topbanner ad

Tuesday 26 July 2022

Comment by Editor-in-Chief, Robin Bradley

Good for Business  -  See y'all at Sturgis!

Just as this edition of AMD was going to press, the latest U.S. inflation rate figure (the consumer price index published by the Bureau of Labor Statistics for June) rose to an annualized rate of 9.1 percent.
This was above economists' 8.8 percent estimates, and while there is some credence in the argument that it doesn't reflect the (at that stage) recent falls in energy prices that have started to set in, and therefore may be an artificially high measure, it nonetheless marked the fastest rate of year-on-year increase in more than 40 years (since 1981 in fact).
The data triggered further speculation that July might see the U.S. Federal Reserve stuffing another 0.75 percent (maybe even a full 1.0 percent) onto its benchmark interest rate, just as hopes had started to circulate on Wall Street that such a measure may no longer be needed, and that the rate of decline in share prices had therefore started to slow. Along with interest rates, inflation and jobs, share prices are that other great metric of the economic direction of travel in the leading so-called Anglo Saxon model economies.
This all took place in a week that saw the euro drop to parity with the US Dollar for the first time since 2001. In Europe, the effects of the war in Ukraine are that much 'closer to home' and the volatility being seen in oil and gas pricing and supply has a direct umbilical cord to European exchange, interest and inflation rates.
The United States saw over 370,000 jobs added in June, but the fear is that the present momentum will be fragile in the face of the headwinds that are increasingly likely. Even if not this year, most analysts are accepting that some degree of recession is now certain at some stage in 2024.

"the effects could be threefold"

The Fed itself has acknowledged that unemployment in the U.S. will need to rise. Forecasts vary, but the present low level of 3.6 percent is expected to peak anywhere between 4 and 5 percent by the end of 2024 - the upper end of that range translating to significantly more job losses.
The effects of this on the motorcycle industry could be threefold. Capital supply could continue to get tighter and more expensive, just as capital requirements are headed for all-time record highs and capital reserves are at an all-time low.
Consumer confidence and demand are likely to soften, even if the 'R' word is not yet to be invoked. While in-work rates are at recent highs, and out of work rates at historic lows, those who parrot that record vacancies are a sign of economic strength could not be more wrong.
Since the dawn of economic time, all economies and all currencies have only ever been able to grow strongly in direct proportion to available labor supply. Low labor supply guarantees low growth, or even economic contraction. Fact.
If consumer confidence is low, if the complex matrix of issues affecting labor supply, growth and job stability are soft, then demand is likely to soften even if the technical definitions of a recession are not met. That is 'stagflation' - basically signalling a 'going nowhere' economy.
Third, supply chain issues are less likely to resolve themselves in less than vibrant and positive economic environments. I have read reports that the semiconductor issue is repairing itself sooner than expected, and that we may even be headed from famine to feast with a glut of additional supply becoming available - just as demand may be about to dampen anticipated ROI on the investments that have been made.
However, the primary problem is that any short-term decline in demand is that it will turn up in the annual rings of future growth, and likely impact on our ability to be as ready as we should and could be for the carbon neutral and net carbon zero deadlines. Per the report on the recent decision by the European Union reported in this edition, those deadlines that are now starting to coalesce as being between 10 and, at most, 15 years ahead of us.
In terms of the time needed to prepare for the undoubted positives that these could mean for the motorcycle industry, and the opportunities for deeper integration of PTWs into the global transport ecosystem, that is no time at all.
While the United States may think that it is up to it to decide when or if it will implement a deadline, the global reach of supply chains, capital flows, product development cycles and returns on investment are such that if any one of the big three trading blocs (USA, Europe or China) adhered to such deadlines, it would make life very difficult (and very expensive) for the other two.
If any two did so (for which read Europe and a de facto abandonment of IC engines in China), then like it or not, that would make it almost impossible for the United States not to have to 'get with the program'.
That is proven by the fact that 'Detroit' and California are the tail that wags the dog in American transport industry policy terms. If The People's Republics of Tamla Motown and The Beach Boys say jump, then if China and Europe are already headed to that (maybe mythical) paradise of zero carbon, then for the rest of America it is only a question of asking 'how high?'
I have always taken the view that regardless of what one thinks of the science, the principle of internal combustion engine 'end of life' enforcement offends the purest principles of liberal values and personal freedoms.
However, I have always taken the view that if that is where the next generation of profits are to be made, then preparation and adoption, for me, is a sacred tenet of good governance and that 'I am good' with whatever is good for business. Whatever generates the profits necessary for there to be enough taxation to fund good defence, education, healthcare, housing, social care, lifestyles and retirement, then so be it.
In the case of our aforementioned humble backwater, if it drives sales of a whole new generation of new shiny things, then I for one am not going to worry whether its hydrocarbons, wind power, solar or hydrogen - whichever solution wins out will be good for business. Build the product, make the sale, bank the money, enjoy life. See y'all at Sturgis!