TheEconomistJanuary22nd 2022 Finance&economics 65fore the pandemic the highestever read
ing of the index (which the researchers
have computed back to the 1990s) was in
April 2011. Then, troubles associated with
an earthquake and tsunami in Japan
pushed the index up to 1.7 standard devi
ations above its longrun average. The
measure surged much higher in spring
2020, to 3.9 standard deviations above the
mean; last year it rose even further still,
reaching 4.4 in October. It has since re
treated, but only by a touch, continuing to
signal a high level of stress (see chart,
righthand panel).
Another indicator, maintained by Capi
tal Economics, a consultancy, takes ac
count of both goods and labour shortages
across the g7 group of large economies. It
also suggests that stresses remained in
tense in late 2021. Freight rates, for their
part, rocketed during the first nine months
of 2021, before flattening off in the final
quarter of last year. Yet as high rates be
come negotiated into longerduration
shipping contracts, elevated costs could
persist into 2023 and beyond.
Whether and when matters improve
depends on the course that both the virus
and the global economic recovery now
take. The appearance of the Omicron var
iant in parts of China could lead to lock
downs and further disruptions at ports. In
America, a record number of covid19 cases
has meant that fewer longshoremen and
truck drivers are in work. Hopes are dim
ming that a pause in production, associat
ed with China’s new year holiday in early
February, might allow ports to work
through existing backlogs.
Respite could come instead from cool
ing demand in the rich world, particularly
in America, which in 2021 displayed a vora
cious appetite for all manner of goods. An
alysts at Morgan Stanley, a bank, have con
structed an indicator of supplychain
stress that looks at both supply and de
mand conditions. Their measure suggests
that the latter are mainly responsible for
the easing of pressures since late 2021.
Trade growth has decelerated, for instance,
thankstoreduceddemandforbothcon
sumerandcapitalgoods.
Flexportpredictsthat,althoughAmeri
cans’demandforgoodsrelativetotheirap
petiteforserviceswillremainunusually
highin 2022,theimbalance shouldbe
come less pronounced in the months
aheadthanit wasoverthepastyear.Ifpeo
plestarttoheara littlelessaboutsupply
chainsnarls,theirownshiftingshopping
habitsmayexplainwhy.nSlow, slow, slow your boat*Daysbetweencargobeingtakentoportoforiginanditspickupfromdestinationport
Average:†1997-221 ‡1992-221Sources:FlexportResearch;
CapitalEconomics;NewYorkFed1209060300
2019 20 21 22Shippingtimes*,daysChinatoUnitedStatesChinatoEurope5 4 3 2 1 0-1
2019 20 21Measures of supply-chain strains
Standard deviations from averageG7 labour and
product
shortages‡Global supply-
↑ More strain than average chain pressure†WallStreetMixed messages
M
uch as highermilk prices are typi
cally good news for dairy farmers,
higher interest rates are meant to be good
news for bankers. Conventional lenders
make their money on the difference be
tween the interest they pay out to deposi
tors and the interest they earn on loans and
investments. As rates rise, that gap widens.
And as interest rates are set by central
banks that only tend to raise them when
the economy is strong—when jobs are
plentiful, spending is high and inflation is
climbing—rising rates typically also imply
that borrowers will be well placed to repay
their debts.
Treasury yields and interestrate expec
tations in America have marched higher
since the middle of December, when the
Federal Reserve announced it would accel
erate plans to taper its asset purchases. The
yield on tenyear Treasuries climbed to
1.9% on January 18th, its highest level in
two years. As recently as October investors
expected just a solitary interestrate in
crease from the Fed in 2022. But they have
rapidly revised expectations as consumer
price inflation has surged, pencilling in between four andfive rate rises overthe
courseoftheyear.
So when six of America’s largest
banks—BankofAmerica,Citigroup,Gold
manSachs,JPMorganChase,MorganStan
leyandWellsFargo—reportedearningsfor
thefinalquarterof 2021 betweenJanuary
14thand19th,theirexecutivesmerrilyof
feredguidanceofgreaterinterestincome
tocome.JamieDimon,thebossofJPMor
gan,thoughtthatmarketexpectationsof
interestraterisescouldevenbetoocon
servative.“Myviewisthatthereisa pretty
goodchancetherewillbemorethanfour,”
hesaidonanearningscallonJanuary14th.
“Itcouldbesixorseven.”
Yet, surprisingly, the lenders’ stock
priceshavetumbled(seechart).Sharesin
JPMorganhavefallenbynearly12%since
thebankreporteditsearnings.Goldman’s
sharesdroppedby7%ina singledayon
January18th,afteritreleaseditsearnings.
Whatresolvesthisseemingparadox?
Thefirstpotentialexplanationiscosts,
andclimbingwagebillsinparticular.Com
pensation costs at Goldman in 2021
jumpedby33%,yearonyear,to$17.7bn,an
increaseof$4.4bn.Citi’swagebillspiked
by 33%inthefourthquarter,compared
witha yearearlier,andcompensationex
pensesroseby14%atJPMorganand10%at
BankofAmericaoverthesameperiod.
Higherwagecostsinpartreflectboom
ingbusiness:Goldman’sprofitsfor 2021 as
a wholeweremorethan60%abovetheir
previous alltimehigh. Butdearercom
pensationaddstogrowingunease about
howpervasivelyinflationhastakenrootin
America. “There is real wage inflation
everywhereintheeconomy,”DavidSolo
mon,Goldman’sboss,toldinvestorsonthe
bank’searningscall.
An alternative explanation for the
sharepricefallisthatinvestorsarefearful
that higher rates are not unequivocally
goodnewsforAmerica’sbanks.Theflood
ofcheapmoneypumpedbytheFedintofi
nancialmarketsin 2020 and 2021 helped
assetpricesreachdizzying newheights.
Goldmanmade$22bnfromtradingin2021,Why bank stocks are tumbling even as
interest rates climbFizzling out
Share prices, January 3rd 2022*=100Source:RefinitivDatastream *10am EST1101009080January 202276 43 10 11 12 13 14 1918MorganStanley
JPMorgan Chase
Goldman SachsCitigroup
Bank of America