BlackRock Investment Institute

Macro insights

Low stocks of finished goods

Many manufacturing companies experienced a surge in demand for goods at the start of the pandemic as people shopped online, while at the same time production became more difficult or was halted altogether. This supply/demand imbalance resulted in a sharp drop in inventories of finished products. See the chart.

Emptying the pantry

Chart showing the demand for goods and falling inventories

Sources: BlackRock Investment Institute and Markit, with data from Haver Analytics, October 2021. The chart shows the Markit Purchasing Managers' Index (PMI) Manufacturing Stocks of Finished Goods Index and Manufacturing Output Index for developed markets (DM) on a rolling three-month basis. A reading above 50 indicates more firms with rising inventories for the former and more firms with expanding output in the latter.

Even when production began to normalize as global economies restarted, demand continued to surge. Supply has remained constrained due to severe disruptions in global shipping and labor shortages, especially in the U.S. That said, the pace of inventory decline has slowed in the latest data – suggesting that the contribution to activity growth might turn positive, in our view.

Though current supply disruptions will likely persist into next year, ultimately we see production recovering as companies not only respond to higher demand but also seek to build stocks back up to above pre-Covid norms to have a bigger buffer in case of future shocks.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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