No sign of a letup in consumer’s ‘strong additional preference for goods’: Flexport Chief Economist

Phil Levy, Flexport Chief Economist, joins Yahoo Finance to discuss consumer demand for goods and services amid supply chain issues.

Video transcript

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ALEXIS CHRISTOFOUROS: Welcome back. The supply chain crisis, it seems to be getting worse with each passing day. The ports are clogged with ships filled with goods and supplies. But transportation issues on shore are grinding deliveries to a halt. New data out by Flexport shows there is no sign that the US consumer will be slacking in purchasing their goods this holiday season.

Joining us for more is Phil Levy. He is chief economist at Flexport, and also Yahoo Finance's Dani Romero. Phil, thanks so much for being with us.

So let's dig a little bit deeper into your findings here. And tell us when do you think we might see this backlog finally start to alleviate.

PHIL LEVY: I think if you're looking for when are we more confident that relief is going to come, it's a ways off. This might be as long as the beginning of 2023. There's a big backlog. And it's a mess.

DANI ROMERO: And Phil, also another thing, we've seen a record number of people leave their jobs. And obviously, the president announced last week that the ports in LA and Long Beach were going to expand their hours. Where are all these workers going to come from?

PHIL LEVY: Yeah, that's a real question. I think that there's a challenge through a bunch of industries. You've got labor questions, inflation. One of the things we've really seen, if you look at the economy in this COVID era, has been doing major reshuffles is just hard. And we've seen that all up and down the supply chain.

DANI ROMERO: Yeah. And they keep talking about the truckers, right? The people on the ground. And I guess my question to that is, when are we going to start seeing people come back to work?

PHIL LEVY: I think on the comeback to work side, you're asking the million-dollar question there. And I think this is part of what the Fed has been hung up on is, do we have an economy where, really, the people who want to be employed are employed, and we're seeing fairly low unemployment numbers? Or do we look and say, yeah, but we have nowhere near the jobs that we had before the crisis.

And so the latter leads people to think, well, there's an army of workers who are ready to come back. We know from studies that there's a number of things out there that are holding people back. How easy is it to get child care, for example? How do they feel about the health situation? That's what we're all watching is to see that, as some of these things are resolved, can we unstick some of these obstacles? Or is this the great resignation, where people have just left the labor force?

I have some answers about consumer demand. I'm not sure I know what's in people's minds about returning to work.

ALEXIS CHRISTOFOUROS: I want to talk about consumer demand, Phil. Do you think that all of these problems with getting goods to consumers is actually going to dissuade people from buying, especially some of those big ticket items? We know how difficult it is now to get appliances and things like furniture. So going forward, do you think consumers, unless it's an item they absolutely need, may they hold off on some purchases simply because they don't want to have to deal with the headache of the supply chain issues?

PHIL LEVY: Yeah. I think there's some of that. But this is like that old-- I think it was Yogi Berra who says, no one goes to that restaurant anymore. It's too crowded. People may hold off. And you see surveys when people were asked, is this a good time to buy or not. And they say it's a bad time to buy. But an awful lot of people are buying.

And that's what we've been trying to track is, underlying a lot of this crisis, what you've had is two things. You've had people with a surprising amount of money in their pockets. We didn't see incomes go down like we normally see in a recession. And a really dramatic shift towards purchasing goods.

We're still a services economy but much less so than we were. And that's what's driven this. So you're absolutely right. It's not easy. And that may dissuade some people at the margin. But those preferences, we're not seeing them change.

DANI ROMERO: And Phil, going back to the report that you released about the post-COVID indicator, you mentioned slacking, which is just such an interesting word to use for a consumer, right? What do you mean by that? And I guess, how much of a bigger jump will we see in the next few months?

PHIL LEVY: So let me explain what this is. We all know that there's been craziness around supply chains. The real question is, how do you quantify craziness? What does that actually mean?

So the thing we looked at is what I just described. How far are we off normal in terms of consumers' demand for goods rather than services? And I should note that what we had before normal was fixed for a very long time. It was almost a behavioral constant.

What the numbers that you were just showing indicate that's where are we, essentially relative to the craziness of summer of 2020. What we're forecasting is, through the end of this year, according to the Flexport platform data, there's no sign of a letup in this very strong additional preference for goods. And as long as people have that preference and as long as they got the money in their pockets, we're going to see a lot of pressure on the supply chain.