://www.bloomberg.com/news/articles/2022-06-27/global-chip-hub-taiwan-to-raise-power-prices-as-fuel-costs-soar) **power prices** by 15% to cover higher fuel costs, raising costs for energy-intensive chip fabs. U.S. **durable goods orders** [improved](https://www.census.gov/manufacturing/m3/index.html) by 0.7% sequentially in May versus a market [expectation](https://www.bloomberg.com/news/articles/2022-06-27/us-durable-goods-orders-exceed-forecast-in-broad-advance) of 0.1%. A surge in defense equipment orders, which increased by 2.6% likely due to support for the [conflict in Ukraine](https://www.flex.thisisbrew.com/blog/tech-stops-energy-flows-sanctions-impact-on-russian-trade/), was the main driver though orders for primary metals, industrial machinery and communications equipment also did better than average. U.S. merchant **wholesalers’ inventories** [increased](https://www.census.gov/econ/indicators/index.html) by 2.0% sequentially in May, equivalent to a 25.0% year-over-year rise after a 24.0% rise in April. The [rapid rise](https://www.flex.thisisbrew.com/blog/accidents-and-precedents-corporate-inventories-soar/) in inventories is leading to changing business practices including increased use of inventory [liquidation](https://www.modernretail.co/retailers/retails-inventory-glut-means-big-business-for-liquidators) service providers and “throw away” [returns](https://edition.cnn.com/2022/06/26/business/retail-returns/index.html) policies. The relaxation of COVID-19 related lockdowns in China have resulted in a rebound in **manufacturing sentiment** with new order [expectations](https://www.stats.gov.cn/tjsj/zxfb/202206/t20220630_1858686.html) in the Caixin survey returning to positive territory of 50.2 (above 50 indicates expansion) vs. 49.6 in May. Export expectations reached their highest since April 2021, while imports reached the best since July 2021. The **OPEC+ group** has left its [plans](https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/063022-opec-reaffirms-august-oil-production-hike-leaves-future-output-policy-undecided) to modestly increase oil output in August unchanged and have yet to outline longer term plans. That may be a moot point given the group failed to meet its own targets in May. - The higher oil prices (currently $110 per barrel for [Brent blend](https://www.bloomberg.com/quote/CO1:COM)) are leading governments to consider support for refiners. China [may](https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/062922-beijing-offers-subsidy-for-refineries-if-benchmark-crude-price-exceeds-130b) subsidize refineries if a basket of oil prices exceeds $130 per barrel. Vietnam meanwhile [plans](https://www.reuters.com/markets/commodities/vietnam-plans-cut-mfn-tariff-gasoline-fight-inflation-2022-06-30/) to cut import duties on gasoline to 12% from 20%. Finally, India has chosen to apply [levies](https://www.reuters.com/world/india/india-restricts-gasoline-gasoil-exports-meet-local-demand-2022-07-01) to discourage exports. - Separately, the G7 group has [committed](https://www.whitehouse.gov/briefing-room/statements-releases/2022/06/27/fact-sheet-the-united-states-and-g7-to-take-further-action-to-support-ukraine-and-hold-the-russian-federation-accountable/) to **capping energy prices** on purchases from Russia. This would take the form of a cap close to Russia’s cost-of-production by restricting [access](https://www.reuters.com/business/energy/why-russian-oil-price-cap-is-easier-said-than-done-2022-06-28) to transportation and insurance services. The U.S. will **extend its sanctions** against Russian trade by [increasing](https://www.whitehouse.gov/briefing-room/presidential-actions/2022/06/27/proclamation-on-increasing-duties-on-certain-articles-from-the-russian-federation/) tariffs on $2.3B of annual imports from Russia to 35% [including](https://www.federalregister.gov/documents/2022/06/30/2022-14145/increasing-duties-on-certain-articles-from-the-russian-federation) a wide range of chemicals, lumber, steel, apparel, industrial machinery and autos. That follows [extensive restrictions](https://www.flex.thisisbrew.com/blog/tools-of-the-trade-machinery-export-sanctions-against-russia/) on U.S. exports of energy and mining equipment. ## Chart of the Week - Lockdowns and Earthquakes Japan’s big seven **automakers** have struggled to improve production in the wake of the pandemic and systemic, [persistent](https://www.media.subaru-global.com/en/news/3265) [shortages](https://global.toyota/en/newsroom/corporate/37487297.html) of semiconductors. The latest data shows the global production for May improved by 2% sequentially and by 2% versus a year earlier, Yet, output is still 31% below the same period of 2019. Production in Japan, shown in the chart above, has done even worse with 367,518 vehicles being the fifth worst month since 2009. Prior dips included the pandemic-lockdowns in April and May 2020 and the Tōhoku earthquake in 2011. **Disclaimer**: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report. --- *This is a markdown version of [https://www.flex.thisisbrew.com/blog/services-restored-flexport-weekly-economic-report/](https://www.flex.thisisbrew.com/blog/services-restored-flexport-weekly-economic-report/) for AI/LLM consumption.*