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Supply Chain Woes Will Ease in Q1, Analyst Says

Supply chain disruptions are expected to improve next year, including for the auto sector as chip availability may rise modestly.

Global shipping delays will improve in the first quarter of 2022, according to PNC Financial Services Group's Senior Economist Bill Adams.

Supply chain disruptions are starting to wane, investment banking firm JPMorgan also noted last month, as companies started to give an encouraging outlook.

“Our view all along has been that supply and labor shortages would be temporary and normalize with a decline in Covid-19," JPMorgan Chief U.S. Equity Strategist Dubravko Lakos-Bujas said.

"Global supply chain pressures are easing — if this persists, the S&P 500 should continue to deliver strong revenue growth and record margins," Lakos-Bujas added.

The investment firm said stocks that will benefit are PepsiCo  (PEP) - Get PepsiCo, Inc. Report Caterpillar  (CAT) - Get Caterpillar Inc. Report Schlumberger  (SLB) - Get Schlumberger NV Report and FedEx FDX, Walmart  (WMT) - Get Walmart Inc. Report, Amazon  (AMZN) - Get Amazon.com, Inc. Report among others.

Global supply chain shortages have affected everything from cars to home appliances for nearly two years, due to the coronavirus pandemic.

The global auto industry conditions could also potentially improve in 2022, with demand recovering further and supply chain challenges gradually easing, Fitch Ratings said in a separate note on Monday.

"Semiconductor availability should modestly increase on a sequential basis through 2022 but supply chains remain vulnerable to potential event risk due to the trajectory of the pandemic," cautioned Fitch.

If supply chain issues get fixed it may mean the U.S. economy is a step closer to reducing inflation which is currently accelerating at its fastest pace in three decades.

In October, consumer prices leaped 6.2%, according to the latest data from the Bureau of Labor Statistics.

Separately, the U.S. trade deficit narrowed to $67.1 billion in October from September’s record $81 billion, as rise in exports outstripped imports, data from the Commerce Department showed. 

The gap between imports and exports of goods and services dropped 17.6%.

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Exports rose 8.1% to $223.6 billion ahead of the holiday season compared to a 0.9% rise in imports to $290.7 billion.

"Exports are at a record high, largely reflecting the bounce back of energy shipments that fell because of Hurricane Ida," said Adams in a statement.

Sales of export goods jumped the most with a $15.8 billion increase, led by industrial supplies and materials that rose $6.4 billion, including increases of $2.8 billion for refined petroleum products and natural gas, $1.2 billion for crude oil and $1 billion for gold. 

Services exports rose only $1 billion.

"Exports of autos and auto parts also jumped in October as the auto industry continued to make progress in addressing supply chain problems that held back production earlier in 2021," Adams added.

Goods imports rose 0.7% compared to September and services imports were up 1.6%. 

"U.S. importers front-loaded many purchases ahead of the holiday season to get ahead of supply chain disruptions, causing imports to grow slower in September and October," Adams added.

Imports of auto vehicles and parts jumped 5.7% as the auto industry worked through supply chain problems, and imports of consumer goods rose 1.5%.

"Imports, like exports, are at a record high, but growth is slowing," Adams explained.

"Trade is volatile, so the trend is best seen through the three-month average growth rate; relative to three months earlier, the growth rate of imports in September and October was the slowest since imports began zooming higher in the summer of 2020," he added.

PNC forecasts a 4.4% rise in U.S. real GDP [Gross Domestic Product] growth in the fourth quarter 2021 compared to 2.1% in the third quarter. 

"Trade will be a tailwind to growth in the fourth quarter of this year and into 2022," Adams noted.