The global supply-demand imbalance

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The 2001 surge in demand for goods exceeded the surge in supply of goods. Consumers emerged from the pandemic with money to spend, and in a world where going on holiday did not seem quite safe, that money was spent on stuff. The cost of shipping containers around the world shot ever higher. Consumer durable goods prices soared.
This did not mean that global supply chains lay in shattered ruins. Global manufacturing output hit an all-time high in 2021. Global trade volumes rose to a record share of the world economy. The surge in demand for goods was just so exceptional that supply could not possibly keep up.
The fact that supply chains did not collapse is important. A collapsed supply chain could take years to rebuild. A supply chain that is overwhelmed by demand comes back into balance overnight, as soon as demand moderates. Demand for durable goods has been slowing this year.
This year, shipping freight rates have collapsed. The volume of global goods traded is falling as a share of GDP. The monthly change in durable goods prices has transformed from the highest in the data’s history into deflation. The question is whether the supply-demand imbalance is now an excess of supply.