Precautionary Stockpiling and Its Impact on Growth

  • Companies are buying raw and intermediate goods at a record pace, which we believe will influence economic growth in 2022.
  • A slowdown or a reversal in inventory building is likely to ease price pressures in the global economy.
  • As the Fed and other central banks tighten monetary policy and inflation starts to slow, calls for further rate hikes might abate.

One of the risks we might face this year is excessive inventory building relative to final consumption. Companies seem to be accumulating raw and intermediate goods at an unprecedented pace, expecting strong demand and supply insufficiency. That said, this precautionary stockpiling in some sectors or countries will likely come to an end this year, muddling the underlying growth story.

Electronics and supply chain crises

Many companies are either ordering goods in advance or preparing for future supply bottlenecks. This has kept the “new orders” indicators high while exacerbating transportation, logistics, and other operational issues. While it has not been easy to pinpoint which goods or sectors have driven the buying surge in input materials, several sector and country purchasing managers’ indexes (PMIs) provide insight.

Shortages of some electronic components are well known. However, several global electronics PMIs indicate a varying degree of inventory building across electronics subsectors. Electronic equipment PMIs suggest stocks of finished products are low relative to historical levels. At the same time, stocks of input materials have accelerated, while new orders have slowed since the second quarter of 2021.