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Port Cargo Traffic Boosts Industrial Demand, Inflation Hits Middle-Income Households, Business Order

Source: CoStar News

Port Cargo Traffic Boosts Industrial Demand

Rebounding cargo trade volumes at major U.S. ports are increasing nearby industrial property demand and driving down vacancy rates, even with lingering global supply chain snags created by the pandemic, according to a new national report from brokerage Cushman & Wakefield.

“With heightened demand throughout port markets coupled with limited supply, rents for space near and around ports continued to rise and have been priced at a premium over most other markets,” Cushman Senior Research Director Jason Price said in the report examining first-half 2022 industrial trends for the nation’s 10 largest port regions.

Cushman reported that the average annual asking rent for the port cities, at $12.09 per square foot, finished the second quarter 44.7% above the U.S. average of $8.36 per square foot. Price noted seven industrial markets close to major ports boasted double-digit rents as they became among the most desired in the nation, including Los Angeles and Northern New Jersey.

There are signs that high demand will continue for some time, since new completions of industrial projects in the 10 largest port regions have totaled just 37.4 million square feet since the start of 2022. That’s just 1% of total industrial space inventory in the port cities and 19.3% of the U.S. total inventory, with only California’s Inland Empire, Houston and Savannah, Georgia, exceeding 5 million square feet of new product, the Cushman report said.

Among caveats for port logistics demand and flow, Price noted a slowing economy, inflation and supply chain issues “could all temper growth expectations later this year and into 2023.” There are also ongoing labor talks involving 22,000 dockworkers at 29 West Coast ports, and a national railroad strike affecting more than 20,000 workers remains possible, even after a recently announced tentative contract averted a strike that was poised to begin earlier this month.

Inflation Hits Middle-Income Households Hardest

Middle-income households are bearing the brunt of inflation now running at 40-year highs as rising incomes fail to keep up with escalating prices, according to the Congressional Budget Office.

A report Sept. 22 from the nonpartisan economic analysis agency, which advises federal government leaders, said mid-income households have seen the steepest rise this year in the percentage of their after-tax income that is required to purchase an average assortment of goods and services, compared with what was needed to purchase the same items in 2019.

In relative terms, households in the lowest- and highest-income categories have seen incomes grow faster than prices, the CBO reported, the result of income that includes government assistance, work wages and investment returns.

The agency estimated that since 2019, the price of the “consumption bundle” for middle-income households has increased 4.5% annually, reducing purchasing power by approximately $2,900 per year. The same bundle price rose 4.6% annually for lower-income households and 4.3% annually for the highest-income households.

Most households are being helped by a relatively strong employment climate, but the Federal Reserve is still far from its goal of reducing annual inflation to around 2% from its current 8.3%, deploying a series of hikes in its own key lending rate.

Business Orders Rise

U.S. companies in September registered a third straight month of declining value for manufactured goods and services produced, though the pace of decline has slowed and orders are picking up, according to the latest monthly survey by analytics firm S&P Global.

Among several indexes tracking the manufacturing and services sector, based on surveys of purchasing managers, S&P Global’s composite output index was 49.3 for September, compared with 44.6 in August. Numbers below 50 indicate contraction, with those above 50 indicating expansion.

Several analysts have noted there are signs that production delays initially caused by the pandemic are easing, but rising supply and labor costs are curbing production in some industries. The latest S&P Global survey found inflation also weighs on customer spending, even as overall orders increased this month.

“New orders received by private sector firms returned to expansionary territory in September, with growth broad-based across the manufacturing and services sectors,” S&P Global said in its Sept. 23 report. “The upturn was only mild, despite being the quickest since May.”

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